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.

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Brian Sutter

Brian Sutter

Director of Marketing at Wasp Barcode
Brian Sutter is the Director of Marketing at Wasp, responsible for the development and execution of the company’s marketing strategy. His role encompasses brand management, direct and channel marketing, public relations, advertising, and social media. He also writes and speaks on topics related to helping small business owners grow their business and improve operational efficiency.
Brian Sutter
Brian Sutter
  • tommyboy1205

    One factor that’s being overlooked by the author: vacuum cleaners need regular service to remain efficient. Yes, you can sell through infomercials or through big box stores, or even on-line retailers – but it’s VERY hard to get the Oreck back into the computer when it needs to be fixed. Unlke other appliances, vacuum cleaners are roving machines – dogs do chew through cords, belts snap, brushes wear out, switches stop switching. All these inexpensive repairs take place through a brick and mortor store by a REPAIRMAN. Unless we want to continue to destroy landfills, I say, buy a well made American-Built vacuum cleaner, have it serviced regularly, and keep it for decades. Simplicity vacuums are made in Missouri, last forever, and are sold in retail stores by REAL repair/sales people.

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  • BarbJ

    I agree totally with tommyboy..I bought a Dyson, and when I had a warranty issue, I had to send it back to the company (at MY expense). I wound up getting rid of it and bought an Oreck. It’s the best vacuum I’ve ever had, and the store is right there to look after it. It would be terrible if customer service like that, went away.

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  • cjw

    We don’t need more sh%t from China. Orecks made without China parts is why I would buy one in the first place. I don’t buy a hoover because it’s now a cheap piece of sh%t and feels like it. Many people are willing to pay for something of quality once (smart) than multiple duplicates of the same garbage that breaks down.

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  • Ravenman

    I worked at Oreck in customer service for three years. In addition to other comments, Oreck imported its motors from Mexico. Other parts were from China as stated on the bottom of the vac. They were only assembled in Tenn. All of the free gifts were basically “junk” with no warranty. This made customers very mad. The majority of the retail stores were franchises. Only a handfull were company owned. There was no supervision in these stores. They basically did their own pricing, repairs and guidelines. The final dimise of the company was info between service center, plant and corporate offices. They were all in competition with each other and shared nothing.

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  • Leonidas

    I worked as a Retail Store Manager for ORECK corp. Great product and great initiative pay that made managers work hard and sell. If you where smart and learn how to fix those machines you will make big. This was ” personal sale”, you make sure to sell and create relationship with customer they will bring rest. That was some good times in my life. But where was a problem as always. Corporate management, crowd that surrounded mr.David Oreck was low class people who where far away from understanding concepts of sales and how to do it. Not to speak about CEO’s who did think about his own interest as it was mentioned by franchise owner. Corporate did not promote with in it was all about who knows who, main management group came from Foot Locker, later on in times of slow sales they did bring Carlos Willerall as head of Sales and management who did sell dog food previously. I wonder what that have to do with vacuums. Those people learned some tech facts from books and came to preach to us what a vacuums or purifiers are ? To get my point, Orecks main mistake was that he give people he trust company to run show and they never understand product they never even put hands on a product. They hired and promote people they know from Foot Locker and latter dog food company. Bad management and people he did surround with and trust, bring his company down. To create successful company you have to promote within. Not to bring someone from outside and give him product manual in hands and suddenly he is telling me how to sell. Doesn’t make a lot of sense.

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