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Bankrupt: 3 takeaways from the demise of Oreck
Distribution and Sales
Oreck chose to distribute and sell its vacuum cleaners through a chain of 96 retail stores it wholly owned. Reports are surfacing that former CEO Doug Cahill left the company in March over his disagreement with this approach. One has to ask, in the era of Amazon.com and large box stores, do retail brick-and-mortar stores specializing in one product have much of a future? Would Oreck have survived without all the added costs of direct sales to the public -- costs such as real estate, store fixtures, leases, salespersons, warehousing and shipping. There is also the cost of the management layer devoted to the retail sales efforts. One cannot help but wonder whether Oreck would have filed bankruptcy if it would have abandoned its commitment to retail locations.
Business Takeaway: Select distribution methods that will positively affect your
bottom line. Consider the following:
- Ease of entry – what obstacles influence distribution through this channel? What costs? Evaluate your financial risks.
- Volume potential – what factors mitigate barriers to entry? Could the potential gains outweigh barriers to entry?
- Pricing Strategy – what effect does this distribution channel have on your profit margin? Use this helpful margin tool to evaluate.
Manufacturing
We are pained to say it, but Oreck may have been hurt by its own patriotic instincts. It manufactured its vacuum cleaners in its Cookeville, Tennessee plant, employing 250 workers. We must face the existential question of whether a manufacturer can afford 100 percent domestic production costs. Sure, foreign automakers have U.S. plants, but the cost of shipment plays a large part of that story. Little items like vacuum cleaners can be made anywhere in the world and ship cheaply to our markets. Did Oreck look for ways to import subassemblies? Did it explore all manufacturing options?
Business takeaway: If manufacturing expenses remain constant, what other efficiencies might facilitate leaner operations? Wasp’s
Inventory Control solution, for example, automates inventory management all the way to your financials. Consider automated processes that take
labor costs out of the equation.
Marketing
We are not crazy about CEO pitchmen. Often, the commercials seem to revolve around the spokesman rather than the product, and CEOs are not well known for their telegenic personalities. The Oreck commercials seem in retrospect to be throwbacks to an earlier era. We’d like to know the company’s return on marketing investment and whether they fully explored all alternatives.
Business Takeaway: Continually evaluating marketing efforts is critical to creating a sustainable brand in the marketplace. Information inundation is inevitable; standing out from the crowd is optional. How well can your customers see you?
Every business is different. If you run one, keep track over the next few weeks as more details emerge regarding the Oreck bankruptcy and see if you can apply any lessons to your own enterprise.
Competition is brutal -- you must remain ever vigilant and be prepared to change with the times.
