CHICAGO-When prices for polypropylene and polyethylene leaped more than 50 percent from January 1994 through the first half of 1995, housewares molders pushed some price hikes through to mass retailers-not an easy task in a wicked retail market. So when resin costs tumbled down again, did retailers demand matching price cuts?
Not explicitly, at least not tied directly to the lower resin prices, according to executives atseveral of the largest firms that injection mold plastics housewares for retailers such as Wal-Mart Stores Inc., Kmart Corp. and Target Stores.
``We live in a very competitive industry. There's always pricing pressure. That's true whether the resin price is up or down,'' said David Stone, president of Sterilite Corp. of Townsend, Mass.
Consumers should see lower prices for some products from Rubbermaid Inc., by far the largest U.S. housewares molder, the company revealed during the International Housewares Show in Chicago last week.
In 1995, price hikes by Rubbermaid got the most attention, because it is a big, public company. But molding executives at the housewares show said all molders passed on some - although nowhere near all - of the resin hikes.
Beginning about mid-1995, resin prices for PP and PE did sink, but they still are higher now than in early 1994, when the roller coaster ride began, according to Plastics News data. Polystyrene, the third major housewares resin, climbed about 30 percent during the same 18-month period.
``We got some price increases, but not enough to recapture where [resin] prices went,'' said William Pfund, Rubbermaid's vice president of investor relations and corporate communications.
Tom Cordano, president of the Tucker Housewares Division of Mobil Corp., echoed the sentiment: ``The price increases that we have gotten have not really recovered where pricing is now.''
Cordano declined to say whether mass discounters requested a price break when resin costs went down.
Several other executives said they heard of no major price decreases in 1995. Rick Contino, president of Anchor Hocking Plastics Inc. of St. Paul, Minn., said in Chicago that his firm tries to fully explain resin dynamics to buyers at mass discounters.
Rather than outright price cutting, Contino said, retailers launched what he called a ``value movement'' in the second half of 1995. One example would be many small food containers packed as a set in one larger container, a hot-selling product, he said.
``The movement is to bigger sets, more pieces, but more value,'' Contino said.
But one molding official, who spoke on the condition he not be named, complained that people who buy products for the mass-merchants generally have a one-track mind when it comes to the price of housewares and resin pricing.
``They don't want to hear about increases when it's going up, but they want decreases when it's going down.''
Rubbermaid, for the past several years running praised as one of America's best companies with perpetually higher quarterly earnings and sales, now finds itself under intense Wall Street scrutiny. The Wooster, Ohio, giant said it got stung when retailers retaliated against Rubbermaid price increases by taking some shelf space away and giving it to lower-priced competitors, who delayed price hikes.
On Dec. 5, facing lower 1995 earnings, Rubbermaid announced a major restructuring, with plans to lay off 1,200 workers and eliminate some product sizes and colors.
Pfund, interviewed Jan. 16 at Rubbermaid's McCormick Place booth, said some Rubbermaid prices will come down, although he declined to identify for which specific products.
``On a few items, prices are likely to come down because we want to be competitive in the marketplace,'' he said.
Markdowns should come on some price-sensitive products, he said.
Mass-merchant retailers are under intense pressure, retail analysts say, mainly because of Wal-Mart and its ``everyday low pricing'' approach, backed by finely honed forecasting of what products will sell. Wal-Mart has far higher profit per square foot than its competitors, according to analyst reports. Home World Business, a trade magazine, said Wal-Mart has almost 30 percent of the housewares market.
Some Wal-Mart price chopping will go down in the annals of retailing history. For example, a report in Home World Business during the Housewares Show said Wal-Mart this year wants to sell a 12-cup coffeemaker for $8-$9 retail - a big drop from today's price of about $12. Press reports also say the Bentonville, Ark., goliath will sell a $99 VCR in the first half of 1996.
Wal-Mart announced Jan. 17 it will report lower quarterly earnings. The company said fourth-quarter earnings would decline up to 11 percent.
Adding to the price pressures are the financial woes at Kmart, and a weak Christmas selling season. Just five days before Christmas, the Troy, Mich.-based retailer fought off talk it might file for Chapter 11 bankruptcy by announcing a preliminary agreement to remove a requirement that Kmart immediately pay back $548 million in real estate bonds if its bond rating was lowered.
But then, on Jan. 12, Standard & Poor's Ratings Group downgraded Kmart's credit rating to the status of junk bonds.
At the show, executives of two midsized plastics firms that supply Kmart said their relationship with the retailer is unchanged.
A spokesman for Aero Plastics Inc. in Leominster, Mass., said they have been shipping to Kmart for several years and have had uninterrupted shipments and on-time payments.
``We have been a supplier to them. We are monitoring the situation as closely as possible. We'll continue to ship to them. We believe in our long-term relationship,'' he said.
A spokesman for a midsized housewares manufacturer, who declined to be identified, said the retailer remains a big part of their business.
``My experience is positive, and it has continued to be positive,'' he said. ``We've been doing business with them for 15 years and they've never been late one payment.''
A small plastics company that does not now ship to Kmart is taking a wait-and-see attitude. ``That is a very scary thing,'' an official for that plastics firm said of Kmart's junk-bond situation. ``When you hear that, [as] a small manufacturer, you can react with fear.''
``We've been stalling any potential orders,'' he added. ``In other words, we're not pursuing it aggressively.''
Wal-Mart and Kmart both have more than 2,000 U.S. stores.
Rubbermaid isn't the only housewares molder to endure layoffs. Tucker also has laid off some factory workers, although the company hired marketing employees. Cordano said Tucker, based in Leominster, has boosted productivity.
``We've got a very structured, refocused, re-engineering of our company,'' he said.
Mobil, itself retrenching to its core businesses, has put Tucker up for sale.
Rubbermaid expects to release its year-end 1995 financial numbers on Feb. 6, Pfund said. Sales should be up slightly, but earnings will be off, he said.
``We're still being affected by margin squeeze,'' he stated.
As 1996 begins, prices for PP, PE and PS appear to be stabilizing. Stable, predictable prices would be good for the industry, agreed molders. Plus, the price of cardboard boxes, paper and other packaging materials has skyrocketed, boosting their costs, they said.
Most housewares executives in Chicago were reluctant to predict where resin prices will head in 1996. Joseph Wimsatt, sales manager of Koller-Craft Plastic Products of Fenton, Mo., said: ``We hope with more capacity coming on that prices will remain reasonable.''
Rubbermaid, Tucker and other housewares molders claim they are boosting productivity. Rubbermaid said its restructuring will save $50 million a year.
But Sterilite's Stone said most major manufacturers, whatever the industry, constantly try to improve productivity.
``That's always important no matter if business is going up, down or sideways,'' he said.
Even if prices remain on an even keel, the housewares business, like retailing in 1996, will remain difficult.
``Rubbermaid's market reality is that our customers, and consumers, want more for less, and our job is to try to do that,'' Pfund said.
