In October, Wal-Mart began selling caskets on its website (see fox new story at http://www.foxnews.com/story/0,2933,570111,00.html). What this will mean for family-owned funeral homes long term is unknown. But my sense is that most grieving families will not turn to Wal-Mart for their casket needs. While retail outlets selling caskets in lieu of local funeral homes sounds like big news, it’s really nothing new. Costco has been selling caskets in a number of its stores for years. In addition, numerous “casket stores” have opened (and closed) over the last ten years throughout the country with the hopes of getting a piece of the traditional funeral pie. On-line stores are also marketing caskets using names like “Best Price Casket”, “Casket Gallery” and “Casket Express”. Industry experts estimate that the number of caskets purchased outside of traditional funerals homes is less than 3% of all caskets sold per year.
So why is the Wal-Mart play into the caskets market making such headlines in the media and in funeral service circles? Simply because of the size of Wal-Mart and its influence on the buying patters of middle America. Looking at Wal-Mart’s casket pricing, there is definitely some savings to the consumer; generally a few hundred dollars or so. I am not trying to minimize the savings, especially for families who have limited funds, but to delay the wake or service for several days waiting for Federal Express (yes, that’s how they get delivered) to bring the casket to the funeral home in many cases will not justify the savings.
If Wal-Mart caskets catch on, the funeral industry will simply lower its price on caskets and raise its service charge, mitigating the casket store advantage. While this may sound underhanded, it’s an economic reality of business. Funeral homes charge for two basic categories for a funeral. The first is the service of the funeral home to do things like pick up the deceased, embalm, renting the funeral home for the visitation, use of the hearse and involvement in the ceremony. The second category is merchandise – the casket, cemetery vault, printed items such as memorial cards and sign in books. Let’s say a typical funeral home charges $4,000 for all the components of their service for a full traditional funeral. And the funeral homes sells 20 caskets ranging from $900 to $5,000 with an average sale of $2,000. So on average, the funeral home will generate $6,000 in revenue (not profit) from the average traditional funeral. Funeral homes set their prices for both services and merchandise based on their cost of doing business so they can cover personnel fees, building expenses, taxes and other expenses, and factoring in a profit margin – hopefully around 10%. If a funeral home starts loosing its caskets sales to outside companies like Wal-Mart, then the firm will simply adjust it’s pricing. In our example above, the firm may bump its service charge to $4,500 and lower its caskets by $500 with the new average sales being $1,500. At the end of the day, the funeral is still $6,000 to the consumer. The thing that makes the Wal-Mart decision bad for funeral service, is that if funeral homes raise their service charges, consumers will have to pay it. Allowing funeral homes to move some of its profit onto the casket provides consumers the ability to still purchase caskets in a a wide range of prices. But if firms have to recoup most of its profits from their services, funeral prices nationwide will increase, which is not in the best interest of consumers or the industry.