NEWELL COMPANY: CORPORATE STRATEGY

Submitted by: Group No. 3

Introduction

• Broad range manufacturer of basic home and hardware products

• Two important acquisitions by CEO John McDonough– Calphalon a privately held manufacturer

of anodized aluminum cookware– Rubbermaid a manufacturer of plastic

consumer and commercial products with revenues of $2.4 billion vs Newells $3.2 billion

1902 1917 1966 1972 1990

ESTABLISHEDBrass curtain rods

NATIONAL DISTRIBUTION.

FIRST ACQUISITION

PUBLICLY LISTED

GROWTH AND DISTRIBUTION.

FURTHER EXPANSION OF BUSINESS LINE

ACQUIRED OVER 30 FIRMS

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NEWELL HISTORY

Reasons for Acquisitions

• Product diversification

• Increasing pricing power from customers (volume retailers) forced Newell to develop or buy strong brands.

• Need to grow as research showed that companies with over $10 billion commanded higher valuations

Roots of Strategy

• E.A.Newell bought assets of bankrupt manufacturer of brass curtain rods in 1902

• Drivers for early success– Migration to cities– Demand for extensive windows

• Initial consumers were small hardware stores, industrial builders, specialty retailers and later national chain stores

• Early problem identified was lack of differentiation in product. (Ex. Selling drapery hardware to all channels)

• Solution was to acquire a small window shade manufacturer.

“build on what we do best”philosophy

• Identified trend toward consolidation in retail business

• Focus on making a low cost/high volume product and sell it to the large mass retailer

• Acquired first non drapery brand Mirra-Cote adding a new product line and a new relationship with discount retailer Zayre

• Possibility to leverage the relationship for selling other products too

Rationale behind the acquisition of specific companies

• Acquiring value – adding products• Achieving synergy• Diversify their portfolio of products• Brand Equity • Shelf Space – targeted products ranked #1 or #2

in market share• Focus only on products which cater to mass

retailers • Venturing in foreign markets

What is Newellization?

• Process of streamlining• Improving efficiency and profitability• Time taken – 18 months• Comparing income statements

Newellization in Anchor Hocking

• Anchor Hocking – manufacturer of glassware and cabinet hardware

• Sales of $757 million in 1986• Profit margin – 0.5 %• Employee reduction • Inventory control• Abolishing loss making product lines and retail

stores• Centralization

Wm. E. Wright….Profit making? So what?

• Home sewing products• Solid sales and profit performance• Market for home sewing skewed towards

small retailers

Serving Mass Retailer

Three chains controlled 70 % retailer market

Considerable advantage over price and scheduling

Greater efficiencies in warehouse and distribution systems

Serving Mass Retailer

Electronic Data Interchange

Nightly point of sales Data

Cross Docking

Serving Mass Retailer

Single Goal- Furnishing product and service to mass retailers

Combination of line-fill and on-time delivery

Strategy- 21 separate divisions.

Why Calphalon? Does it add any value to Newell?

Reasons

• Addition of Calphalon creates value by extending its reach into the non-mass merchandise market

• While most of Newell’s product offerings are utilitarian, Calphalon’s cookware products are considered to be an emotional purchase for the premium end user

• McDonough thought Calphalon could share its expertise in pull strategy and build strong connection with end consumer

Why Calphalon accepted the offer?

Reasons

• Competitors like Meyer’s cost were 20% to 30% lower than that of Calphalon

• Newellisation strategy can reduce their COGS and SG&A cost

Newell already has their own cookware products in the good, better and best categories in mass retail stores. Is there any need for adding more cookware products?

Analysis

• Large retailers like Walmart still held considerable amount of power over Newell

• Exit of large retailers might make Newell vulnerable

• Calphalon acts as the bridge to Newell to expand its distribution channels in areas other than through volume

Concerns

• Delicate balance between “Newellization” and protecting the integrity of the Calphalon brand

• If taken too far, “Newellization” may erode Calphalon’s premium service and destroy the barrier of entry for premium competitors at high end retailers

Why Rubbermaid?

"Rubbermaid and Newell are a strategic fit," said Newell Chief Executive John McDonough. "The Rubbermaid brands bring us further breadth of distribution, increased shelf space and an enhanced presence in Europe.“

- LATimes(22/10/1998)

Why Rubbermaid wanted the merger?

Reasons

• Rising price of resin contributed to rising COGS, but competitors unwilling to hike price

• Problems with management and operations

• Lack of service as per customers

• Lack of volume growth and diminishing profit in 1997

Analysis of the merger

• The acquisition happened within 14 days, so less time for analysis of pros and cons

• The sheer size of Rubbermaid (75% of Newell’s revenue in 1997) points to a longer “Newellization” process than normal

• Rubbermaid suffers from internal problems which might give additional headache

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