Article Excerpt:
TWST: What is Appliance Recycling Centers of America or ARCA?Mr. Cameron: I started the business 30 years ago by focusing on working with returned appliances from new-appliance retailers. In that process, we reconditioned and resold those appliances, and our main customer was Sears. We thought we had a good opportunity with national retailers at that time, and we also worked with other major retailers, like Montgomery Ward, J.C. Penney, and Dayton Hudson. But in the late 1980s, with a growing awareness of the issue of CFC refrigerants contributing to ozone depletion, our business changed. The environmental issues impacted our business severely and we started changing the way we conducted our operations. Prior to the Montreal Protocol going into effect, nobody even considered the venting of CFCs to be an environmental issue. As we started to respond to those issues, we became a more environmentally conscious business. We started recapturing CFCs, removing capacitors that contain PCBs, mercury switches, and all other environmentally harmful materials found in appliances. That led us into business with another industry, the electric utility industry. Utilities determined that 20% of US homes have a second, operating, energy- inefficient refrigerator, which the utilities wanted to retire to take those old units off-line. They looked around for a company that knew how to do that, and found that ARCA had quite a bit of experience in providing appliance collection, processing, and recycling services. As a matter of fact, we were leading the country in that effort and had gotten quite a bit of publicity, with many magazine and newspaper articles written about us. We were the first ones in the US to open an integrated large-scale appliance recycling center, which we accomplished in 1988 with Wisconsin Electric Power in Milwaukee. From there, we expanded in the early 1990s by shifting our focus away from handling retailers' returned appliances to concentrating on energy-efficiency programs. That, however, changed in the early 1990s because of deregulation issues in the electric utility industry. While we continued to operate utility programs, we were also contacted by appliance manufacturers that were concerned about the possibility of having to put up recycling centers as they are required to in Europe. They were looking to us as an alternative for handling their distressed appliances, product that needed to be recycled or destroyed, and product that didn't fit into their normal channels of distribution. We started working with manufacturers in about 1997. Subsequently, one of the major manufacturers asked us if we could expand our concept nationally, and since then, we have focused primarily on manufacturers. We are now under contract with all US major manufacturers, as well as some foreign manufacturers, to handle their reverse logistics. We handle all of it, including returns from retailers, repossessions, open-carton merchandise and scratch-and-dent units. To do that, you need a solid distribution system, and that led us to opening outlet stores. We currently have 13 ApplianceSmart outlets around the United States. We bring the product in, run it through our shop to make sure the appliance is operational, put it on the sales floor and sell it to the general public at a considerable discount to normal retail. In the process of doing that, we found that we had a mix issue because we can't necessarily predict what we will receive from the manufacturers. To be able to offer a full range of appliances to our customers, we are now franchised by the manufacturers as a new-appliance dealer. Before that, although everything we handled was new, it wasn't new, in-the-box merchandise. Right now, we have a mix of about 45% in-carton and 55% out-of-carton merchandise. The manufacturers view it as two different categories with two different handling processes, and today, we sell both types. Over the past seven or eight years, we have grown our retail business. We haven't announced our fourth quarter 2005 numbers, but we have been focusing on driving the top line. We anticipate that based on the first three quarters, our retail sales will probably be around $60 million. That would put us in the top 30 appliance retailers nationally. We have continued to invest in our retail business, and that investment is starting to come back to us, since over 85% of our company's revenue is now retail. We run our business as one unit, because the management and recycling aspects are common to both the retail and utility sides. We continue to provide energy-efficiency program services for utility companies and currently have major contracts in California, with smaller programs in other states. ARCA supplies turnkey services for the utilities, handling everything from scheduling the collection appointment for the customer to ensuring that the metals are recycled after we process the appliance to remove all harmful components. We believe our long-term growth is in the retail outlet store business with the manufacturers, because the mom-and-pop appliance dealers are disappearing. In 1990, there were approximately 12,000 independent appliance dealers; today, it's down to about 5,000. The market is being taken over by Lowe's, Home Depot, Sears and Best Buy. Except for Sears, the other major retailers are not interested in the outlet store concept, so the manufacturers rely on us to handle the returned merchandise that retailers such as Home Depot and Lowe's don't want to handle. As the big-box retailers get bigger and the independents go away, it creates open territory for us to move into, and for the foreseeable future we can continue to expand our operation. We currently have five ApplianceSmart stores in the Minneapolis/St. Paul area, and we do about $30 million annually in this market, which is about 10% market share. We think we can take that to 20% market share and $60 million, with probably eight to 10 stores. Given that situation, if you say that since Minneapolis/St. Paul represents about 1% of the US population, you could multiply that times 100 if you wanted to be really far-reaching, but realistically, I don't expect that we are going to have 800 stores or do that kind of business. However, it is a growth opportunity for us and we don't know yet how far we can take this. We do know that every market needs our services and that appliance returns are continuing to rise as the big-box retailers take over. We have a lot of growth opportunities, and we are making the investments in systems and people to respond to the challenge. We expect that's all going to start bearing fruit in the next three years as far as the bottom line is concerned. It's really quite a wonderful opportunity for us and a needed service for the manufacturers. You have the best of both roles ' you provide a necessary service for manufacturers and have a business opportunity that's really never been done before. Everyone here at ARCA and ApplianceSmart is pretty excited about that. In the utility business, we are starting to see a renewal of interest in energy conservation with oil prices where they are and concern about global warming issues intensifying with Hurricane Katrina. The utilities are being required to sponsor energy conservation programs and to offset pollution. Besides that, appliance recycling programs are very popular with their customers. So we really have the best of every situation: we are working with environmental issues that are necessary to address, people feel good about what we are doing, we are providing a great service for a lot of people and we have the history and experience to do the job. We are growing the business, and I expect it to continue ' for my lifetime, anyway.
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