Downward pricing: Don't throw up your hands
I have never received so much feedback--and irate responses--when writing about other retailing issues (See "Downward pricing: How low can it go?" HME News February 2006). Highlighting low retail sale prices has caused everyone in the supply chain to turn on one another--manufacturers vs. distributors, distributors vs. dealers and manufacturers vs. dealers.
However, I think everyone is missing the core issue: margins, not pricing. Both home healthcare dealers and distributors firmly believe they are not operating on a fair playing field because vendors give the chains lower pricing. To some degree, that is true because higher volume affords lower pricing.
The mass market and retail chains sell high volume and therefore work on much slimmer margins. While most independent home healthcare businesses work on 45% to 50% margins, most chains are closer to 15% to 20%. So these low retail prices may actually reflect lower margins rather than lower acquisition costs.
I do believe that independent retailers could match some of these prices and still maintain their profitability. The more customers they drive into the store with these low sale prices, the greater number of returning customers and higher-margin sales. Our home healthcare dealers need to experiment and see what volume they could profitably sell at lower margins before they throw up their hands and cry "wolf."
- Jack Evans, president, Global Media Marketing, Malibu, Calif.