More than a Thousand IBEW Local 1985 (North Canton OH) Members' Jobs Threatened by Dismal Performance of Maytag Management

NOTE: Workers may pay for managers' incompetence--the Maytag managers have screwed up the best name in consumer goods, but they now expect the workers to pay for management mistakes! MW


What's in a name? Profits!

Hoover must hone identity, market itself, cut costs to regain power in industry

By Erika D. Smith and John Russell, Beacon Journal business writers, Sun, Apr. 24, 2005


Hoover isn't what it used to be.

It's no longer an industry leader. It's no longer synonymous with vacuum cleaners.

There are plenty of reasons for that and many consequences.

In North Canton, where Hoover was based before Maytag Corp. uprooted the company, more than 1,000 manufacturing jobs ride on Hoover's fortunes.

Maytag has vowed to stick around until at least 2008, but a growing number of Hoover workers say they fear the North Canton operations won't exist that long.

The company needs to turn a bigger profit on its high-end vacuums and steam cleaners -- the products Stark County folks build and the products that are hardest to move off store shelves.

More cuts need to be made, Maytag's chairman and chief executive, Ralph Hake, said Friday.

The causes are numerous: pricing pressures from globalization; rising raw materials costs; a miscalculation of the demand forcheaper sweepers; a slew of new competitors.

But what may be hurting Hoover the most is what historically has been its greatest strength -- its brand name.

``The Hoover brand has an awareness built over many years,'' said Roger Blackwell, professor of marketing at Ohio State University's Fisher College of Business. ``But it needs to appeal to a growing affluent market and innovate.''

Hoover has been innovative, introducing several floor-care products in the last two years.But some of that may have come too late.

The division of Maytag lost market share on the low end when it failed to recognize consumer demand for vacuums around $100. And it lost market share on the high end as Hoover chased low-end sales.

The result, Blackwell said, is a brand that doesn't have as much of an identity as it once did.

People are still very much aware of the brand, but the name Hoover doesn't have the same ring, he said. It's lost some of its luster -- as Cadillac did when it went from being a top-end luxury brand to the cars of choice for older people.

``Brand is much more than awareness,'' Blackwell said. ``Where Hoover has missed is the personality of the brand.''

Personality could be what Hoover's toughest, high-end competitor exudes the most.

Dyson, in just three years after debuting in the United States, became the top upright vacuum cleaner in dollars in the fourth-quarter of 2004. It captured 21 percent of the U.S. market, beating Hoover's 16 percent, according to the market research firm NPD Houseworld. Hoover still leads in unit sales and broader categories of cleaners.

Dyson, a decade-old company based in the United Kingdom, has created a following -- one that's not necessarily based on reliability or price.

Dyson vacuums, which range from $399 to $600, have appeared in episodes of Will and Grace and Friends, and in exhibits at the Metropolitan Museum of Art and as props in the window display of the Manhattan clothing store Barney's.

Still, in a 2004 survey by the nonprofit British consumers association Which?, Dyson uprights were named the most likely to need a trip to the repair shop, but also the most likely to be recommended by owners.

``What's important is to create an emotional connection for the brand for the core market,'' Blackwell said.

It's unclear whether Hoover, or Maytag as a whole, has the same connection anymore.

``It seems as though there's a gaping hole in the marketing strength of this company,'' Longbow Research analyst David MacGregor told Maytag's Hake during a conference call Friday.

A year-old Hoover advertising campaign, developed by Element 79 Partners, attempts to make that emotional connection. It targets busy women who want to clean quickly and easily, and get on to the fun things in life. The red Hoover logo is made out to be the symbolic button that makes it possible for consumers to have it all

``We're showing women that Hoover gets it -- both the dirt and the pressures of contemporary life,'' Janel Dufek, Maytag director of marketing development, said in a statement.

Element 79, based in Chicago, didn't return a call seeking comment.

Dyson ads, on the other hand, consist of founder James Dyson explaining why other vacuums don't work as well and showing why Dyson sweepers do.

It's the same kind of tactic that retailers use to sell high-end vacuums.

``You cannot talk your way through a vacuum sale at the higher end. You have to demonstrate,'' Anthony Bologna, owner of United Good Housekeeper inAkron.

People won't plop down $400 for a vacuum cleaner anymore without understanding why they should, he said. Not when there are $59 alternatives on the shelf.

``I think it's very important for companies to explain why vacuums are worthwhile,'' Bologna said.

All of that comes back to marketing strategy, and ultimately, to brand management, said Clayton D. Tolley, president and chief executive of the corporate branding firm Addison Whitney.

``You have to figure out where your brand fits... and what it means to customers,'' he said.

That has become more difficult with recent industry shifts.

Floor care has gone from an industry dominated by only a few players selling at one, high price point to an industry skewed toward the low end with more than a dozen major players.

Hoover has introduced new vacuums at the low end and at its bread-and-butter high end. And that, Tolley said, has helped to erode its brand name.

``It's hard for the luxury brand to be the luxury brand at the high-end level when you're selling it at the low end,'' he said.

Brand identity is always important, but it's even more important when an industry becomes more competitive. Companies have to carve out a niche for their brands -- something that consumers can hang their hats on. It's something, Tolley said, that needs constant tweaking.

``If you miss it, and you're playing catch-up,'' he said, ``it could be impossible (to rebuild) or it -- it's going to take years.''

Pressure to cut costs

In addition to marketing hurdles, Hoover faces enormous pressure to slash its manufacturing costs by following the lead of its competitors in moving production offshore.

Dyson recently moved production of all vacuum cleaners from England to Malaysia. Electrolux AB of Sweden, parent of Illinois-based Eureka, is moving production from Western Europe and the United States to Mexico and Hungary.

Royal Appliance Manufacturing Co., the maker of Dirt Devil, makes vacuum cleaners in China.

Bissell Homecare Inc., the largest seller of vacuum cleaners in the U.S. last year, recently closed its original factory in Grand Rapids, Mich., throwing 200 people out of work, and moved its production offshore.

None of the companies would say how much they've been able to save by moving production overseas. Yet those companies are profitable. Last year, Maytag lost $9 million. On Friday, its first-quarter earnings crept back into the black, to $7.7 million, but still down 80 percent from a year earlier. Its stock plunged 28 percent on the news.

Hoover has been moving production to low-cost facilities in recent years, including Texas, Mexico and China. But it hasn't been enough.

And as Hoover's costs remain high, the average price of a vacuum cleaner has dropped by more than 50 percent in the last five years, according to HomeWorld Business. Many companies offer lightweight cleaners that sell for under $49.

The trend started in 2000, as Bissell cut the price of its cheapest soft-bag upright from $59 to $49 at Wal-Mart Stores, the nation's largest retailer. Bissell sold about 1 million cleaners that year, accounting for almost 10 percent of the U.S. upright market.

That forced other companies, including Eureka and Royal, to cut their prices. At first, Hoover resisted, telling analysts that price wasn't everything and consumers would be willing to pay more for Hoover's brand name and better products.

But eventually, Hoover followed suit.

But that's not to say that consumers are turning their backs completely on more expensive sweepers.

Rick Bryson, owner of Bryson's Sweeper Shop in Akron, said he's noticed the shift. Consumers are still buying inexpensive vacuums from big-box retailers, but the throwaway craze is becoming too costly for some people.

``Four or five times a week, I get people through the door saying, `I'm tired of these cheap vacuums,' '' he said.

At Best Buy, which recently dropped every Maytag brand except for Hoover, consumers are going for the higher-price Hoover and Dyson sweepers, too, said Stacy Silks, Best Buy's senior buyer for floor care and microwaves.

Dyson is launching a new cleaner this week, with a retail price of $599, that rolls, tilts and pivots on a large ball instead of small wheels. That allows homeowners to sharply turn the machine with a simple movement of the wrist, rather than dragging it it back and forth like traditional uprights.

``It's an absolutely revolutionary technology with over 100 patents,'' said Clare Mullin, global marketing director for Dyson.

Last year, Dyson rolled out another high-end product, a bagless upright with a removable wand. Sales beat forecasts, Mullin said.

Others aren't surprised that Dyson is having success where Hoover has been struggling. But part of Hoover's problem is that it has been slow to recognize major trends. It was the last major company to launch a bagless vacuum. It was the last major company in the industry to recognize that prices were falling and it would have to take similar steps.

Hoover traditionally has competed at the premium end of the market and shows no signs of abandoning it. Hoover is aggressively going head-to-head with Dyson in the bagless self-propelled upright market. Hoover has a model for $299 and Dyson has one for $399.

``There is a proven market for high-end vacuum cleaners,'' said Bill McLoughlin, executive editor of HomeWorld Business, an industry publication.

Painful for area

Maytag, meanwhile, has been moving production of Hoover's low-cost products to facilities in the Southwest. North Canton is still smarting from news in March that it could lose hundreds more jobs. In the last two years, the local work force -- both blue collar and white collar -- has been cut nearly in half.

``Obviously, when you're trying to compete against China and Mexico, it makes it pretty difficult,'' said Jim Repace, president of the International Brotherhood of Electrical Workers Local 1985, which represents about 1,400 hourly workers in Stark County.

Maytag is making no secret that it will do whatever it takes to compete better. Company officials said Friday that competitors are ``attacking us from low-cost countries.''

Two of the most vulnerable U.S. plants, Maytag officials said, are a laundry factory in Newton, Iowa, and the North Canton floor-care factory.

Hake, the CEO, said Maytag is in deep talks with the unions of both plants to cut costs and become more competitive. The company said it will honor its contract with North Canton's union, which runs through 2008, but it could announce its long-range plans much sooner.

``This is not something we expect to drag out,'' Hake said.

Options include cutting more costs here, investing in other locations and then ``migrating'' North Canton's product lines there over time.

Union officials say they are trying hard to meet Maytag halfway to keep operations here. But one thing the union won't do is to reopen its 109-page contract, which took effect in December 2003, and gives workers a huge raft of rights and protections in areas from holiday pay and shift premiums to grievances and call-back procedures.

``We are doing everything humanly possible to keep the plant in operation beyond 2008,'' Repace said. ``We're meeting. We're talking. The lines of communication are open.''

But it remains to be seen whether it will be enough.


Erika D. Smith can be reached at 330-996-3748 or ersmith@thebeaconjournal.com. John Russell can be reached at 330-996-3550 or at jrussell@thebeaconjournal.com.
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