Going out of business the Ampico way

Whatever happened to make the piano industry decline during the 1920s
(as in my earlier note), a textbook example of how to put yourself out
of business without any external driver is the story of the American
Piano Company.  This was detailed in a case study for the Harvard
Business School in the early 1930s, reprinted in the AMICA journal of
Nov/Dec 1995 and after that in the PPG bulletin - the whole text makes
fascinating reading (it is available at the Player Piano Group web site
www.playerpianogroup.org.uk).

Ampico produced nine makes of piano, three in each of three price
bands.  Its sales strategy was that a dealer would sell one make of
each price, and there would be three dealers in town.  This gave plenty
of competition between dealers and had proved very successful.

In 1927 George Foster and other long-term executives retired from
active management of the company and sold their common stock to the
Bankers' Trust Company, although keeping their preference stock.
Profits dropped during 1928 (presumably in consequence of the overall
slump in the piano business) and the Bankers' Trust placed one of their
vice-presidents, George Urquhart, as Ampico president.

Urquhart changed the dealership arrangements to give one of the three
dealers in each town sole rights to sell the entire range.  The rights
were offered in turn to the 'best' dealer in town, then the next-best
and so on.  Most refused the deal, because they had built their
credibility and market on one brand above the rest, and could not be
seen to sell their 'rival' brands as well.

Those dealers (often entirely new ones) that did take on the new sales
inevitably had to feature one brand as best, thus demoting at a stroke
two of Ampico's three top brands, to the general detriment of the
product.  Also, without competing dealers the volume of advertising and
competitive selling dropped.  Independent dealers' sales dropped from
85% to 15% of the total sales by the end of 1929.

The 'Music Trades' of December 1929 said: "It has taken, in some
instances, generations to create and establish the prestige of great
names which have adorned the pages of piano history.  The piano
business is one peculiarly based upon reputation, and as an art
industry the reputations so hardly won could not be too carefully
guarded.  A seasoned piano man would hardly have fallen into some of
the errors which have marked the maladministration of the affairs of
the American Piano Company, under its most recent direction."

To counter falling sales Ampico opened their own retail outlets, in
some cases directly in competition with their own dealers, a policy
described by Urquhart in great detail in 'Sales Management' in August
1929.  The receivers were called in in December 1929.  Under
receivership, George Foster became president again, joined by the other
old preference-share executives.  Together with the Aeolian Company and
the Bankers' Commercial Security Company they put together a recovery
plan.  This created a new company, the American Piano Corporation,
which purchased most American Piano Company assets, Aeolian purchasing
Mason & Hamlin.

Despite coming just about at the depth of the depression, the recovery
plan worked well enough for the new company to trade at a profit by
September 1930: profits were $42,758 in the year to June 30, 1931,
although there were losses of $163,222 the next year.  Ampico
concentrated its manufacture in East Rochester, selling all the other
factories, and its assets dropped from $17 million in 1926 to $3.5
million in 1931.

In 1932 Ampico sold out to Aeolian to form Aeolian-American, an agreed
takeover with the requirement that Aeolian bring cash into the
business.  To raise the cash, Aeolian sold all of its non-American
subsidiaries such as the London piano factory and roll making plant,
many of which continued as separate businesses.  (Rick Alabaster's
'Orchestrelle Company' in Melbourne and Mike Boyd's 'Universal Music
Roll Co.' in the UK are direct trading descendants of these Aeolian
offshoots.)

All this certainly raises interesting speculation about whether the
shrewder investors saw the coming decline of the industry and sold out
while things were still good.  Rex Lawson in the Pianola Bulletin
related the history of Aeolian, which itself suffered a similar step-
change in ownership in 1924.  Its primary investor withdrew his capital
and threw the company out of Aeolian Hall, which he owned.  Some form
of management buyout followed, but the loss of capital marked the start
of Aeolian's long and slow decline even though it rode out the
depression.  The roots of this were again a long time before the stock
market crash.

These stories are not told in the books about mechanical music, and
indeed what is told is largely inaccurate and misleading.  For
instance, a common view seems to be that Ampico survived in continuous
trading until merger with Aeolian, which is wholly incorrect.
Likewise, the disposal of Aeolian's overseas assets seems to be thought
of as 'going out of business', which is not true either.  I think the
real facts are actually a lot more interesting!

Julian Dyer