The five-year spending spree on big-ticket household goods could be at an end.
Evidence of the downturn was provided by two of the three major appliance manufacturers, which have issued warnings that fourth-quarter profits will miss their targets as the U.S. economy slows down.
Whirlpool Corp. said it is facing an overall decline in North America's appliance market, characterized by competitive pricing pressures. The Benton Harbor, Mich., firm said it expects the market to contract 7-8 percent in the fourth quarter compared with a year ago. Earlier, the appliance giant anticipated a decline of only 2-3 percent.
Maytag Corp. said its earnings would be only about half of what it logged in 1999's fourth quarter.
"The expectations set by this organization publicly were based on assumptions that the major appliance industry would be flat or down slightly for the quarter," noted Maytag President and Chief Executive Officer Leonard Hadley.
"The industry is down more severely, and as a result, we are seeing lower volume in our major appliance division," Hadley said. The company has throttled back production, hurting operating efficiency and income.
Until the late 2000 slowdown, major appliance shipments were on a five-year roll, climbing to about 62.7 million units shipped in the United States in 1999, according to the Association of Home Appliance Manufacturers in Washington. Final numbers for 2000 were not available at press time, but growth early in the year might have offset fourth-quarter slow sales. It is conceivable AHAM could revise its 2001 forecast. The association's forecasts are based on the median of member-company forecasts.
"As we look at the first quarter of 2001, we see a continuation of the challenging industry environment and expect that our first-quarter performance will be in line with our expected fourth-quarter 2000 performance," said Whirlpool Chairman and CEO David Whitwam. He expects North American industry shipments for full-year 2001 will be flat compared with 2000.
While Whirlpool awaits a market recovery, it will start tightening its belt by cutting 6,000 or more jobs — about 10 percent of its work force — and restructuring global operations. The measures will lead to a charge next year of up to $350 million before tax. Whirlpool expects to save $250 million a year when the program is fully in place.
Maytag plans a charge of up to $65 million for its fourth quarter for asset write-downs, suspended business plans and expenses related to management reorganization.
In addition to market weakness, appliance makers were hurt by the bankruptcy of retailer Heilig-Meyers Co. and the decision by Circuit City Stores Inc. in the summer to stop selling appliances.
Producers of housewares, lower-cost cousins to major appliances, approach 2001 with cautious optimism, said Philip Brandl, president and chief operating officer of the National Housewares Manufacturers Association in Rosemont, Ill.
NHMA members say sales are fueled by trends to healthier homes and people turning to the home as a respite from the fast pace of life. People want to brighten their lives, and housewares can be an affordable way of doing it.
Population demographics complement health and fashion trends. The baby boomer generation's children have left home, and boomers are spending disposable income on home items and travel. Meanwhile, new households are forming at a strong pace, fueling demand for domestic basic goods.
According to NHMA, the average U.S. household spent nearly $623 on housewares such as small electric appliances, cookware and storage containers in 1999, more than on education, fruits and vegetables and dairy products. The U.S. industry logged record sales of $67 billion in 1999.
Although NHMA is a bit bullish on housewares sales, it feels margins will continue to be under a lot of pressure. Cost hikes for raw materials, including those for plastic resins, transportation and labor, are squeezing profits. Imports, government policies and consolidation in the retail sector also are taking a bite out of profits, NHMA said in the 2001 outlook.
"We're working hard to reduce costs because, obviously, there is no such thing as a price increase [to retail customers] anymore," said Mark Bissell, president and CEO of floor-care products manufacturer Bissell Inc. of Grand Rapids, Mich.
Amid the tough competition, two of the largest housewares firms are returning respectable performances.
Newell Rubbermaid Inc. posted profit of $123 million for the third quarter, ended Sept. 30, up 69 percent from a year earlier. Although raw material prices have been a drag, they were more than offset by cost savings finally paying off from the merger of Newell and Rubbermaid in March 1999.
Newell Rubbermaid's sales grew 4.8 percent in the quarter, mainly a result of corporate acquisitions. Plastic storage and organizer sales, for example, at $433.2 million, were 0.6 percent lower than a year ago.
Tupperware Corp.'s improved results reflect its new sales channels. The Orlando, Fla., company, so long reliant on residence-based sales parties, has added shopping mall showcases, the Internet and television shopping to broaden access to consumers. It is expanding its home-based sales network and integrating it with the new initiatives.
U.S. sales were up 28 percent in the quarter to $40.7 million. Total sales at $220.2 million were 4 percent higher when negative foreign-exchange effects were factored in.
Tupperware's profit for the third quarter grew 34 percent to $4.7 million after restructuring costs were included.