Newell Rubbermaid Newell 1966-1998: Describe Newell\'s Corporate

Newell Rubbermaid

Newell 1966-1998: Describe Newell's corporate strategy from 1966 through 1998 under Daniel Ferguson with a focus on explaining why the strategy was successful? Was the decision to acquire Caphelon and Burnes a good idea? Why or why not?

Newell, "a privately held curtain rod manufacturer" (Montgomery, C. September 2, 2005.) under the direction of CEO Daniel Ferguson, branched out "and assembled a stable of businesses via acquisition" (Montgomery, C. September 2, 2005. 1) which produced and sold "durable, staple consumer goods that stayed the same from year to year" (Montgomery, C. September 2, 2005. 2). The corporate strategy designed by Ferguson was to utilize the trend and significant growth of the discount retailers. "Rather than selling one product, curtain rods, to many channels, Newell would sell a variety of products to one channel- the discount retailers" (Montgomery, C. September 2, 2005. 1). The strategy depended several key factors: the timely acquisitions of existing manufacturers which produced high quality housewares items, a product line which consisted of "high quality, no frills, utilitarian goods that were reasonably priced" (Montgomery, C. September 2, 2005. 2), and an efficiency of operations which controlled selling, general, and administrative expenses.

These elements however, worked only in conjunction with the growth of the discount retailer. Newell did not have to concern itself with bringing new products to market, as their acquisition strategy handled that aspect of corporate growth; rather the company flourished because it could effectively manage their discount retailer relationships. "Newell's management interfaced with their customers- the discount retailers-at every level" (Montgomery, C. September 2, 2005. 3).

In riding the train of success of the discount retailers, Newell captured significant market share, "in all its product categories…and emerged as the single most important company in the housewares industry" (Montgomery, C. September 2, 2005. 4). Perhaps most impressive in their growth cycle was the "17-year record of acquiring ailing housewares and hardware producers" (Montgomery, C. September 2, 2005. 4), and the ability to "streamline and integrate these acquisitions" (Montgomery, C. September 2, 2005. 3) into the Newell family, a term "coined 'Newellization' (Montgomery, C. September 2, 2005. 3). The genius of the strategy was not on organic growth through product innovation and design, but the utility of using discount retailers to sell a plethora of products, acquired through company acquisitions, to a loyal customer base.

In this context the decision to acquire Calphalon, a "premium priced cookware" (Montgomery, C. September 2, 2005. 4) manufacturer, and Burnes of Boston, "a manufacturer of premium picture frames" (Montgomery, C. September 2, 2005. 4) was not apposite to the strategy of integration which had served the company so well. Rather than purchase companies with products already familiar to the discount retailers, the Calphalon and Burnes acquisitions were designed "to keep these brands out of the discount channels where they were beginning to threaten some of Newell's 'best' product offerings" (Montgomery, C. September 2, 2005. 4). These Newell acquisitions were a significant departure from their existing corporate strategy of growth through product offerings via acquisition.

Rubbermaid Acquisition: Comment on the wisdom of the Rubbermaid acquisition at the time the acquisition was completed. Do you think the acquisition was a good idea at the time it was completed? Why or why not?

"Newellization" (Montgomery, C. September 2, 2005. 3) had proved to be an enormously successful piece of Newell's corporate strategy, accounting for a" compound annual growth rate of 21% from 1977-1997, and a compound annual net income growth rate of 19%" (Montgomery, C. September 2, 2005. 4). The purchase of Rubbermaid, Inc., "a company whose $2.5 billion in annual sales was almost as large as Newell's $3.5 billion" (Montgomery, C. September 2, 2005. 4); on the surface, was precisely the targeted acquisition which Newell had so successfully integrated into their family over the preceding years. "The highly regarded company had a stable of well-known brands, an established new product development process, and a strong international presence" (Montgomery, C. September 2, 2005. 4). In Rubbermaid, Newell had discovered what appeared to be "a match made in heaven" (Montgomery, C. September 2, 2005. 5) as the companies complemented each other:

Newell excelled in operations efficiency, service, and delivery, while Rubbermaid faltered. Rubbermaid had a strong history of internal growth and spent about 14% per year on research and development, while Newell did not even have and R&D organization. Lastly, Rubbermaid marshaled strong consumer brands and a well-recognized reputation for product quality, while Newell lacked both of these end- user advantages, but was very well regarded by the large discount retailers. (Montgomery, C. September 2, 2005. 5)

From an acquisition and potential for "Newellization" (Montgomery, C. September 2, 2005. 3) vantage point, the combined company would perfectly mesh Newell's discount retailer focus and operational efficiency, with Rubbermaid's superior and innovative product lines. Newell's acquisition of Rubbermaid was the quintessential example of a strategy which had served them so profitably over the previous three decades.

Rubbermaid in Trouble: By 2001 the Rubbermaid purchase was becoming a serious business problem for Newell Rubbermaid. Why? What is your opinion of the effectiveness of the management of the Newell and Rubbermaid integration?

The merger which was deemed to be the perfect match began to show signs of enervation shortly after its completion in October of 1998. Despite immediate gains in "on-time product delivery (a problem that had plagued Rubbermaid) from the high 70% range to over 90%" (Montgomery, C. September 2, 2005. 6); the Rubbermaid troubles including: rising commodity price input costs (resin), poor customer service, and loss of a key discount retailer Wal-Mart enveloped the combined Newell Rubbermaid entity. As a result the once darling of Wall Street saw their stock price plummet from $50.00 a share in 1998 to $18.69 a share in just two years (Montgomery, C. September 2, 2005. 6).