Can James Kilts Put a New Edge on Gillette?
After Gillette's board asked CEO Michael C. Hawley to resign last October in the wake of a plummeting share price and poor earnings, director Warren Buffett commented that the board was "looking for a .360 or .370 hitter" as the next CEO. It may just have found one. James M. Kilts, 52, who steps up to the plate on Feb. 12, already has a long and impressive career under his belt, including a near-breathtaking turnaround of Nabisco Inc.
For all his accomplishments at Nabisco, Kilts will confront monumental challenges at Gillette Co. (G ). "They have gone nowhere for four years," says Banc of America Securities analyst William Steele, about the current Gillette management team. And while Gillette remains the king of razor blades with more than 70% of the market, its Duracell batteries, Oral-B toothbrushes, and Gillette shaving cream and deodorants all lost U.S. market share last year, according to sales tracker Information Resources Inc.
Thus, even at $34, or some 45% under its 1999 peak, "this is still a pretty expensive stock," says Robert E. Torray, chairman of Robert E. Torray & Co., an investment firm that owns 5 million shares. But Torray, a long-term investor, argues there's huge potential if this "great franchise" can get itself turned around.
Kilts faced many of the same underlying challenges when he became CEO of Nabisco three years ago. The cookie and cracker giant was losing market share in products accounting for 90% of its sales, while relations with retailers were in ruins. Kilts, who came to Nabisco after an impressive career heading Philip Morris Cos.' $27 billion food group, wasted little time. "He has got a relentless focus," says Campbell Soup CEO Douglas R. Conant, who worked under Kilts at Nabisco. "He's thinking about business seven days a week," even when he's indulging his passion for fly-fishing.
Kilts quickly cut costs, including shutting plants and laying off workers, then used the savings to boost advertising 20% a year. Meanwhile, he pushed product innovations, like Cream Savers, a cream-filled extension of Life Savers that helped make the venerable brand the No. 1 nonchocolate candy. By the time Philip Morris snapped up the company last year for a cool $14.9 billion, Nabisco's brands, among them many market leaders, were gaining share virtually across the board.
True, he did it with the winds of a roaring economy at his back. But small wonder Kilts, who declined to comment for this story, quickly jumped to the top of the Gillette board's wish list. He has yet to meet with Gillette's senior managers and has said he won't develop a turnaround plan until he has spent at least 60 days studying the company.
Those who have worked closely with Kilts in the past think his objectives are already pretty clear. His biggest challenge, they say, will be transforming a culture "that has become far too insular, provincial, and inbred," says Burt P. Flickinger III, managing director of Reach Marketing, a consultant who has worked with both Nabisco and Gillette.
Kilts, the first outsider to run Gillette in 70 years, will inherit a company dominated by engineers. And his first move will likely involve jazzing up the company's marketing strategy. While adept at developing technically superior products, such as the Mach 3 razor for men and the new triple-bladed Venus razor for women, "Gillette has never been a first-rate sales and marketing company," says Gary Stibel, founder and principal of New England Consulting Group Inc.
Next, Kilts will have to attack head-on Gillette's poor relations with retailers. Gillette is "not as actively involved with Wal-Mart [and other] globally dominant chains," as are competitors such as Procter & Gamble, says Flickinger. Just as he did at Nabisco, Kilts will no doubt spend time with retailing CEOs, looking for ways to increase sales that benefit both parties.
PUMP AND DUMP.
Among Gillette's tarnished brands, priority one will be Duracell, where sales of the core battery brand slumped 13.5% last year. Former colleagues say Kilts will move to stop the bleeding immediately. If new products and advertising don't do the trick, he'll cut prices -- as he did with Post cereals while at Kraft Foods, a move that quickly stabilized Post's share.
As for the rest of Gillette's portfolio, if he follows his Nabisco playbook, Kilts will beef up some areas -- such as Gillette's lagging deodorant and other toiletry lines -- with acquisitions, while dumping other businesses. One likely goner: Braun's troubled household-appliance unit. But at least Kilts will inherit an aggressive cost-cutting program, unveiled Dec. 18, that will shave 2,700 jobs and eventually save $125 million a year. Much of that money will no doubt be plowed back into advertising and promotion.
Reenergizing Gillette won't happen overnight. But those who know him have little doubt Kilts can get the job done. "Given his track record, turning around Gillette will be an uncontested lay-up," says Flickinger. The big question remaining is how soon. The clock is ticking.
By William C. Symonds in Boston, with Julie Forster in Chicago
Edited by Douglas Harbrecht