Tom Murdough, who has built two of the most recognized brands in children's toys, is retiring from rotational molder Step2 Co.
Murdough, 67, is handing over the role of president and chief executive officer to Scott Levin, an executive he brought in from outside the company.
Both executives look forward to keeping the company moving ahead, while they have an eye on acquisitions.
Still, the changing of the guard does not mean much change in the direction of the company.
Murdough will remain a shareholder and chairman of the board. Step2's owner, Liberty Partners LP of New York, still will tap Murdough's knowledge, according to a spokesman for the private equity investment firm.
``We are extremely excited about Scott's appointment and will continue to support the leadership team as they build on Step2's position in the market,'' said Yvonne Marsh, a senior managing director with Liberty Partners who will serve as nonexecutive chairwoman of Step2. ``Tom Murdough's vision and leadership have been invaluable to the industry and to Step2, and we welcome his continued participation on the board.''
Murdough, an industry icon, will assist Levin in the transition through the next few weeks.
``I'll be 68,'' Murdough said. ``When you reach that age, you want to take a little more time, and it was only fair to the business that we find a new leader.''
Although officials are mum on the company's sales, Murdough said its rotomolding sales in North America are ``north of $120 million,'' the estimated figure that appeared in Plastics News' 2006 rotomolders ranking. The ranking placed Step2 in the No. 1 position. That's up from an estimated $100 million in 2000.
``Continuing to grow in an environment such as we've just been through, that's something that, quite frankly, we're very proud of,'' Murdough said. ``We'll have a significant growth number for this year.
``We're seeing nice growth in Mexico,'' he added. ``We've had great growth in Canada. We're still predominantly an American-made product. And that's unique.''
Although rotomolding is king of the processes at Step2, the company has added blow molded and injection molded components, though it outsources production of those parts.
Will Step2 follow the industry trend and outsource more molding under Levin?
``There's no existing strategy that says we're going to move `x' percent out,'' Levin said. ``The approach is to find where the best sourcing is, and that's a holistic cost factor, which takes into account everything from labor rates to freight to availability of product.''
Because of freight costs and inventory-management issues, it makes sense to make rotomolded products in the United States, Levin said. However, if the company diversifies, Step2 may end up sourcing some small, lightweight products from China, he added.
To be competitive, especially in small packaged preschool products, officials will consider further outsourcing.
``But to make sure it's in keeping with the Step2 brand, it has to be at the quality levels and have the same unique features as what we do domestically,'' Murdough said.
Besides the obvious resin price battles that other processors face, Step2 has to deal with price wars and scarce shelf space at its customers, big retailers. The top six U.S. retailers represent 70 percent of Step2's sales, and it's been that way for years.
To deal with the shelf-space problem, Step2 can sell products directly to consumers and tackle new markets. Step2's Internet sales and international growth efforts will continue under Levin. Rob MacKay was promoted in October to vice president of Internet sales and marketing. The Internet division has experienced strong growth during the past five years. The company's international sales are growing, including in Europe and the Pacific Rim.
Officials said the firm currently has no acquisition targets in international markets.
``The Internet is such a growing opportunity for us, particularly in large, rotomolded products that aren't being shelved by mass merchants and are much more efficient to ship directly through a dot-com, whether it be ours or theirs,'' Levin said.
The company will focus on new product introductions and extending current product lines in toys and home products.
Levin's background includes working on lean manufacturing strategies. At Step2, he will help the operating team continue on its lean journey. As with other processors, resin prices are always an issue. Last year Step2 pushed through price increases.
``The ability to continue to be lean, to get waste out of your processes, to do it on a more efficient basis, is something that we continue to drive,'' Levin said.
``We have done lots of things to deal with dramatic increases in resin costs,'' Murdough said. ``I think the outlook going forward is [one] of caution. We believe there's going to be somewhat of a leveling, a reduction in resin costs, hopefully.''
Levin's goal is to lead the management team in the company's current operating structure. Step2's management staff includes Jim Nagy, vice president of manufacturing; Chief Operating Officer Jim Miller; Bill McCallum, vice president of sales and marketing; Brian McDonald, international vice president; Andy Hauptner, vice president of product development and sourcing; and now, MacKay. The staff also includes John Sinchok, who is vice president of product development and research and development.
It's that seven-person management team that Murdough emphasizes as young, energetic yet stable, and chock full of ideas and ambition to move the company ahead in an industry that has been under so much pressure. Murdough attempted to step aside in 2001, when he named Sinchok, then a toy designer, as president.
``From my perspective, I'd always rather promote from within when you can. We tried to do that with John,'' Murdough said. ``There were a lot of factors that came into play there that none of us could have anticipated. We don't need to go into that.''
Murdough said it became necessary to go outside the company to find the new president. In addition, he did not want to tap someone from the rotomolding industry, nor did he want to tap someone from the toy industry.
``The way we approach rotational molding is so unique here,'' he said. ``The way we do things is not similar to how other people handle rotational molding, nor is it similar to how other people approach the toy industry.
``So I was not looking for someone who had toy industry experience or plastic processing experience. What I was looking for was a good man whose values fit with this company, and whose management experience would play a key role.''
Levin's background includes his stint as president of Pentair Corp.'s pool and spa division. The $650 million group had facilities for R&D, manufacturing and distribution throughout North America.
He has experience in a number of industries, including oil and aerospace. Levin has dealt with many of Step2's customers, with the exception of Toys ``R'' Us, in his previous jobs.
``The types of manufacturing challenges and delivery issues are things that I've dealt with in other industries,'' Levin said. ``This is an industry where the need for very creative product innovation, quality products and customer service are tantamount.''
In a way, it was Levin's background in literature that made his resume stand out to Murdough. Levin has a bachelor's degree in English literature from the University of Cincinnati, a doctorate in comparative literature from Indiana University and a master's in business administration from Indiana.
At one point, Levin planned to be a professor.
Murdough said he has ``a fondness for teachers,'' who are committed to helping others. Also, ``his interest in literature just suggested to me, well, this fellow may be pretty well-balanced. That, coupled with his business background, suggested he'd be a good fit for us.''
* * *
* Tom Murdough founded Step2 in 1991 after his noncompete agreement expired with Rubbermaid Inc.
* Rubbermaid, now Newell Rubbermaid Inc., had acquired Murdough's first company, Little Tikes, in 1989. Now Tikes is owned by Van Nuys, Calif.-based MGA Entertainment Inc.
* Private equity firm Liberty Partners LP of New York, backed by Allied Capital Corp. of Washington, bought Step2 last year as part of Murdough's succession plan. Murdough and 22 Step2 employees now collectively own 20 percent of the company.