You remember the routine about the lonely Maytag repairman: He sits all day with nothing to do because the company's appliances never need fixing. These days, Maytag Chairman and CEO Ralph F. Hake might wish the same could be said for the company. Less than three months after he took the top job, the September 11 terrorist attacks in New York and Washington plunged the nation's economy into what Hake believes is a full-blown recession. Retail sales of Maytag products fell 50% that week and, despite a comeback a week later, remain below preattack levels. Now, Hake fears a deeper slump as anxious Americans put off plans for new homes or remodeling projects.
Not that he didn't have his hands full already. Maytag's net income had been slipping every quarter since mid-1999. Its stock chart looks even bleaker: When Hake was hired on June 19, after losing out on the top spot at engineering firm Fluor Corp., Maytag shares were down 55% from their August, 1999, peak price of $68.25. They're lower still today, closing Oct. 9 at $25.82.
What happened? For one, Maytag lost three of its biggest retail outlets over the last year as Circuit City Stores Inc. quit selling big-ticket appliances and Montgomery Ward & Co. and Heilig-Meyers Co. went bankrupt. Also, the housing market turned cooler in 2000. But Maytag itself must share some of the blame, too. After a string of blockbuster product rollouts in the 1990s, Maytag managers let costs get out of hand as product development lapsed. Meanwhile, employees grew demoralized as one of Hake's predecessors, Lloyd D. Ward, made plans to move Maytag's headquarters from Newton, Iowa, where the company began business in 1893. Ward was pushed out last November when former CEO Leonard A. Hadley came out of retirement to act as interim boss.
The 52-year-old Hake, however, is busy making repairs. His most visible move: The $325 million acquisition of Amana Appliances. The August deal solidifies Maytag's ranking as the nation's No. 3 maker of white goods and should lift sales above $5 billion in 2002. But Hake's real fix-it work is internal. He hopes to bring his experience as the former chief financial officer at Whirlpool, and then Fluor, to bear in cutting Maytag's overhead costs by $60 million within the next 15 months. He also wants to shorten the company's product-development cycle to two years or less, vs. more than three years today. And to reassure employees, he and wife Robin are building a home in Newton.
Hake's spacious corner office looks over Maytag's office complex and the heavily wooded streets of Newton, crowned by the limestone dome of the Jasper County Courthouse. Recently, over a cup of black coffee, he sat down with BusinessWeek Correspondent Michael Arndt to talk about his revival strategy for Maytag in today's souring economy. Here are edited excerpts of their conversation.
Q: Everybody's concerned about the economy today. What's your bead on the economy?
A: I think the likelihood of a recession was pretty high before Sept. 11. We were tracking along a path that said we were going to go into a recession, mild or otherwise. Now, I think there's very little doubt we're headed into a recession.
I guess if there's a silver lining to that, my belief is we would have slipped into that before with a lot less political [goodwill] and a lot...more finger-pointing. What you have now is you have all the financial institutions, the Fed and the federal government recognizing where we're headed and trying to do something about it. I think we'll get both fiscal stimulus and monetary stimulus. Ultimately, that will help turn it around. My crystal ball isn't any clearer than anybody else's, so I don't know whether that's mid-year next year, end of the year next year.
Q: Are you back, in terms of retail sales, where you were before Sept. 11?
A: No, it's still below the trend rate. If you said down 5%, that wouldn't be wrong.
Q: Do you think it's going to get worse than falling 5%?
A: Maybe I'm an optimist, but what I hope is that we begin to close that gap. In one sense we're lucky because two-thirds of the appliance business is replacement business. If your refrigerator or washing machine breaks, you usually go shopping and buy a new one. The other third of the business, however, is driven by housing. We have not seen the impact there yet. There's always a delay between pessimism and when people start pulling back, so that's yet to come.
Q: One other area I'm curious about is how consumers behave in a downturn. Do they cut back on higher-end products, or do high-end products hold up better because folks who buy those products have more wherewithal?
A: You're right fundamentally in that those people who are well off and secure in their jobs and have lots of disposable income continue to live the lives they've lived. Maytag benefits from that because we target the upper third of the market. The people we deal with, although there's a reverse wealth effect from the stock market, aren't inhibited from buying what they choose: cars, appliances, whatever.
My belief is, the current recession [nothwithstanding], we're going to see very good growth in these high-end appliances. Just look at the demographics: Baby boomers are reaching their peak earning years. What do people do? You can only buy so many cars and take so many vacations. They remodel their homes. They put in new kitchens. They upgrade. That's very good for a high-end appliance company. But that's the trend -- that's not the next six months.
Q: What was your assessment of the company when you came to Maytag?
A: I spent 12 years at Whirlpool, so I knew something about the competition. First of all, I found a very committed, loyal group of people [here at Maytag]. I found, as I expected, great talent in sales and marketing. For years, as a competitor, I admired Maytag's sales force, and they really are very, very good.
On the other hand, there had been some trauma here. People were worried about their future. I felt we needed to settle people down and get them focused on the business as opposed to worrying about whether they had jobs. I also discovered some areas where we could improve, which I had suspected. The cost structure is a bit out of line here at Maytag. So I'm trying to [impose] a very rigorous cost discipline, both within the factories and outside.
Another area that I felt required attention...was the product-development process. Ironically, the gap in new products, which caused a lot of the demise in the earnings and the sales prices, had little to do with [a lack of] good ideas -- there were lots of good ideas out there. It had a lot to do with execution against those [ideas]. Many of the new products that are going to come out in the next two years were conceived of, and actually scheduled to be launched, in 1999, 2000, and 2001. And lastly I felt that given the heritage of the company for quality, that we had to have the best quality in the industry. And our quality in all cases is not the best today. We have to work harder on that.
Q: Maytag has some breadth today. You've got laundry and you're in the kitchen with Maytag and Jenn-Air. You've got Hoover vacuum cleaners. Do you think that Maytag should go into other ventures?
A: I see it as kind of a phased approach. Phase I is run the business we have better. Get Amana integrated. Get the platform solid. But I do think that, in spite of having pretty good innovation and some good products, we as a company have to branch out from what we call our core five appliances, which basically is refrigerators, washers, dryers, cooking, and dishwashers. Many other companies manage seven, eight, or nine. Room air-conditioning is one we're beginning to test the market in. There's also trash compactors. There's freezers.
Q: Would it make sense to develop those internally?
A: Typically, it does. I always look at what could you sell through the same sales force to the same dealer structure. That's your big leverage point. If you give a sales guy two extra products to sell, he's going to do that in the same sales call. So the second phase would be to look selectively at those thing as one of our sources of growth, along with innovative products.
The third source of growth is geographic, and I don't mean global, I mean North America. I feel that Maytag is under-represented in Canada and certainly in Mexico. We can grow in those markets substantially.