ELECTROLUX WANTS A CLEAN SWEEP The Swedish company is on a worldwide buying spree designed to make it the first global appliance maker. It bought Italy's Zanussi to become the top producer in Western Europe, and its acquisition of White Consolidated turns it into a U.S. giant overnight.
(FORTUNE Magazine) – ELECTROLUX GROUP of Sweden aims to be the world's first global appliance maker. That hardly seems a surprising ambition for an aggressive company, until you understand that the appliance business has never crossed borders very well. Refrigerators, ranges, and other major appliances have differed markedly from country to country. American manufacturers stick mainly to the U.S. and Canada, European producers seldom venture outside Europe, and Japanese appliance companies export little besides microwave ovens and air conditioners. To change that pattern, Electrolux is winding up an international shopping spree unparalleled in the industry's history. This year the company will complete a $150-million takeover of Italy's Zanussi, a deal that makes Electrolux the top appliance producer in Europe with 23% of the market. In March Electrolux paid $773 million for White Consolidated Industries, maker of the Frigidaire brand and the third-largest U.S. appliance company behind GE and Whirlpool. The Swedish giant reckons that a big stake in the U.S. will improve its chances for rapid growth. Business is brisk in the U.S., while the European appliance market is just recovering from a prolonged slump. Electrolux was already a relatively small player in the U.S. market with Tappan ranges and Eureka vacuum cleaners (it sold the U.S. Electrolux vacuum brand 18 years ago). The White acquisition turned it into a $3-billion-a-year U.S. company overnight. Still, plunging into the highly competitive U.S. market is a gutsy call. Electrolux expects to reap big savings by exporting advanced production expertise honed in Sweden. But the company, more manufacturer than marketer, will be going up against U.S. competitors adept at both ends of the business. The battle should be fun to watch. Based in Stockholm, Electrolux has come from nowhere in the past decade to rank among Scandinavia's largest industrial companies. Last year revenues rose 9% to $4.6 billion while profits increased 10% to $162 million. The sales number would have been $7.4 billion had it included the results of Zanussi and White. About 65% of 1986 sales will flow from major household appliances. The company also makes chain saws, car seat belts, and sewing machines, plus industrial washing machines and refrigerators. Electrolux was born in 1914, the year entrepreneur Axel Wenner-Gren sent salesmen ringing doorbells across Sweden to sell his new vacuum cleaner. The company took off, in part because of the founder's genius for hype. In the 1920s Wenner-Gren scored a publicity coup by persuading Pope Pius XI to let Electrolux clean the Vatican for a year, free of charge. Electrolux prospered until the mid-1960s, when it fell victim to management infighting and dwindling profits. Enter a titan of Swedish industry, Marcus Wallenberg. In 1964 ASEA, an electrical equipment company that is part of the Wallenberg empire, acquired a large block of stock. Through ASEA and a family-owned investment company, the Wallenberg dynasty now controls a majority of Electrolux's voting shares. Wallenberg, who died in 1982, found just the man to save Electrolux, a production executive at L.M. Ericsson, the telephone company, named Hans Werthen. Werthen, 67, now chairman of the board, quickly formed a top- management troika to run Electrolux. For more than 15 years he has shared power with Anders Scharp, 52, now president and chief executive, and Gosta Bystedt, 57, vice chairman. But Werthen is still top strategist. Stocky and florid, he could be mistaken for a vacuum cleaner salesman. His business attire includes a polyester shirt and a tie knotted so that the skinny bottom strand is the long end. Werthen boards flights from Stockholm to New York with a cheap watch strapped to each wrist, one set to Swedish time and the other to New York time. In winter he punches holes in the frozen Baltic Sea and goes bathing. Last year Werthen's Christmas card pictured the great man splashing happily in the icy waters. He likes to warm up by downing a double martini with a beer chaser. Werthen quickly trimmed corporate fat. He moved the headquarters from plush offices in downtown Stockholm to a converted, turn-of-the-century vacuum cleaner factory on the city's outskirts. The company's chief penny pincher, he shares a secretary with Scharp and padlocks his telephone to make sure no one uses it when he leaves the office. Electrolux has no Christmas party. But Werthen spent heavily on acquisitions and new equipment. He hit on a winning formula: Buy ailing competitors at fire-sale prices -- ''If they're cheap, they have to be doing badly,'' he says -- then consolidate production and modernize factories to cut costs. In the past 15 years, Electrolux has bought 300 companies in 40 countries. Still, Electrolux had borrowed heavily to finance the takeovers. The buying binge left the company with a wicked hangover in the early 1980s. Soaring interest rates coupled with a worldwide recession squeezed profits. This time it was Scharp who revived Electrolux with still another round of belt- tightening. The centerpiece of his plan was a campaign to slash inventories -- a campaign that taught Electrolux valuable lessons it is now applying to White and Zanussi. The solution was to streamline plants to turn out smaller batches of appliances without losing the advantages of high-volume production. Electrolux is taking its manufacturing flair across the Alps to revitalize Zanussi. Reeling from a disastrous foray into color TV among other home electronic products, Zanussi was near bankruptcy. Electrolux is pumping $210 million into a three-year investment plan designed to revamp Zanussi's aging plants and reshuffle production. FRESH CASH from Electrolux also helped Zanussi develop a promising new product, a revolutionary washing machine called the Jetsystem. In most washers, laundry sloshes around submerged in a pool of water and detergent that fills about half the machine's inner drum. The Jetsystem squirts just enough soapy water to soak the clothes. Liquid oozes from clothes as they jostle in the rotating drum. The runoff is reheated and sprayed again, saving water and detergent. In the U.S., White's problems are tailor-made for Electrolux's expertise in production. A poor performer since the early 1980s, White earned just $34 million last year on sales of $1.9 billion. White mushroomed in the 1970s by buying many of the industry's dogs, including General Motors' Frigidaire division and Westinghouse's major-appliance business. White's management, dominated by tightfisted accountants, tried to beat the acquisitions into shape by cutting overhead and firing workers. But White skimped on spending for new equipment and fresh products at a time when GE and Whirlpool were investing lavishly. Saddled with outmoded plants, White lost market share with a deadly combination of high costs and low quality. At the end of April, Scharp and Werthen swooped down on 12 White plants in four days to grill plant managers. Scharp, for example, wanted to know the reject rate on refrigerator compressors. ''I've never seen anything resembling their production experience,'' says one former White executive. Electrolux will push ahead with White's capital spending program, which calls for investment of $100 million a year until 1990. But the Swedes have added wrinkles of their own. Electrolux installed its own man, Tappan President Donald Blasius, to head White's appliance business. Ward Smith, who had been White's chief executive, departed. The recovery plan is vintage Electrolux: Within two to three years, it vows to slash White's annual costs by $100 million. The key is to squeeze big savings by integrating White's production with that of Tappan. Tappan recently spent $25 million to streamline a range factory in Springfield, Tennessee. Electrolux will make most of its U.S. ranges in Springfield. The Tappan plant turns out ranges that have 40% fewer parts than those from White's turn-of-the-century plant in Grand Rapids, Michigan. ! WHITE AND TAPPAN should also benefit by exchanging products. Tappan will supply White with microwave ovens, a product White now purchases from Hitachi and other Japanese manufacturers. Tappan, on the other hand, doesn't make refrigerators or dishwashers. Still, it needs a full line of kitchen appliances to capture orders from builders, who like to equip new kitchens with a single brand. Today Tappan cobbles together a full line by purchasing its Tappan-brand refrigerators from Magic Chef and its dishwashers from GE. But that arrangement makes Tappan a lightweight in the housing market. Builders place big orders and demand steep discounts. Tappan makes money on its ranges, but barely breaks even on the refrigerator and dishwasher. Now White will supply the Tappan dishwashers and refrigerators -- and pocket the profits that used to go to GE and Magic Chef. Electrolux's biggest problem in the U.S. will be marketing, which White has botched. In theory, Frigidaire is its premium line, White-Westinghouse fills the medium-price slot, and Kelvinator and Gibson are the bargain brands. But White allowed their differences to blur. White changed mainly the handles and shelves to distinguish its Frigidaire refrigerators from Kelvinator and Gibson models. Nor did the top brand command much of a premium. A Frigidaire refrigerator sells for as little as 3% more than a Gibson. Electrolux plans to establish Frigidaire as White's high-quality flagship. From now on Frigidaire will get the bulk of White's advertising budget and plenty of exclusive features. Electrolux is studying the possibility of making a Jetsystem-style washing machine at White, probably to be sold under the Frigidaire brand. Frigidaire appliances will also get first crack at sophisticated electronic components and controls. White's problems might seem daunting to some. But for Sweden's Mr. Fix-It, turning weaklings into winners is all in a day's work. |
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