Who?s Afraid of Wal-Mart?

February 2, 2010
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imageWere any of you startled or surprised to see or hear that Wal-Mart is now offering caskets to the general public? That is right. Wal-Mart is offering bronze, steel and stainless steel caskets to the general public through their website. The caskets start at $895.00 for an 18 gauge steel with a 100% bronze selling for $2,899.00. If you would like to see Walmart?s offerings, just google Wal-Mart caskets. In addition to Wal-Mart, there are other companies that are selling caskets to the general public. Best Price Caskets is offering a complete selection of steel and wood caskets that they advertise on their web page will save $3,000.00-$5,000.00 on funeral costs. They are also advertising next day air shipping and free ground delivery and telling the consumers that it is the law that funeral homes must receive their caskets and not charge extra fees.

What impact, if any, Wal-Mart or other casket retailers will have on the funeral profession is yet to been seen. The question that many funeral home owners are now asking themselves is whether the families in their communities will buy caskets and/or other merchandise, such as urns, from somewhere other than from their showrooms. Faced with this new challenge, funeral directors have many choices to make and several options at their disposal to address this new challenge.

One choice is to assume that this new option of buying funeral merchandise through the Internet will not gain public support and families will continue to select caskets and other merchandise through their local funeral home. Even in those communities where families elect not to purchase from third party providers, it is more than likely that those families will be aware of the offering and that the caskets are at discounted prices. This awareness by the families will more than likely raise questions in their minds as to why large price discrepancies exist between your funeral home and the third party providers. A funeral director?s first response will be to say that the caskets being offered through the third party retailers are of inferior or lesser quality, which may or may not be the actual case. The problem with this defense is that most families are uninformed about the different types and qualities of caskets, and there are others that simply do not care.

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For you, the funeral director whose entire financial well-being and financial security is directly tied to your ability to operate a successful and profitable funeral home, it is essential to step back, set aside your emotions and look at this from an objective point of view. As a funeral director, this will be very difficult, but necessary. First and foremost as to any family member who is aware of the availability of caskets from Wal-Mart or others, the natural question they would be asking themselves is why does my local funeral home charge so much more. Second, there is no denying that the funeral professional is being directly affected by our current economic crisis. The U.S. economy is starting to show limited signs of recovery, but it is still looking down the barrel of an unemployment rate in excess of 10 percent. This economic crisis with high unemployment is impeding indelible imprints on the minds of consumers.

For those of you that believe families will not be directly or indirectly influenced by companies providing funeral merchandise over the Internet, a closer look at consumer spending trends will show differently. Although there is little or no reliable data to show the impact those third party providers are having on the funeral profession, statistics compiled by Web analytics firm, Coremetrics, show that consumers are turning on their computers the Monday after Thanksgiving and buying more of their holiday gifts than ever. During Cyber Monday 2009, Coremetrics reports that consumers bought approximately 10% more items per order as compared to 2009?s in store shopping on Black Friday. According to Forrester Research, online sales are projected to be $230.4 billion in 2009 and $267.8 billion in 2010. Now, this in not to say that families are using Cyber Monday to purchase funeral merchandise. Funeral directors need to understand that the Internet is changing the way in which consumers are educated and how they make buying decisions. It is safe to say that even if Wal-Mart never sold one casket, it will have an impact on your business, even though you may never know it.

This new trend in consumer spending and attitudes and the introduction of Wal-Mart and others into the casket retail business might just be a blessing in disguise. Instead of funeral directors viewing these new challenges as threatening and causing sleep deprivation, they should step back, take a deep breath, analyze their operations and formulate a plan that will not only mitigate the loss of funeral merchandise revenues, but will actually enhance the overall profitability of their firms. Think about this. What is the one critical element that Wal-Mart or any other provider will not be able to offer? The answer is Service. The manner in which funeral directors conduct themselves and render professional services is the medium through which the needs of grieving families are met. Caskets and other funeral merchandise are only one component of the funeral. Every funeral home has access to the same caskets and the same manufacturers. A funeral home may have better means of presenting and displaying their merchandise, but it is still the same merchandise.

Recent difficult economic times have placed financial strains on families throughout the country, and certain families are selecting funeral homes strictly on price, but the vast majority of families still select a funeral home based on the home?s reputation and their past experiences with that particular home. The key here is to understand that families select funeral homes because they have a need and they trust that the owners and staff will fulfill those needs in a professional manner. Have you ever heard anyone say that they or anyone they know selected a funeral home because of their caskets or other merchandise? Remember, all funeral homes can provide the same caskets. The key to a funeral home?s financial success lies in their ability to provide meaningful services that give families a vehicle to process their grief. It is the personal relationships and trust that a funeral director develops with his/her families that is the core element in operating a successful funeral home.

Funeral homes that meet the needs and expectations of their families by providing quality services will be poised to ward off economical challenges or threats imposed by third-party casket providers. Funeral homes that provide quality services should be charging accordingly. To reflect this, the cost that funeral directors offer their caskets to their families should be reduced, but the amount charged for services should be increased. The exact amounts for the changes can not be arbitrarily determined. An analysis to determine the overhead and cash flow will be required. It is also safe to say that most funeral homes will not be able to reduce the selling price of the caskets to equal the prices being offered by Wal-Mart.

There are a several basic premises that must be met or understood before changing pricing strategies that include the following: (1) funeral directors must feel confident and comfortable in raising their basic service fees; (2) the casket mark-ups must be reduced or discounts received from the providers must be increased; (3) funeral directors must be willing to negotiate the best possible discounts with their casket providers, and, (4) funeral directors must be willing to invest their time and energy to educate themselves and their staff in dealing with the needs of today?s families. An important footnote to this methodology of pricing is that it is not a gimmick and it does not embody any trickery. It is essential that every funeral home base its prices in such a manner that ensures overhead recovery and profitability. At least annually, a funeral home should prepare, or have prepared for them, a cash flow analysis. If you do not know how much it costs to operate your funeral home, how can you prepare a general price list?

The ability for a funeral home to increase their service charges and reduce their casket selling prices is at the foundation of continued financial success. Being able to reduce the amounts that funeral homes pay for their caskets and other funeral merchandise is very important. Most funeral directors may think that the steps necessary to obtain additional discounts is a task beyond their ability, but it may not be. There are many options at your disposal. The fist place to start is with your current casket provider. Keep in mind that casket companies want and need your business. If they are not willing to provide you with competitive prices, you have options. These options include: (1) working through a buying group that provides funeral homes with greater discounts than are currently available; (2) form or work with a co-op with other funeral homes in your area; and (3) purchase through one of the companies that provides Asian caskets.

This article will not address the pros and cons of purchasing through a buying group, co-op or through a company that provides Asian-made caskets. It will not address any quality issues or other concerns that funeral home owners have with regards to looking outside the box to reduce merchandise costs. A very important point to emphasize is that the funeral industry is rapidly changing and the families of today and tomorrow are very different from the families that were served in the past. Today?s families are turning to the funeral director for professional guidance and assistance through a grieving time. As evidenced by the increase in cremation rates across the country and even the nomenclature used to describe today?s funeral or memorial service, there is much less emphasis placed on the casket.

In order for funeral directors to be competitive and meet the ever number of growing challenges confronting them, it is incumbent upon them to understand that they are operating a business, and they must continually seek new ways to meet the changing demands and attitudes of the families that they serve. In addition, they must embrace the reality that what worked great over the past generations will not necessarily work today. By making available meaningful choices for families, providing quality facilities and quality merchandise, funeral directors are providing an overall service that can not be duplicated by a third party merchandise provider. The key to financial success is to provide quality services and charge appropriate and realistic amounts for those services. The amounts on the general price lists should be based upon sound and accurate financial information. If you are one of the many funeral directors that charged a certain amount for professional services or merchandise because the funeral home down the street is charging a certain amount, ask yourself this question: How do you know that the funeral director down the street knows what he or she is doing? FBA

Ronald H. Cooper, CPA, is a funeral home accountant with Cooper & Associates, CPA, LLC. He can be contacted by phone at 866-446-0656, or you may email him at ron@funeralhomeaccounting.com.

Article Is Republished With The Permission of Funeral Business Advisor

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