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Whirlpool Chairman and CEO David R. Whitwam, 58, runs a global corporation whose biggest troubles are at home. Overseas, the Benton Harbor (Mich.) appliance maker is chalking up gains in such emerging markets as India and Brazil. But in the U.S., Whirlpool is locked in a profit-squeezing price war with second-place General Electric Co. In the meantime, the domestic market, which still accounts for 60% of Whirlpool's annual sales of $10.3 billion, is shrinking, as higher interest rates slow homebuilding.
Perhaps even more troubling are seismic changes in U.S. appliance retailing. By yearend, Circuit City will no longer be stocking major home appliances. The chain had accounted for 6% of all sales of refrigerators, washers, ovens, and other white goods -- many of them Whirlpool products. Whirlpool warns that Circuit City's exit will cut its third-quarter income by $35 million, to as low as $70 million, and unit sales by 250,000. Fourth-quarter profits will also suffer.
And that's not all. Although Whirlpool retains its 80-year partnership with Sears, Roebuck & Co. to supply the retailer with Kenmore appliances, discounters are elbowing in. Home Depot Inc. is adding big-ticket appliances to its stores at a rapid clip, but the chain is carrying only GE and Maytag Corp. products. Wal-Mart Stores Inc. also plans to enter the market, but initially at least, only with GE goods.
The developments -- and persistent rumors that Sweden's Electrolux will acquire Maytag to create a stronger rival -- are crushing Whirlpool's stock. Whirlpool shares are down 40% in the past year and now trade at an eight-year low of around $39. Recently, Whitwam took Business Week correspondent Michael Arndt on a market-by-market tour of Whirlpool's operations. Here are edited excerpts from their conversation:
Q: I'm puzzled. The housing sector, though slowing, is likely to have its second-best year in history. Why is the appliance industry having such a hard time?
A: I'm not sure I'd describe it as having a hard time. We really view Circuit City's decision to exit the appliance business as a one-time event in the North American marketplace that will hit our performance during the third and fourth quarters and then will go away.
The consumer demand that was filled by Circuit City is just going to naturally migrate to others in the existing retail structure. Our view is this doesn't signal a fundamental, structural change in the performance of [our] company.
Q: Would some of the changes in retailing -- Circuit City getting out, Wal-Mart coming in -- favor some manufacturers over others? For example, does it tend to favor big players like you?
A: As changes take place in the retail environment, the most important strength that a manufacturer needs to have is the brand. Price competition comes where there is no differentiation between competitors' offerings -- where they look alike, they function alike, where they've got the same features. The brand is what sells to the customer. And we think we have a stable of brands that retailers need to have on their floor.
Q: Moving overseas, you've made a big commitment in Europe. One of your competitors in Europe, of course, is Electrolux, and there has been a lot of speculation about Electrolux trying to get bigger in the U.S. by buying Maytag. How do you view Electrolux as a competitor? A: We are the largest producer of appliances -- and by a fairly wide margin -- in the U.S. And if we think about various combinations of companies coming together, we're going to remain the largest producer in North America. So we don't think we'll be competitively disadvantaged. Even if the No. 4 and No. 3 players get together, they're still No. 3.
Q: Another overseas market you've staked a claim on is Latin America, particularly Brazil. How's that shaping up?
A: Our strongest consumer-branded business anywhere in the world [may be] in Brazil. We have about 45% value share of all the appliances that are sold there. Brazil went through difficult times the last two, three years. But we see the industry up 10% today. The important thing is to integrate it into a global platform.
Q: How far can you take this global platform before you find you're pushing a product on people they don't like?
A: Maybe we should stop there and talk about what your question really is: Are we forcing product designs on markets for the sake of having global products? We are absolutely not. But the customer doesn't care what the product contains inside -- the components, or materials, or technology.
So, what we do with this global approach is to commonalize as much as we can the design of the product and the components that we use. But we understand where we've got to stop commonalizing and move toward customization to meet the local consumer's wants and needs.
In most of our products...60% to 70% of the content -- the components, the materials, the technology -- is identical. When we do that, we're able to leverage our supply base, our design costs, and, as importantly, we're able to migrate innovation rapidly around the world. If you have totally different platforms, you can't migrate innovation around the world.
Q: Getting back to the first question -- on why things look so rough. The reason I phrased it that way was because within the last year your stock was up in the 70s and today it's down into the 30s. Is Wall Street giving you a fair shake?
A: We're not unique. This has happened to lots of companies in North America. But we don't believe the market is reflecting the value this company is creating, and we think the discounts that companies like ours have isn't really rational.
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