Ziegler backs away from marketfor used equipment refurbishing

July 31, 1996

Aggressive OEM pricing cuts into refurb salesZiegler Medical Equipment Group has seen its effort to build adirect sales force to market refurbished equipment wither in theface of aggressive OEM price-cutting on new scanners. Zieglerhas abandoned

Aggressive OEM pricing cuts into refurb sales

Ziegler Medical Equipment Group has seen its effort to build adirect sales force to market refurbished equipment wither in theface of aggressive OEM price-cutting on new scanners. Zieglerhas abandoned plans to enlarge its direct sales force and is innegotiations to sell its Omaha refurbishing center, which waslaunched just three years ago.

"We are still in the market and we will be selling a lotof preowned equipment," said Thomas Norman, president ofZiegler. "But as far as operating a full-blown multilinerefurbishing operation in the future, we are pretty much shuttingthat down."

Norman said the company still wants to have a refurb operationto complement its leasing business.

"But it could come down to a one-man show, and we'll haveto farm out a lot of it to other refurbishers and people on call,"he said.

The company, which is headquartered in West Bend, WI, alongwith its parent, B.C. Ziegler, has used the refurb operation toenhance the value of equipment returned to the company after theexpiration of leases written by Ziegler Leasing. Many of the systemsrefurbished at the Omaha center were being sold through a networkof distributors. Those efforts were augmented by salespeople inZiegler Leasing who offered prospective customers the option ofleasing refurbished equipment.

In late spring the company was making plans to take the nextstep in its marketing program: the enlargement of a direct salesforce whose sole purpose would be to remarket used equipment processedin the Omaha center. That force would eventually serve as theprimary source of used equipment sales, displacing the distributornetwork, which was not meeting sales expectations.

"As new equipment sales went down over the last few years,distributors came under pressure from the OEMs, so their number-onefocus was selling new equipment," Norman said. "Thetopic of refurbished equipment wasn't coming up enough."

Other companies using distributors have had the same problem,he noted.

"We talked to many people on the secondary market andthey are all going to brokers or to their own sales force,"he said. "We had just made a commitment to go to some telemarketingand we were putting some long-term sales people under contract.We were just getting some of this finalized when it happened."

In early July, Ziegler management decided the company shouldnot be so heavily committed to used equipment and should redirectits business toward brokering. Distributors of equipment refurbishedby Ziegler were informed in a letter mailed in early July thatthe company had decided to "deemphasize the act of reconditioningand refurbishing and direct sales of preowned equipment."

In that letter, Norman offered to assist those distributorsin establishing relationships with other firms specializing inpreowned equipment. Ziegler has also downsized its refurbishingstaff in Omaha and has started developing strategies for restructuringits refurb operation there.

Norman emphasizes that the company's decision to redirect itsfocus regarding refurbishing systems and direct sales of usedequipment is not an indicator of deeper problems. Instead, therestructuring is a conservative move in the face of an uncertainmarket. Norman noted that revenue from the used equipment markethas been up and down for Ziegler over the past several years.Predictions by analysts of a booming market have been just that-- predictions.

"The market is poised to take off; it just hasn't takenoff yet," he said.

One of the problems has been the aggressive behavior of OEMsin selling new equipment, especially in the last few months. Normansaid that one OEM recently priced a new ultrasound system slightlyover what Ziegler was quoting for a comparably equipped used system.Adding to the problem are tactics being used by equipment purchasers,who are leveraging used equipment quotes to bring down the priceson new equipment.

"OEMs are just about giving equipment away," he said."They are in such bad shape on the new equipment side thatthey are dropping prices like crazy in order to sell parts andservice."

If that behavior continues, the used equipment market couldhave a hard time reaching the potential that many analysts havebeen predicting -- and more companies will be restructuring ordownsizing.