Tuesday, February 18, 2014

Following Your Customers Into Bankruptcy

Some of you may have been surprised by the announcement yesterday that American TV and Appliance is going out of business.  For those of us in our 40's "Crazy TV Lenny" was a fixture on our TV's during our youth--usually offering a FREE BIKE WITH THE PURCHASE OF ANY TV!!

Company officials blame the "unrelenting economy" for the downfall of American.  But if there has been any place where Americans (the people) have been willing to spend their money--even during the "Great Recession"--it has been on electronic toys.  (Do you even know someone without a hi-def TV anymore?) Some think that they just weren't able to compete with bigger chains like Best Buy or HH Gregg--or that perhaps the increased presence of WalMart and Target in the Home Electronics and Furniture segment took away too much business.  But I think American started its descent into bankruptcy by basing way too much of its business on people who didn't have any money.

I mentioned that American's "shtick" used to be "Get a free bike with any purchase".  Then Crazy TV Lenny started doing the "BUY A COUCH--GET A FREE TV!!" or "BUY A TV--GET A FREE RECLINER!!"  deals.  And buyers ate that stuff up--thinking they were actually getting something for "free" (when anyone with the slightest bit of retail knowledge knew the cost of everything you got was included in the price you paid).

But somewhere in the 1990's, American moved toward the "SIX MONTHS SAME AS CASH!" and "NO MONEY DOWN--NO PAYMENTS FOR A YEAR" angle to get people (who no longer had the on-hand cash to buy something) into the store.  I had a friend who sold (on commission) at American during that time and he told me (after his time there was done, of course) that they were instructed to make sure everyone "took advantage" of the credit option--opening an American Card account with revolving interest--because they KNEW that NOBODY was going to pay it off during the interest-free period.  Then, rates of 18, 24 or even 29% would be tacked onto the price from the date of purchase--and that is where the store would really make its money.  As Dave Ramsey likes to say, American had become a credit card company with some stuff for sale out front.

Then came the recession and suddenly, American's customer base couldn't even afford "no payments for a year" to buy anything.  There was also likely a rash of defaults on existing credit accounts--as people were more than willing to give up the TV or the recliner than pay what had likely become double or triple the original cost on the credit card bill.  It was the national economy in a microcosm--with a house of cards built on a base of debt collapsing under its own weight.

As for Crazy TV Lenny, he got out years ago--selling his share of the company to the group that eventually ran it into the ground.  Ironically enough, he now sells bikes in the Madison area.  And I don't think he includes a "free" TV with every purchase.

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