In an industry where the battle for margins enhancement is ongoing, something like product protection programs should be a no-brainer to business owners. But how you – and your sales team – approach product protection with your customers can make or break the pitch. Howard’s is a great example of a retailer that understands what makes its sales team tick, and leaning into that to improve their attachment rates. Mike Sanchez, SVP & COO at Howard’s shares a little bit of their secret sauce with us.
Rob Stott: All right. We are back on the Independent Thinking podcast and heading west, so across three different time zones for a podcast today. I’m sitting here just outside of Philadelphia and excited to have Mr. Mike Sanchez, SVP and COO at Howard’s on the West Coast. Are you in and around LA? Where are you at?
Mike Sanchez: Yeah. I’m sitting in north Orange County right now.
Rob Stott: Okay.
Mike Sanchez: Yeah, just probably 30 minutes east of Los Angeles.
Rob Stott: Awesome. Well, appreciate you taking the time and joining us and excited to have Howard’s on the podcast here today. We appreciate it, man.
Mike Sanchez: Happy to be invited.
Rob Stott: I got to ask first for those watching the video version, you got a lot of bobbleheads above you, big baseball fan?
Mike Sanchez: Big Dodger fan, big baseball fan in general but primarily Dodgers. Our company has advertised with the Angels for many, many years.
Rob Stott: Does that hurt your soul a little bit?
Mike Sanchez: Yeah, a little bit. Yeah. But more so everybody that walks into my office and turns and looks at all the bobbleheads and wonders, “What’s going on?”
Rob Stott: Is there a Shohei, one up there yet? Have they done a Shohei bobblehead night or is it coming soon?
Mike Sanchez: No. I’m sure it’s coming soon but no, I have not. It’ll probably be $500 a ticket to get to that one
Rob Stott: Amen. Go on eBay afterwards. That is more than the cost of a ticket. Get some season tickets for what you sell that bobblehead. But no, that’s awesome, man. Well, start first, we’ll learn a little bit about you. Tell us about yourself, your background and your path to Howard’s.
Mike Sanchez: Yeah. Well, thank you. Yeah. I started with Howard’s back when we had two stores, so I back to 1987, and just worked through the ranks in the company from warehouse to delivery to sales and sales leadership, where I spent the majority of my time as running stores and running sales promotions and later moved into the general manager role where I was overseeing the service side of the business. And that’s where I got a lot more acquainted with service policies and how they work and the importance of them to our company and oversaw our logistics department and warehouse for some time as well. I had the opportunity to launch our builder division for the company also, so now we have a builder sales division. And that grew arms and legs over time, and so we had to put a team together to help with all of our B2B.
And I also helped launch our home delivery and installation division where we are now partnered directly with the owners of trucks and installation fleet and sign contracts with them directly. We’re able to manage our customer service at a much better rate than working through a third-party company. Not that there’s anything bad about that, it works better for our model here in southern California. And as of last September, I was promoted to chief operating officer. And so a lot more on my plate to add but I’ve been able to build an incredible team and everybody helps support the cause.
Rob Stott: How long did you say you’ve been with Howard’s now?
Mike Sanchez: It’s just over 35 years.
Rob Stott: You’ve seen some tremendous growth and change, which has to be I imagine, cool from your seat to just go through that history with the company to … Even just the last couple of years, I think about the number of stores that have opened in the last five years and the experience centers, everything going on has to be really cool from your perspective.
Mike Sanchez: No, absolutely. We’ve seen transformation, we’ve seen competitors come in, competitors go out. We saw the change in the big box stores and how they made appliances a very important part of their portfolio and what that does to our business and how we’ve had to step into different arenas. We used to be not a luxury appliance dealer, very, very core only. And now our luxury business is creeping up on 20% of our business, which we never expected but have to do it because you have to sell what competitors don’t. We brought mattresses into our portfolio and although we could all do better in mattresses, we’re getting there little by little. We’ve made some adjustments and yes, the experience centers are a big part of the way we want our look and feel to be for our customers. We have seven experience centers today and the others are stores that look very much like one but don’t have all the appliances live and such. Yeah, big changes. I had the opportunity to work side by side with Howard Roach when I ran our flagship store in San Gabriel, and spent six years working right next to him and learned a lot from the man. In fact, we’re having lunch together this coming Friday. And so he’s still around in the community and we like to call him and pick his brain from time to time.
Rob Stott: I’m sure. What’s he think? Knowing that now, what’s he think of business today and what it’s become?
Mike Sanchez: Howard shakes his head a lot.
Rob Stott: Makes sense.
Mike Sanchez: Yeah, it’s very, very different. He’s proud and excited and he’s been able to see what the company has been transformed into. And we try to keep him up to speed as much as possible. And he’s 94 years old today, he still gets up and around and still walks and I hope to be that healthy if I ever make it to that age.
Rob Stott: I’m with you, man. No, that’s incredible though. And you need to be able to still like you said, pick his brain and even just share the updates on what’s happened. I’m sure that has to be cool for him too, to hear the legacy he left and where it’s gone since is certainly exciting, I have to imagine. You touched on it, but how is business today? What are challenges that you guys might be facing and how are you working through them?
Mike Sanchez: We see it from different perspectives. It’s very much a replacement market today. Most consumers today, if their watching machine breaks, that’s what they’re going to buy. The economy is speaking to that, interest rates are high. There’s not a lot of remodeling going on on the residential side. We do however, see continuous business on the multifamily channel. On our builder side we’re continuously seeing increases there, opportunities to bid projects. That hasn’t seemed to have dried up, that’s still going pretty strong. The luxury side of the business, there’s still some demand there, it’s just slower. It’s just slower. We are noticing that projects are more and more delayed on that side for some reason, labor and contractors are just slower to complete jobs. We find ourselves having to hold onto merchandise longer on the luxury side of the business. We’re really just shifting to what we need to shift to, which is trying to continue to run promotions for that distressed product, that replacement product. We run promotions on a weekly basis. We promote on television with Fox 11 News or Fox TV and Channel 7, ABC just to get that word out for that consumer that’s in the market now that needs to get that item replaced.
Rob Stott: Yeah. No, that’s I think important to hear. And no matter the size of the business too, the fact that you guys are still out there pumping the volume up on who you are and where you are and how to come find you, it’s something that’s always going to be important, to get the word out there about your business and just that awareness for the brand and what you do.
Mike Sanchez: Yeah, no, that in combination with tremendous partnerships with our vendors, keeping them on the loop on what our needs are and what our market’s doing. And they’ve been great supporters of all of our initiatives.
Rob Stott: And nice segue without even thinking about it having to be one is the fact that in a market like it is today, those attachments and what … You mentioned it earlier, the importance of what they are. I know we’ll dive deeper into it but just at a high level, talk about the importance in the … I know you were a big part of bringing them in there, the product protection and warranty programs, what they mean to the business for Howard’s today.
Mike Sanchez: Yeah. If we go back in history on Howard’s and how we ran our service protection plans back when I started with the company, we had a fleet of about probably 25 technicians all in the field, doing work in the field. And as things got more and more expensive and challenging, to be able to maintain a fleet like that became more and more difficult. We found ourselves having to partner with third party warranty companies. And we did so. One of the more recent companies that we partnered with was the EPIC protection plan. And everything out of the gate worked fantastic. The processing of claims, the service level, the partners that they hire for repair in the homes, they’re great. Our company decided to shift at one point in time and tried to go self-insured again. And so we went that route. And we all want more and more profit. We figured, “Okay, if we self-insure we’ll probably gain an additional 20 points of margin here. Let’s take advantage of it, let’s do it.”
What we didn’t completely think of was all of the support that’s needed when you do something like that. Do you have the proper team in place or the amount of people in place to be able to field these calls, be able to dispatch service, be able to send out the contracts on time to your consumers, make sure that they fully understand them, what’s involved there? We did it for 12 months, only to realize that it’s a huge undertaking. And as things get more and more challenging in business, you find yourself having to scale back sometimes. You have to take a step back and say, “Let’s figure out what used to work.”
And there’s nothing wrong with just taking a step back and partnering with what was working before. And the EPIC team was great. We sat down and we spoke to them and they said, “Absolutely, welcome back to the family, be happy to take you back.”
And they made the transition seamless. Everything worked out really well. In fact, we were able to partner with them on the policies that we sold in house and they have now taken them over and they’re servicing our customers. And it’s been completely seamless.
Rob Stott: No, that’s awesome.
Mike Sanchez: We still maintain customer service management here, which reports into me. And we want to make sure that if a customer does need to speak to a Howard’s representative, their first call is going to be to the store always. They always want to speak to their salesperson. They go to their salesperson, salesperson will help them navigate through the channels of getting the scheduled call done. And that’s pretty quick and easy. In the event that they need to speak to somebody above that level, then Rose Goodman, who’s my customer service manager, she’s incredible. They’ll speak to her and she understands the business very, very well. We have her and then we have the EPIC team, they call into EPIC directly. They’re going to get the answers they need from them in regards to scheduling and knowing when their product’s going to get serviced and such.
Rob Stott: No, that’s awesome. And just as an offering in general, talk about the important … I have to imagine, I can’t off the top of my head think that there’s many appliance dealers or furniture today, CE especially out there that aren’t offering some type of product protection to their customers as they come in as a potential attachment, but having that as an offering without even getting into the hows and what’s, but just the ability to offer, talk about that at a baseline, the importance of it.
Mike Sanchez: Yeah. I think there’s not really a consumer today that’s not experienced something in their home that’s broken or that needed repair at some point in time or another. And everyone’s had that challenging experience of, “Oh, my gosh. It’s going to be $300 to repair it. Oh, it’s going to be 400 to repair it.”
The challenging part is when this happens right after the manufacturer’s warranty. Nobody wants to hear about that. If it’s 10 years old, they understand. They don’t like it but they understand it. But when it’s after the first year or in the second year, that’s when people get disappointed. And our philosophy is that I want to be your friend five years from now. I don’t want you to be mad at me for any reason, so I’m going to offer you a plan that’s going to make sure that we’re still friends in case something happens. Because I didn’t make the product, so you can’t really hold me accountable for it but you’re going to try to. We deliver that message to our sales department just so they fully understand that, “Look, what we’re trying to offer here is a service to our consumers.”
Yes, we’re going to make some money along the way because at the end of the day, that’s what we’re in the business of. And so at the same time, we need to motivate our salespeople with the right level of commission to make it worth their while to take that extra effort. And everybody incorporates their presentation on service plans in a different way. We prepare them the way we believe is going to work best, which is incorporating it into the purchase of the product. It has to be part of the product. If it’s not part of the product, it’s an afterthought and once you’ve sat down and you’ve budgeted in your head the product less tax and, “Here’s how much I’m going to spend.”
And then you get the, “Oh, by the way … “
It just doesn’t work. We go to the extra mile to make sure that our salespeople figure out a way to incorporate it into their product because at the end of the day, it’s all about making our customers happy.
Rob Stott: Yeah. No, I love that. And I don’t want to bounce around too much but the journey you took us on through your product protection strategy, an important one, I think it speaks to trying stuff as a business. Again, no matter the size of the business, you got a goal in mind, you attempt to accomplish it. And then I think the important part of it, you learn from it, whether it works or doesn’t, you pivot and make a decision to the benefit of the company. And getting back in with EPIC and the EPIC program and the Centricity team, what have they done? Talk about them a little bit, the team to work with and what they’ve done, basically the benefits of the program and the ease of working with them as an independent retailer.
Mike Sanchez: Yeah, absolutely. Just the short amount of time that we’ve partnered with them again, they’ve been out twice for training. They’ve made two visits. They’ve come out to the stores, they’ve spent time with our salespeople, they’ve provided us with marketing materials which are going to talk to the features and benefit of the plan. They’ve given us the ammunition we need to be successful on the sales floor. And more importantly, they’ve taken that ammunition and they’ve actually taken our salespeople and walked them through it. Anybody can just get on a Zoom call or a Teams call and try to train on that. These people came from Florida and spent time with our salespeople in person. And not just one day, they were out here for a week, both times. And so that just says a lot. That just speaks to me that it’s just commitment on their part, they want to make sure that we’re successful.
And we have a goal in mind. Our percentage of sales is probably hovering right around 4.3% today. Our goal is to get to six, seven if we can. And I think we can do it. I think that by the end of this year we’ll be hovering right around 6% realistically. And so they’ve provided those tools for us to be able to get there. And again, have made the process seamlessly. There isn’t a time where I can’t speak to somebody at a management level there and just share with them any concerns I might have or any needs I might have. They’re very receptive.
Rob Stott: Well, without selling their secret sauce, what are some of those things you’re learning from them or that you think your team’s learning from them about how to be successful in this space and those attachment rates?
Mike Sanchez: Yeah. I think more than anything, the full understanding of the product. What are you in fact selling? They’ve gone down to simplifying the plans. We sell a three year and a five year, very basic. Because at the end of the day, we don’t want to confuse our customers. We want it to be very, very simple, “You can get it past the breaking period with three or you can maximize your opportunity with five.”
And straightforward, simple pricing. We tier it based on the price of the unit itself, so it represents a value based on what the consumer’s buying. And so they’ve made that very, very simple. The other part is just the features, the power surge protection and some of the advantages that you have within the plan that cover even in the first year when the manufacturer’s covering it, things that the manufacturer doesn’t cover that they’ll cover. The surge protection is huge. The food reimbursement is huge, laundry reimbursement is huge. All of these benefits to our consumers are real because again, it’s all about what they’ve experienced in the past, what goes through their mind. And they train you on speaking to the customer as to who’s going to use the product. If you’re going to buy this product and never use it, then maybe you don’t need a service plan, but the majority of our customers are going to use this product and use it a lot. Who’s using it and how’s it going to get used? And speak to them about how this benefits them based on their lifestyle.
Rob Stott: Yeah. The important thing that sticks out to me when you say product too, I imagine … There’s understanding the appliance you’re selling, the dishwasher, the refrigerator, but the product as far as what’s involved with the service plan as well and what it covers in the story that can tell, that’s what you’re getting at?
Mike Sanchez: Correct, correct. Yeah. I think that having an understanding of every appliance product you sell and what has most commonly gone out and being able to speak to … “This range has four igniters on the stove top. Every igniter’s electronic, they’re going to tick every time you turn it on. Just so you know, the service plan will cover that if any one of the igniters are all of them go out, you’re going to have a hundred percent coverage on these igniters.”
The fact that you’re learning about what are the possibilities and giving that customer a real life reason as to why they should have a service plan, that’s key.
Rob Stott: Yeah. And at the end of the day too, I have to imagine you can relate it … It could be part of the pitch, it could not. The economy today and the environment consumers are operating in, that’s just an expense. Say something does happen to go wrong, you don’t want it to, you’re not selling a product for it to break on them but things happen. And knowing what environment we’re operating in today, I imagine it has to be something that can be an easy part of the conversation like, “Hey, you want to look at protecting yourself. There’s a couple ways you can do it, and this being one of them.”
It’s just getting on the consumer’s level at the end of the day and just reasoning with them.
Mike Sanchez: That’s really what it comes down to, it’s got to be important to them and you’ve got to find a reason for them to want to buy it. And so I use the example many times instead. “Okay, so it’s taken me two years to fully understand how this oven works. I finally have the clock, whenever, the power outage, I’ve finally got the clock figured out, I have this figured out, I know what setting I need for this.”
And then all of a sudden it breaks. “Okay, so I can go buy a new one but then I got to start all over again. I got to learn it from scratch.”
And so that’s annoying, especially when you have families that both husband and wife are working and nobody has time for that stuff. It’s much easier just to have somebody come out and fix it and you’re back in business.
Rob Stott: We’ve talked a lot about the consumer facing side of this, and obviously trading’s a part of it but incentivizing and enticing your employees too to get on board with this and have it be something where they try once and consumer turns them down and that’s it. What can you say or what can you speak to on the retailer side, the backend side, to get your team excited about trying to attach these product protection plans to things they’re already trying to sell?
Mike Sanchez: Yeah, that’s a great question. In sales commission’s important, it’s a differentiator to our competitors in the big boxes where everybody’s hourly. And in the state of California you have to pay an hourly rate just because the laws are the way they are. But it doesn’t mean you can’t continue an incentive program on top of that. And in service plans, we pay a 10% commission on the gross sale of the service plan, $10 for every hundred dollars is good money on top of what the salesperson’s making hourly and such. And we recognize them. We recognize them for their achievements on a weekly, monthly basis. “Here’s where you rank for the month. And if you’re in the top five, great, good for you. This is the threshold that we want you to be at and here’s where you are.”
And so you’re calling out the stars and you’re calling out those that are not achieving the goal as well and try to get them to move up as well. We’re paying a lot in commission but at the same time, we all recognize the service plan so we can bring a lot of margin to your bottom line. And that’s really where it’s at. In the environment today where we’re selling core appliances just for replacement, you’ve got to find ways to be able to subsidize your revenue. And so with service plans, it’s a great opportunity to do so.
Rob Stott: No, I love that. And I love too the leveraging a little bit of competition. Never can go wrong, whether it’s raising a couple of kids and … We see that in my house all the time, who can get out of the shower and get in their jammies faster? Or who can sell more product protection plans? It works no matter what stage in life you’re in.
Mike Sanchez: No, without a doubt us salespeople are weird creatures, man. It’s all about recognition. It’s all about your name in lights, it’s all about that pat on the back. And God forbid someone’s beating you because you’re just not going to have that. We’re very competitive by nature and we ride that horse as much as possible and take advantage of that.
Rob Stott: No, that’s incredible. Well, just one last question back to the EPIC plan, moving forward … Are you recently back, how long has it been since you went back with EPIC?
Mike Sanchez: We signed just this year actually, we just started in January.
Rob Stott: As you’re getting the legs back under you there, what are you excited about moving forward with them and seeing that program and your efforts together grow?
Mike Sanchez: I think we have a lot of opportunity moving forward. I think honestly, as we both get creative in finding new ways to market the plan on the floor, maybe tweaking our marketing material in a way that is more enticing to our customers … I mentioned earlier just growing our percentage of sale to 6% and even north of that, I think is huge. Working together on additional incentive programs for the salespeople, whether it be in the way of contests that they fund. We’ve done contests in the past with prior warranty companies where they’ve invited us to dinner in Las Vegas. We bring the team out to one of the nationwide shows and the warranty company pays for dinner. And so there’s a lot of different things that we can do just to get people to keep this top of mind and keep moving. And so far with their leadership team, they seem to be extremely creative and extremely helpful. I just see us growing to just a higher percentage of sale.
Rob Stott: No, that’s awesome. And I know it’s something we’re obviously excited to watch that continue as well from the nationwide side. I’ve done product protection podcasts with Chad Burris in the past, and we always love joking about how we can make a topic like this sounds sexy. It’s product protection, what can you really do to make it sound sexy and sell it to someone? But we find a way every time we get on the line together. And this is no different. I think it’s cool to hear it from your perspective as well, the ways you’ve been able to leverage, whether it’s the partnership with EPIC and Centricity or what you’re doing within your own stores. It’s important to hear. It could have been the stalest topic ever but we managed to get through it and talk for an entire episode about it, so we appreciate it.
Mike Sanchez: No, absolutely. And I’ll leave you with this, on the sales floor, it’s not completed unless it’s got a service plan. We train our salespeople to sell the service plan first. Customer’s already here to buy your stove or your washer and dryer, that’s what they came in for. What they don’t know is that they need a service plan. You’re not a real salesperson until you sell them what they don’t know they need. That’s that.
Rob Stott: I love that. No, that’s fantastic. No, that’s awesome. Well, Mike, we appreciate it. This was a lot of fun. And I look forward to catching up down the line.
Mike Sanchez: Yeah, please do. Hey, thanks for the opportunity.
