LEARNING CURVE: AM VACUUM CO. : Cleaning Up : AM Vacuum Takes Direct Approach
By becoming direct distributor for the Eureka, Hoover and Singer brands in the late 1980s, AM Vacuum Co. owner Allen Meredith was able to lower prices and win 2,000 customers. After the 1992 Los Angeles riots gutted his customer base, Meredith and stepson Eric Loyd added to their business by becoming a factory-authorized warranty center to draw new clients. Meredith and Loyd were interviewed by Karen Kaplan.
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The customer shapes what the businessman is going to do. As our customer base grew, more people started inquiring about buying new vacuum cleaners, and it was becoming a big chunk of our business.
When you have discount stores like Kmart, Sears and Montgomery Ward selling a vacuum cleaner for $59.95 and it costs you almost the same price to buy a vacuum from an independent distributor, you can’t make any money. People aren’t going to spend $10 or $15 more when they can just go down the street to Kmart. You need to develop a way to buy your product directly from the manufacturer and cut out the middleman.
To become a direct distributor, you have to prove yourself over many years. You send in an application and tell them how long you’ve been in business and how much profit you’re making.
After Eureka decided to make us a distributor, everybody else kind of followed along. Once they saw there was a major company that trusted us, it made it easier for the other companies. The hardest part was getting that first one.
By going directly to the manufacturers, you eliminate the middleman and the percentage he charges. For us, it was a 25% to 30% difference in price. You can pass those savings on to the customers.
Before the riots, we had more than 2,000 customers and the business was rolling on its own momentum. Then the store burned down on the second day of the riots. We lost a lot of merchandise, some cash and our records and receipts from the previous years. Our losses came to well over $100,000.
We had to start all over. Allen couldn’t afford to retire, so he had no choice but to rebuild. It took about nine months to reopen, right across the street from the old store.
When we reopened, our customer base was maybe 25% of what it was before. We didn’t have the resources for a full-scale advertising campaign, so we decided to become a warranty center.
Within a year of becoming a service center, our business doubled. We were convinced that this was a gold mine, but we didn’t want to grow too fast. If you’re not ready to handle a lot of business, it can blow up in your face.
On competing with mass merchandisers . . .
“When you have discount stores like Kmart, Sears and Montgomery Ward selling a vacuum cleaner for $59.95 and it costs you almost the same price to buy a vacuum from an independent distributor, you can’t make any money.”
On why AM Vacuum became a direct distributor . . .
“By going directly to the manufacturers, you eliminate the middleman and the percentage he charges. . . . You can pass those savings on to the customers.”
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AT A GLANCE:
Company: AM Vacuum Co.
Year founded: 1979
Owner: Allen Meredith
Nature of business: Sells and repairs vacuum cleaners and sewing machines
Location: Mid-City Los Angeles
Number of employees: Four
Annual sales: $80,000 in 1995
