The agency system currently used by Miele to sell its home appliances saved the German company’s Australian business. This revelation was made by Miele’s global head and managing director Dr Reinhard Zinkann in an interview appearing in the November issue of Appliance Retailer magazine, which is available this week.

Zinkann told Appliance Retailer that the effects of price erosion on Miele were becoming so significant that the switch to a pro forma model was considered a last ditch effort by Peter Murphy, the former Miele Australia MD, to save the local subsidiary.

“We chose this system because the whole trade in Australia was on the way to ruining itself, and many importers and distributors actually gave up because they couldn’t maintain that ruinous price competition,” Dr Zinkann told Appliance Retailer.

“The only topic was price, price, price. So we asked, ‘Should we move out of Australia?’, because we couldn’t go on like that.

“The late Peter Murphy — who started this system and who ran Miele Australia for a long time — he came to Germany and said to [fourth generation owner] Markus Miele: ‘We have only two options. Option one: we have to pull out of Australia because we can’t continue. Option two is a strategic vision, which is the agency system.’

“He took the risk and it was very successful.”

Under a pro forma model, retailers act as agents for a supplier, processing sales on their behalf. The retailer never actually owns the stock and rather than making margin like in traditional retail, they get paid a commission. Because the consumer is actually buying the products from the supplier, there is no price competition among retailers.

Critics of this system say it inhibits natural competition and neutralises the ability of a successful retailer to make additional profits.

Check out the November 2012 issue of Appliance Retailer magazine for the full interview with Dr Zinkann.