The closing of the landmark Rubbermaid Home Products factory in Wooster, Ohio, just slapped an 850-job exclamation point onto Newell Rubbermaid Inc.'s manufacturing strategy - which has included smaller shutdowns and demands for tax abatements at other plants undergoing expansion.
Newell Rubbermaid has declined to discuss its overall strategy for plastics manufacturing, which includes Home Products, Commercial Products, Graco and Century baby products, Little Tikes toys, Goody combs and brushes and Sharpie pens.
But the company's recent actions make it clear that, even as it invests millions of dollars into new equipment, factory consolidation is a key part of its plastics game plan.
A few more pieces of the puzzle were revealed by Newell Rubbermaid Chief Executive Officer Joseph Galli's remarks to analysts Dec. 9, when he announced the Wooster decision: Newell Rubbermaid wants to outsource more molding, exit some low-margin product lines and sell poorly performing operations.
When the Wooster plant closes, wiping out 850 factory jobs, it will mark the end of one of the largest plastics plants in the United States. The company plans to relocate about 400 white-collar Home Products headquarters employees either to other plants or a new, low-cost facility.
What comes next?
The Alpharetta, Ga.-based consumer products giant has letters of intent to sell some low-margin businesses, Galli told financial analysts. He would not say which ones, but three analysts said the likely candidates are picture frames and a line of low-end pots and pans.
Galli said the decision to close the Wooster plant was difficult, but he called the complex ``a very high-cost'' operation. He said the closing shows the parent company's commitment to becoming more profitable, he said.
``It's an example of the major steps we are taking in this company to position ourselves for the long term,'' Galli said.
Rubbermaid plans to eliminate most of its lines of totes, garbage cans and clear storage boxes - items that bring home razor-thin profits, but still are a big part of Rubbermaid Home Products sales. Any remaining production of those goods will be done at the company's other plants.
Galli's comments in the Dec. 9 conference call foreshadowed major changes for Rubbermaid Home Products. He said the company will outsource more molding to custom molders, and shift some manufacturing to low-cost locations, including China.
He added that the Wooster operation, and indeed the Home Products business, has ``too much fixed overhead'' in the form of injection molding machines. He also said Newell Rubbermaid wants to reduce its ``dependency on resin.''
``We'll develop product lines that have higher margins and less capital intensity and, importantly, less resin intensity. Which is a message that we're very focused on. We want to reduce our dependency on resin,'' said Galli.
Because consumer products molders have a hard time raising profit margins in the ``falling prices'' environment driven by Wal-Mart Stores Inc. and other big retailers, the molders get squeezed when resin prices go up. Even when resin prices fall, retailers often demand price reductions to match.
Galli said leaders want to ``transform Rubbermaid Home Products into a less capital-intensive, higher-margin consumer products business.''
While Newell Rubbermaid officials have been close-mouthed about their big-picture plans for plastics manufacturing, actions speak louder than words. In the past year, Newell Rubbermaid has:
* Spent millions of dollars to buy 45 Husky injection molding machines.
* Closed a 300-worker plant in Cleburne, Texas, and moved that work into a larger Home Products factory in Greenville, Texas, near Dallas. The company sought a 100 percent tax abatement for six years to add machinery in Greenville, where published reports said it planned $27 million worth of improvements. Part of the buildup was to launch a new storage product to expand home drawer space.
* Closed a Graco plant in Greer, S.C., and consolidated all Graco and Century baby-product production in Macedonia, Ohio. According to industry sources, several of the new Husky presses are running there.
* Moved baby-seat production from a plant near Canton, Ohio, to Macedonia. The former Century Products plant was closed, then was to reopen as a Home Products factory - contingent on another big tax abatement package. But company officials reversed course and decided not to seek the abatement. A published report said the company planned to spend $12 million on renovations and new machinery.
* Sought a 10-year, 100 percent abatement on personal property on $50 million worth of new equipment for its food-container molding factory in Mogadore, Ohio, near Akron. Sources said a good number of the new Husky Hylectric injection presses were purchased to mold the new thin-wall containers, called Take Alongs, designed to compete against Gladware and other inexpensive thermoformed food containers.
* Consolidated two plants in Winfield, Kan., into one and cut 100 jobs.
* In November, announced the layoff of 85 Wooster employees as the company moved out blow molding work. That included industrial blow molders used to make garbage cans, one of the low-margin items being cut back, according to Chuck Shaffer, president of Local 302 of the United Steel Workers, which represents the Wooster employees.
``They're consolidating their plants,'' Shaffer said. ``As they told us, they have 40 percent excess capacity at the present time, and they have plants they can put some machinery into and get themselves to the point where they want to be. These are basically smaller plants.
``We knew the Home Products plants of Rubbermaid were being scrutinized, looked at,'' he said. ``And I guess we were full of ourselves that we were going to be here, regardless.''
The Wooster closing leaves Rubbermaid Home Products with plants in eight locations: Mogadore; Greenville; Winfield; Goodyear, Ariz.; Centerville, Iowa; Mississauga, Ontario; Calgary, Alberta; and Tultitlan, Mexico.
The 850 job cuts represent 10 percent of Rubbermaid's workforce.
Labor costs at the unionized plant are higher than at other Home Products factories, but they are less than 10 percent of operating costs and were not the biggest factor in the decision to close Wooster, according to Ray Johnson, vice president of manufacturing.
But Johnson said: ``The high fixed costs of operating the Wooster plant make it significantly costlier to operate than our other U.S. plants.''
Galli told analysts that ``fixed costs'' equals injection molding machines. That begs the question: Why did Newell Rubbermaid buy the 45 Husky injection presses?
Rubbermaid repeatedly has declined to say much about the Husky presses, except to confirm they are going to several North American plants for new product development.
Johnson said Home Products is evaluating all its production to reduce excess capacity and better use factory and distribution resources. Johnson's comments came from a news release: Newell Rubbermaid refused requests by Plastics News to interview him.
Rubbermaid Home Products is not the only plastics housewares maker to suffer from what industry analysts call Wal-Martization - relentless pressure to reduce prices, regardless of fluctuations in resin prices. Tucker Housewares bit the dust three years ago, in part blaming brutal pricing from mass retailers.
Wal-Mart is a huge national force, and it helps set the price at other retailers. In the mid-1990s, after an unsuccessful attempt by Rubbermaid to push through price increases, Wal-Mart pulled Rubbermaid products and replaced them with goods molded by competitors, including Sterilite Corp.
Sterilite gained ground and now has six plants. The newest, a highly automated, $65 million plant in Clinton, S.C., eventually will employ 600.
Officials at closely held Sterilite are tight-lipped about their strategy. But whatever Sterilite is doing, it has been able to grow in the cutthroat retail environment - with products made by U.S. workers.
``The question is, do they have a better business model for producing housewares in the predator purchasing environment?'' said a plastics industry source in northeast Ohio who has done outside molding work for Rubbermaid. ``You can't say that Sterilite on a head-to-head basis went in and took away market share. What happened is, very simply, Wal-Mart keeps going down the pecking order and they could care less who they take out. As long as they have somebody they can purchase their products from and survive, that's what they want.''
Rubbermaid did a good job with manufacturing, but problems with distribution - getting the products to retailers on time - gave Sterilite a foothold, according to one former Rubbermaid sales and marketing executive. ``The reason Sterilite got it in the beginning was because Rubbermaid couldn't fulfill orders. Sterilite started to grow just filling in the gaps. Now, they have become a very dependable supplier,'' he said.
Newell Rubbermaid also got hurt by changes in the food-storage business, where it was a leader, he said. Most of Rubbermaid's lead there has eroded as consumers have switched to cheaper containers.
``They came out with new things, but they could not keep the volume. Home storage was the highest-dollar-volume business, but because of other competition, profit margins were very slim,'' said the former executive, who spoke on the condition he would not be identified.
Distribution is said to be one of the strong points of Newell.
In a speech in Toronto this fall, Galli vowed to recast the Rubbermaid businesses, doing away with the commodity approach of past management.
For sale sign ...?
During the Dec. 9 conference call, Galli's disclosure about letters of intent to sell some businesses sparked questions from analysts. He declined to say what units are for sale.
Three stock analysts - Eric Bosshard, Art Vascomb and William Steele - said the most likely candidates are picture frames and low-priced pots and pans. Management has complained about those units in past conference calls.
``They talk about, typically, their `noncore, low-margin businesses.' Some of those are opening-price-point businesses, which suffered as of late,'' said Vascomb, who is with CIBC World Markets Corp. in New York.
Executives have made no public comments that would indicate that any of the plastics businesses will be sold, said Vascomb and Bosshard, an analyst with Cleveland-based FTN Midwest Research.
But Steele said nothing would surprise him. ``Everything should be on the block for this company,'' said Steele, with Banc of America Securities in Ashland, Ore.
Staff reporter Frank Esposito contributed to this story.