STREETSBORO, OHIO - His company has had its first layoff in its 10-year history, resin prices continue to climb and mega merchants dominate the toy market like a bully in the schoolyard.
It's a stale story for many companies today. But Tom Murdough, 62, reacted uncharacteristically by making a potentially unpopular decision. He is moving aside as president of Streetsboro-based Step2 Co., ushering in a new generation of leadership. By age 65, he foresees ``considerably less involvement'' at the second-largest U.S. rotational molder.
The decision to put John Sinchok, a toy designer, in the president's seat is atypical. But current and former employees will tell you it is common Murdough: shooting straight and going against the grain.
Bill McCallum, vice president of national accounts, joined Step2 in 1998 after Murdough told him the company had fired a large customer that would not adhere to Step2's minimum ad-price philosophy.
``I realized at that moment that this company had a clear understanding of bulk product sales,'' McCallum said in a May 15 telephone interview. ``This company gets it.''
Now, in a volatile economic environment and an increasingly difficult retail world, new direction is necessary, Murdough said. He admitted to being fed up with the fight.
``When you're younger, you're more resilient,'' Murdough said about Sinchok, 43. Although Murdough will remain the company's chairman and chief executive officer, Sinchok will oversee the day-to-day operations.
``In our case, we have a bright, energetic, young management team, their average age is in the 40s, and they're people who want the responsibility and have the energy to pursue some new directions for the company.''
Unlike other companies, the head of new product development reports to the president at Step2, instead of to a top marketing executive, Murdough said.
``I have always been a great believer that processing strengths, matched up with market niches, is critically important to your success,'' he said.
It's a Friday morning in Murdough's office, a corner location on the second floor. Murdough goes to the window to watch employees' children playing outside. One whizzes by in a battery-operated vehicle, a newer product from Step2.
It's innovation, Murdough says, that will get the firm through the rough times. On an office bookshelf, a knickknack boasts, ``I love toys.'' Murdough built his reputation with Little Tikes, where toys reigned supreme.
Toys are king at Step2, of course, but the company also has diversified its products, and will continue to do so in the tight market, he said.
``Our home and garden product is becoming even more important in terms of sales increases than our children's [goods],'' he said. ``So we will not only be a multifaceted processor, but a multifaceted marketer.''
Sinchok said Murdough has an insatiable appetite for new products. Kevin Aker, a former Little Tikes employee who now runs competitor CarePlay LLC, was surprised to hear that Murdough had stepped down as president.
``Tom really enjoyed working with the products, coming up with the ideas and concepts,'' Aker said in a May 11 interview at his company's Hudson, Ohio, headquarters. ``I think he really enjoyed that part of it, but I'm sure that as the retail market has changed, it's gotten very frustrating, at the same time.''
Murdough said the company's relationship with retailers is ``cordial'' now, but the company has to rely on knowledge of the plastic processes to remain innovative.
``I wanted to make sure that as Step2 moved down the road, we need to rely on understanding and expertise in plastic processing that has brought us to this point,'' he said, emphasizing Sinchok's knowledge of all the processes. ``We will diversify our product base, become more involved in injection and blow molding as the opportunities present themselves. Right now, this year, probably 10-15 percent of our business will be nonrotomolded product.''
Sinchok said it this way: ``We make bulky products and retailers don't like bulky products. This causes us to make product compromises, which negatively impacts our processing strengths.''
The company will not injection or blow mold in-house; rather, it will continue to take advantage of talent at custom processors in the Northeast Ohio and Western Pennsylvania geographic region, Murdough said.
``I think one of the mistakes that's been made by our competitors is that they decide to go in-house,'' he said. ``I think they've walked away from a lot of talent.''
As for the layoffs, Murdough said, ``Retailers call this a recession, and they don't see it ending this year.''
Step2 has trimmed about 160 jobs during the past two months at five plants. Murdough admits there may be more down the line.
``Our effort, primarily, is to allow attrition to play a role,'' he said. The company is eliminating overtime and reducing work hours. Beginning this summer, salaried employees will take one unpaid day off every other week.
Murdough has earned a reputation of instilling loyalty among employees. Some followed him from Little Tikes when he left the Rubbermaid Inc. unit and founded Step2. So, is Murdough concerned that morale will suffer as another person takes over as president?
``Company morale was an issue in the decision of John,'' Murdough said. ``He has the respect, the support of factory workers and salaried workers. He's a good person. In our eyes, that's someone who walks the talk and gives back to the employees as they've given to us.''
Sinchok said he would have never considered the position of president if it weren't for Murdough.
``If you would have told me 10 years ago that I would be sitting here today, I never would have guessed,'' said Sinchok, who ran his own design firm until he agreed to join Step2 in 1993. ``I saw this [role as president] as an opportunity to serve more people. I know what I'm getting myself into. I am not alone in this, and we're going to pull this off together.''
Outspoken about relations with resin suppliers, Murdough didn't hold back on the 8 cent-per-pound hike in polyethylene prices that suppliers have sought from Step2 since the beginning of the year. Resin prices increased 35 percent last year for Step2, when they represented 25 percent as a component of sales.
``It's an extreme insensitivity by suppliers to issues we're dealing with as processors,'' he said. ``It's hard not to feel a sense of bitterness.'' But, he was also quick to note that ``it's not all of them,'' and Step2 is not paying the 8-cents-per-pound PE hike. He would not comment as to whether or not the company has had to negotiate longer-term contracts to make pricing less volatile.
``The resin suppliers will claim they're being squeezed,'' he said. ``But annual reports still show `staggering profits.' ''
Step2 reported 2000 sales of $100 million. The company has a goal of double-digit sales growth this year, said Dotti Foltz, director of marketing communications. Sinchok said they're looking at targeting South America, where the company may develop a licensing agreement similar to the one it has in South Korea. In 2000, international sales represented 20 percent of the company's total sales.
Murdough will be the keynote speaker at the Cleveland Plastics Encounter on June 19, where he will address managerial tips for dealing with change in today's fast-moving environment.
