Q&A: The Repairman in Charge of Fixing Maytag

New CEO Ralph Hake talks about how to turn a profit in troubled times

You know the schtick about the lonely Maytag repairman: He sits all day with nothing to do because the company's appliances are so reliable. These days, Maytag Corp. Chairman and CEO Ralph F. Hake might yearn for some of that unbroken quiet. Less than three months after he took over in mid-June, the September 11 terrorist attacks crushed appliance demand. Retail sales of Maytag's washers, dryers, and refrigerators fell by 50% that week. Despite a comeback a week later, Hake now sees the slump deepening as anxious Americans put off plans to remodel their old kitchens or buy new homes.

Slack demand is Hake's latest fix-it project. In the past year, the 108-year-old manufacturer lost three of its biggest retail outlets when Circuit City Stores quit selling big-ticket appliances and Montgomery Ward and Heilig-Meyers went bankrupt. After a string of blockbuster product rollouts in the 1990s, costs became a problem, as Maytag managers let budgets get out of hand and product development lapse. As a result, net income has slipped every quarter since mid-1999, and Maytag (MYG ) shares have slid from their August, 1999, high of $68.25, to less than $30 today.

Now, one-by-one, the problems are getting attention from the 52-year-old Hake. His most visible move so far? Carrying out and integrating the $325 million acquisition of Amana Appliances in August. The deal should lift Maytag's sales above $5 billion in 2002, and solidify its No. 3 rank among white-goods makers in the U.S., behind Whirlpool Corp. (WHR ) and General Electric Co. (GE ). The next target is costs. A former chief financial officer at both Fluor Corp. (FLR ) and Whirlpool, Hake has vowed to slash Maytag's overhead by $60 million by mid-2002. He also wants to shorten the company's product-development cycle to two years, from more than three today.

Hake's corner office overlooks Maytag's office complex and the wooded streets of Newton, Iowa. He met there recently with BusinessWeek correspondent Michael Arndt to talk about his strategy for Maytag.

Q: The U.S. economy shrank in the third quarter. Is this the beginning of serious recession?

A: I think the likelihood of a recession was pretty high before September 11. We were tracking along a path that said we were going to go into a recession, mild or otherwise. Now, there's very little doubt we're headed there.

If there's any economic benefit to this tragedy, it is this: I believe we would have slipped into a recession before, with a lot less political will and a lot less acknowledgement of it and more finger-pointing. Now, all the financial institutions, the Fed, and the federal government recognize and are trying to do something about it. So I do think we'll get both a fiscal and monetary stimulus. My crystal ball isn't any clearer than anybody else's, so I don't know whether the recovery will be mid-2002 or the end of next year.

Q: How bad might things get before they turn around?

A: We're lucky because two-thirds of the appliance business is replacement business. If your refrigerator breaks, you usually go and replace it. The other third of the business, however, is driven by housing growth. We haven't seen the impact there yet. There's always a delay between pessimism and when people start pulling back. That's yet to come.

Q: How do consumers behave in a downturn: Do they cut back on higher-end products? Or do high-end products hold up because those folks have more wherewithal?

A: 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--we target the upper third of the market. Although there's a reverse wealth effect from the weak stock market, the people we deal with aren't inhibited from buying what they choose: cars, appliances, whatever. But in a recession, the whole market comes under pressure. People who are at the edge and trying to borrow money will defer the purchase of a home. Then, inventories back up and competition heats up.

Q: What did you find when you came to Maytag?

A: First of all, I found a very committed, loyal group of people. As I expected, I found great talent in sales and marketing. For years, as a competitor at Whirlpool, I admired Maytag's sales force--they really are very, very good. On the other hand, people were worried about their future. I felt we needed to settle people down and get them focused on the business. Get them to stop worrying about whether they had jobs.

I also discovered that cost structure is a bit out of line. So I'm trying to bring a rigorous cost discipline, both within the factories and to our costs outside the factory. The product-development process also required attention. Ironically, the gap in new products--which caused a lot of the earnings problems in recent years--has a lot to do with poor execution but little to do with good ideas. Many of the new products due to come out in the next two years were conceived of and scheduled to be launched in 1999 and 2000 and 2001.

And lastly, I feel that given the heritage of the company for quality, we must have the industry's best. We have to work harder on that.

Q: Your concerns aside, Maytag has been picking up market share. How are you achieving that?

A: If you can create a business selling new, innovative products that consumers demand, you have a pretty good competitive position. Maytag was fortunate in the 1990s to have created a series of products that were in high demand. The Neptune washer was the most visible. So we gained share.

We also--and this is kind of admitting where things didn't go as well as they should have--lost three of our top ten accounts during the turmoil in retail last year. Our salespeople really had to scramble to maintain our position. And as we did that, we overshot the mark in repricing--so now our margins are down, and our share is up. We've been correcting some of those errors. We don't want to give any share back, but we certainly don't want to continue to gain at the expense of profitability.

Q: Maytag offers a variety of wares: Maytag in the laundry room, Jenn-Air in the kitchen, and Hoover vacuum cleaners around the house. Should Maytag should go into other lines?

A: I see it as kind of a phased approach. Phase one 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 have to branch out from our five core appliance areas: 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 and freezers.

Q: Would it make sense to develop those internally?

A: Typically, it does. I always look at what we could sell through the same sales force to the same dealer structure. That's the 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 things as one of our sources of growth, along with new, more innovative products. The third source of growth is geographic, and I don't mean global; I mean North America. Maytag is under-represented in Canada and certainly is under-represented in Mexico. We can grow in those markets substantially.

Q: How much advertising does Maytag need to do to support the brand?

A: More than we did. In the last several years, we underfunded that substantially. My goal is to continue to spend on the Maytag brand about what we spent in the peak years in 1998-99. We're also going to put more money behind Jenn-Air next year--it hasn't been supported to the extent it should--and behind Amana. I don't think we as management are doing shareholders a favor by cutting back on ad spending to manage our quarterly earnings. I think it's fundamental to our brands.

Q: What else does the future hold?

A: You're going to see lots more innovation in the kitchen. Many of our competitors are focused on innovation. That intensifies our rivalry. But you know what? I would much rather compete with Whirlpool on who has the larger laundry capacity at a $999 price point than to compete at $399. The luxury brands are growing--even prospering. Electronics are going to play a bigger, more interactive role than in the past. And I think you're going to see color and fashion and style as part of how people compete. Though they're called white goods, even today, you can see the beginnings of color--not just stainless steel, but even an occasional red refrigerator.

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