The Revolving Door At Rubbermaid

It's been a scorcher of a summer, and a particularly uncomfortable one for Rubbermaid Chief Executive Wolfgang R. Schmitt. On July 18, Schmitt announced that earnings at one of the most admired pillars of Corporate America plummeted by 49% in the second quarter, to $29 million. Worse, the maker of those ubiquitous plastic housewares and toys predicts that its earnings could be flat this year because of soft household spending and increased resin prices. It's the first earnings setback since 1980 at Rubbermaid Inc., which has long been held up as a model of predictable growth, creative management, and rapid product innovation.

The problems at Rubbermaid go far deeper than cautious consumers and rising raw-material prices. The company, based in Wooster, Ohio, is racing to confront a raft of new competitors, while trying to placate its increasingly demanding retailers. Earlier this year, stores balked at Rubbermaid's attempt to raise prices to offset the doubling in resin costs, and Rubbermaid had to settle for less than it was asking.

A WAVE. At the same time that it's trying to cope with irritated clients, the company has been rocked by a wave of executive departures--many not voluntary--since Schmitt took over near the end of 1992 and began reshaping the executive suite. Three division chiefs have left in the past 18 months. Two top managers of the company's international operation have departed in quick succession. And a slew of lower-level executives have also walked.

Former executives place some of the blame for Rubbermaid's turnover on the hard-driving, autocratic management style of Schmitt and his No.2 executive, President Charles A. Carroll. "It's the Wolf and Chuck show, so division presidents who want to have independent thought don't last long," says John L. Mariotti, who ran the Office Products Div. before leaving last year. Rumors at the company and on Wall Street are even buzzing that former CEO Stanley C. Gault, who retired in 1991 after a sensational 11-year run and remains on the board, will return. Although he provided plenty of guidance, Gault allowed managers greater freedom during his tenure, say those who worked with him.

Schmitt wasn't available to talk to BUSINESS WEEK. But Rubbermaid officials argue that the turnover isn't out of line, and that some managers the company has hired from outside haven't been comfortable with its fast-moving, team-based culture. As for the rumors about Gault's possible return, directors contacted by BUSINESS WEEK deny the reports and insist Schmitt has their full support. He's "a very, very impressive executive," says director Paul G. Schloemer. Gault, who is retiring as CEO of Goodyear Tire & Rubber Co. at yearend, will not comment about Rubbermaid.

Rubbermaid isn't used to the harsh scrutiny it's been getting. It boasts some of the strongest af brand names and remains one of

the consumer-products world's greatest innovators. It cranks out 400 new products a year, while making shrewd acquisitions to extend its product line. Perhaps one of its biggest successes: Little Tikes, the maker of durable plastic toys, including the Cozy Coupe, which executives refer to as "the best-selling car in North America." Since Rubbermaid acquired Little Tikes in 1984, its sales have increased more than elevenfold, to $500 million, according to Kemper Securities Inc.

Rubbermaid's financial fundamentals still look healthy, too. It has little debt. And until 1994, it usually hit its goal of 15% annual earning growth. Rubbermaid's profits are expected to rebound in the second half, thanks in large part to lower resin prices. Next year, analyst William H. Steele of Dean Witter estimates, earnings could climb 22%, to $253 million, as Rubbermaid's sales hit $2.6 billion, up 8%. "I don't think anyone is even beginning to count Rubbermaid down or out," says Tom Cordano, president of Tucker Housewares, a unit of Mobil Corp.

Still, in recent years the competition has started to close in. Little Tikes now faces strong challenges from Step 2, based in Streetsboro, Ohio, and Mattel's Fisher-Price. Both manufacture similar plastic toys. Even Rubbermaid's Con-Tact shelf liner is under pressure. Tiny Manco Inc., based in Westlake, Ohio, claims that it's gaining market share with its new nonadhesive liner.

Meanwhile, critics say the giant manufacturer hasn't done enough to please its retailers. Wal-Mart Stores Inc., which alone accounts for 15% of Rubbermaid's $2.2 billion in sales, was especially annoyed at the company's efforts to hike prices, says a retail industry insider. The giant chain "punished them a fair amount" by reducing its marketing support for Rubbermaid merchandise, the source says. Rubbermaid wouldn't comment on how its pricing affected Wal-Mart but insists it has good relations with the retailer. For its part, Wal-Mart wouldn't comment about its dealings with Rubbermaid.

Rubbermaid's contretemps with Wal-Mart comes at a time when most other manufacturers are bending over backwards to please increasingly powerful retail chains. Rubbermaid has lagged in important areas, such as developing computer systems that automatically replenish retailer supplies based on actual sales, not forecasts. "They may have rested on their laurels too much," says one major retailer, who says Rubbermaid's systems for keeping its products in stock are less than stellar.

Schmitt has moved to address the new challenges. At last year's annual meeting, he outlined a variety of measures to cut costs and boost profits. These include centralizing administrative functions, such as accounts receivable, and standardizing computer systems among divisions. His goal: to chop $335 million from annual costs within three years. So far, Rubbermaid says it's on track to meet its target.

New acquisitions have also helped Rubbermaid extend its product line and accelerate growth. One of the more promising is Carex Inc., which makes walkers and canes, giving Rubbermaid a toehold in the home health-care market. Altogether, the company's purchases have added about $180 million in yearly sales so far.

Rubbermaid is also upgrading computer systems to track inventory and improve service to retailers. Meanwhile, Carroll, Rubbermaid's president, has temporarily resumed his old job as head of housewares and is criss-crossing the country to repair damaged relations with customers.

A CASUALTY. Still, the upheaval in top management may be impeding progress. Former executives say some of the recent turnover stems from Schmitt's intense, results-oriented style. The CEO, a 29-year Rubbermaid veteran, led the housewares unit for most of the 1980s, where he steadily improved performance. But Schmitt is not the most people-sensitive manager: He may publicly tell subordinates that their ideas are "dumb," says one ex-staffer. Numerous former managers also say he gets far more personally involved than Gault did in telling managers how to do their jobs. One recent casualty: Fred S. Grunewald, the company's housewares chief, who quit in May after only a year on the job. Rubbermaid says Grunewald should have spent more time with customers explaining recent price increases. Grunewald won't comment.

Rubbermaid's international staff has also suffered many departures--at a time when the company is trying to build its global presence. Schmitt had been counting on foreign markets to generate 30% of Rubbermaid's revenues by 2000, compared with 16% last year. Now, instead of depending on a centralized international staff at headquarters to expand its market share abroad, Rubbermaid is leaving global growth up to its individual operating divisions. Its Little Tikes unit, for example, recently opened a new plant in Luxembourg and is expanding its distribution in Korea.

Still, Rubbermaid may not have the expertise to meet its international goals. Lately, the company has been hiring young MBAs with international backgrounds to try to create a multinational culture, but the ranks of veteran international managers are thin. Schmitt was born in Germany and lived there until he was 10, but he has limited international experience.

That lack of global exposure hurts, say former executives. Last year, Rubbermaid pulled out of a joint venture with DSM, a Dutch conglomerate with a housewares unit. Rubbermaid was frustrated because it couldn't get a majority position. But Anthony Lenders, who ran the venture, claims the alliance between DSM and Rubbermaid was uneasy because Schmitt refused to listen to DSM board members, even though he lacked overseas experience.

For now, investors seem willing to give Schmitt time to get the company back on track. While the stock has underperformed the market over the past four years, it has bounced back from recent earnings surprises. Still, it's currently trading at just under 30, little changed from the start of the year. Unless Schmitt can put Rubbermaid back on the corporate pedestal it once occupied and spark a livelier stock performance, he may find the winter months won't offer any relief.

Rubbermaid's Strengths...and Shortcomings

PRODUCT DEVELOPMENT Still among the best. Cranks out 400 new products a year.

ACQUISITIONS Joint ventures and smaller company purchases have expanded annual sales by $180 million over the past year.

COST-CUTTING Well on its way to slashing annual costs by $335 million by 1997. Reduced costs by $60 million in the first half.

PRICING Because of more demanding retailers, unable to raise housewares prices as much as it wanted to offset recent increases in raw-materials costs.

COMPETITION Stronger rivals are chipping away at its share in key markets.

MANAGEMENT Turnover in executive ranks raises questions about company's ability to meet new challenges.

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