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Category:
Published: February 2007
Does making millions selling VCRs out of a basement sound crazy? It happened, and it's how John D. Marcella made his start in the appliance industry.
Success Magazine: How did you get this business started?
John Marcella: I started with my father in 1947 and then I went in the Army. When I came out we built it up again and then we grew until my father passed away. Then I restarted the business under my own structures around 1980.
SM: When you started, there was a small showroom or...?
JM: No, I started in the cellar of my house taking orders from consumers that knew the name by recognition and credibility. Actually my office was a diner where I would meet people and take their orders. It grew from the point where I had so much business out of my house that the zoning board had to step in. I had seventy-five cars outside of my home one day. The zoning board came and said that's it.
SM: So it was a forced expansion. That seemed like a good choice though-to not get the unnecessary overhead until you had no other alternative. How did you get enough inventory to take orders for that much business without a showroom or a large place to store it?
JM: I would buy it as needed and when I saw good deals. I bought VCRs when they were high ticket items and they were very hard to get. There's a company in New York called Pop's which is the world's largest retail outlet and the owner was a personal friend of mine. I did all of my growth based on credibility with my outside people. For instance, one time the owner of Pop's said to me 'I've got 1,500 VCRs, I can't get rid of them.' I said 'Les, what kind are they?' He told me they were GE. Since GE is not a VCR brand that is accepted in New York City he couldn't sell them. Everything during that era was Panasonic or Sharp. But in Schenectady the employees got a consumer rebate. So I said 'how much do you want for them?' His cost was $414 and I told him I couldn't pay that. He said, 'make me a crazy offer.' I said 'how about two and a quarter?' Eventually I convinced him that it was best for both of our businesses and I bought them on a postdated check. So by getting deals like that on quality items I was always able to keep my customers happy.
SM: So did you just notify your customer base or did you also advertise despite having no showroom?
JM: I put them in the paper for $279.00. Now dealers were paying $414.00. Every dealer, every consumer, any place came to my house. I ended up having a tractor trailer constantly parked near my home. I didn't want any showrooms or stores. My accounts were Price Chopper, Pueblo Markets in Puerto Rico, Consumer and municipal housing projects. I was in all kinds of markets. In our earlier years Tom, we had in our industry zone pricing. Zone pricing meant that, if GE had a distressed market in New York City they priced it down 8%, or if you bought Whirlpool from Buffalo you would buy it down 8%. So what I did is I took all these benefits of where I was buying to save the 8% so that nobody could compete with me. I did two and a half, three million dollars a year out of the cellar, created my own bankroll so that when I eventually had to create a showroom I had the necessary expenses and overhead covered.
SM: How much do you pay in overhead now?
JM: $38,000 a week between payroll, taxes, workmen's comp, health insurance, building insurance and the rest. It is a lot harder to make a living with those kinds of expenses.
SM: How do you continue to do so well despite all of this overhead?
JM: We compensated for the difference in the cost of doing business by being more aggressive for bigger projects and larger sales. If it wasn't for my trailers where I store my goods I would not be able to make these bulk purchases. Because what happens is that you are not important to any manufacture unless you do X number of millions of dollars. So I have to initially set up programs with each vendor where if I hit a certain plateau I get a significant reduction in cost and that reduction on the overall picture is enough to offset the difference.
SM: What does the future look like for your company?
JM: How do I see the future of the company? I think that the future business of the appliance industry is the fact that the big chains are trying to drive out most of the independents. Unless you're somewhat of a strong independent you're going to fall down the toilet. There's still room for a strong specialty independent store because of the fact that they offer personalized treatment. You're not a code number, you're a person and you can report as somebody and that still has strength in our business. The chains are trying to drive stores like me, Feidens, and others out of business. But they can't take the whole market.
SM: What do you think is the main reason consumers choose you over a chain store?
JM: I think price plays a huge role. We match any price for any appliance including delivery, installation, the works. But I think the care and quality that they get from us is also better than the large outlets.
SM: You seem to think that larger corporations have pushed out a lot of competition. Would you start your business over again today if you had to?
JM: No, couldn't do it. It would never get off the ground.
SM: Really?
JM: You are not going to see an independent appliance chain getting to the level that I and a few other groups have gotten to anymore unless it is a specialty store of some kind. They would have to put out hundreds of thousands of dollars in loans and would likely go under before they could pay them off. Even if they did, getting the right kind of goods for a good price would both take expertise and a name cache that a newcomer would lack. If anybody is opening an appliance store thinking washers, dryers, stoves, refrigerators, it is never going to happen.
SM: So the success that you have seen would be almost impossible to reproduce in your industry today?
JM: Unfortunately, yes. It would be almost impossible to start a business in this industry from almost zero and taking to where I am now in today's environment. It could happen, if you are customer oriented, have the right connections and get a lot of lucky breaks, but it would be extremely difficult.
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