Electrolux Takes Aim at Whirlpool

Asked how he'll win back the global appliance crown Electrolux lost five years ago, new Chief Executive Officer Keith R. McLoughlin says he has a secret weapon: the growing ranks of middle-class moms. "Let's say you're a mom in Brazil and you've got tough stains on your kid's soccer uniform," McLoughlin explains as he grabs a small electronic wand from atop a washing machine at his company's Stockholm headquarters. "You use this thing ultrasonically that blasts the molecules [of the stain], then you throw the clothes into the washer. They come out perfectly clean."

The $1,080 washer with the ultrasound dirt blaster, introduced in Brazil last year, is the latest addition to Electrolux's arsenal to take on archrival Whirlpool (WHR), which bought Maytag in 2006. That deal made Whirlpool the world's biggest home appliance maker.

Although the U.S. company last year exceeded Electrolux's $14.8 billion in sales by almost $3.6 billion, McLoughlin thinks global growth will give him an opening. "What do we have that Whirlpool, Bosch, the Koreans, and the Chinese covet?" McLoughlin asks. "We're the only one that has the distribution and local market presence in over 150 countries. You have to know the local consumer, and we do that globally more than anyone." Less than 5 percent of Electrolux's 50,920 employees are in Sweden. A fifth are in Brazil, 16 percent in the U.S., and 12 percent in Italy.

McLoughlin, a graduate of the U.S. Military Academy at West Point, in January became the first non-Swede to lead the 91-year-old maker of Frigidaire refrigerators, AEG ovens, Electrolux vacuum cleaners, and Zanussi coffee machines. His predecessor, Hans Stråberg, kept a tight grip on expenses to keep profit margins up during the recession. Electrolux last year logged an operating margin of 6.1 percent, beating Whirlpool's 5.9 percent. Now McLoughlin wants to concentrate on increasing sales. "We want to maintain that [profit margin] discipline while flipping to revenue-led earnings growth," he says.

Acquisitions are key to that strategy, with possible targets in Egypt and Korea, the CEO says. "We see great opportunities to penetrate China, India, Southeast Asia, Latin America." Electrolux likely could spend up to $1.6 billion on acquisitions this year, according to analyst Christer Fredriksson at ABG Sundal Collier in Stockholm. "We want them to grow globally but they must absolutely not do it at the expense of the margin," says Mattias Kindstedt, fund manager at Stockholm-based Nordea Bank. "It must not lose its earnings focus now as it grows."

In the U.S., Electrolux is going after the high-end market with products such as a $3,499 stainless steel induction range that boils water in 90 seconds and has a "perfect turkey" button. Since repositioning Electrolux as a high-end line in North America and hiring talk-show host Kelly Ripa to star in its ads in 2008, awareness of Electrolux as a premium brand has soared to 47 percent from 10 percent among U.S. women aged 25 to 54 in internal surveys, McLoughlin says.

Still, the sluggish U.S. housing market, coupled with rising costs for steel and copper, poses big challenges. About 1.3 million U.S. housing starts a year are needed for a healthy appliance market, according to McLoughlin. In February, home construction plunged 23 percent, to a 479,000 annual pace.

McLoughlin sees nearer-term gains in emerging markets. He's hopeful that as diets there expand to include more meats and dairy products, demand for refrigerators, stoves, and ovens will rise. Growing affluence should also boost sales of washing machines and dryers. McLoughlin says globally 70 million people are joining the middle classes annually. "That's a big country being added to the planet every year," he says.

The bottom line: As it prepares to take on Whirlpool, Electrolux is closing some plants in high-cost locales like Canada and opening new ones in Asia.

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