General Housewares Corporation Business Information, Profile, and History

Company Perspectives:

The key element in General Housewares Corp.'s strategy is to grow by focusing on products that "delight and excite" the consumer. In practice, the phrase "delight and excite" embraces three different characteristics of products: (1) delivery of unexpected value to the consumer (i.e., the performance of the product exceeds the consumers' expectations); (2) simplification or enhancement of a task through product design and/or enhanced product function; and (3) products that redefine existing tasks. By investing in products that encompass these characteristics, the Company expects to achieve sustainable, competitive advantages in the markets it serves.

History of General Housewares Corporation

General Housewares Corporation is a leading manufacturer and marketer of cookware, cutlery, kitchen tools, wood products, and cutting tools for the housewares and craft/hardware markets. Its broad range of products are designed to "delight and excite" the consumer, offering both a distinctive appearance and superior quality. The company, with three factories in Indiana and Illinois, is the only domestic manufacturer of enamelware, a porcelain-on-steel type of cookware. It also enjoys a leading market share in kitchen cutlery, through its Chicago Cutlery line, which has received a top quality rating from Consumer Reports and is the company's foremost revenue generator. Other key businesses include OXO International, a division headquartered in New York that imports and markets ergonomically designed kitchen tools and gadgets, and the Olfa Products Group, a division headquartered in Montreal, Quebec, that imports and markets craft and industrial precision cutting tools.

Early History

The multiproduct housewares company was founded in 1967 by Jack Muller, a then 43-year-old Harvard M.B.A. and former management trainee who wanted to leave his position as a marketing executive at General Foods to start his own company. He solicited the financial backing of Laird Incorporated, a group of investors with ties to the du Pont family, who raised $1 million in equity and borrowed another $5 million. Finding the proper channel to direct his entrepreneurial energy and capital, however, proved to be a more difficult task. Several discussions with the Laird group had failed to produce a workable idea. "We talked about a number of categories," Muller told Forbes writer Laura Rohmann, "and for one reason or another we couldn't make anything work." Desperate, Muller drove to New York, seeking the solution to his problem in a Macy's department store. Eschewing the sophisticated marketing research techniques he had learned in business school, he went to the top floor of the store, vowing to find a business before he left that day. "I went all the way to the bottom, and as I came down the escalator and saw the housewares area, I said to myself, 'Well, this has got to be it,"' he explained to Rohmann.

In 1967, Muller, with $6 million at his disposal, acted on his impulse and purchased J.R. Clark, a struggling, $8 million, Minnesota manufacturer of outdoor furniture, ladders, and ironing boards. It did not take long, though, for Muller to discover the limitations of the company he had acquired. In an age where fashions were dominated by polyester, ironing had fallen out of favor with the general public. Ironing boards and ladders, then, came to "represent drudgery or work versus fun," Muller told Rohmann. The new owner quickly reasoned that such a negative product identification would prove an insurmountable obstacle to the profitability of his business. With the goal of selecting a product line that consumers would enjoy buying, Muller decided to build his company around a line of enamel cookware--the ceramic-on-steel pots and pans used by U.S. families since the 19th century. And in 1968 he purchased a manufacturer of kitchen ceramics to get him started. The following year, while making its initial public offering, General Housewares acquired an enamelware importer, adding to the base that would one day stand as the last domestic manufacturer in the industry.

Muller's initial decision to focus on cookware and table-top giftware proved to be a sound one. By 1972, his company had surpassed the $50-million mark in annual sales and was approaching $4 million in earnings. Along the way, though, he attempted to expand the business at a faster rate by diversifying into several different product lines, ranging from kitchen stools to novelty candles. Many of these products performed poorly, leading the company into a period of high-cost debt. What is more, seasonal products such as outdoor grills became costly to inventory as interest rates skyrocketed during the early 1970s. Having failed to see that the credit crunch and inflation were approaching, Muller found himself saddled with a high debt load and businesses that were unable to carry their weight. By the time the recession of 1973 and 1974 had run its course, bumping up interest rates to 17.5 percent, the company was on the verge of extinction. Earnings had eroded to losses of $1.9 million in 1973 and $7 million the following year; liabilities now outstripped assets.

To stay in business, General Housewares had to sell off parts of the company, such as its steel kitchen furniture business, to raise cash. By 1975, all that remained were a few parts of its original cookware, giftware, and furniture businesses. Although the streamlining process was painful, it did allow the company to strengthen its balance sheet. Between 1974 and 1977, the company was able to cut its long-term debt down to 50 percent of capitalization, while resuscitating income to $4.8 million. The road to recovery, though, was a slow one. The growth pattern for revenue and profits was not consistent during the remainder of the decade.

Legislation Spurs UnprecedentedGrowth in the 1980s

By the time General Housewares entered the 1980s, it was the only manufacturer of enamelware in the United States. A decade of increasingly intense competition from poorer countries with duty preference had made the business an unprofitable venture. With the arrival of the new decade came an unexpected boost from the federal government. In 1980 the International Trade Commission ordered temporary trade protection for manufacturers of porcelain-on-steel cookware, and General Housewares was the only company left to enjoy the benefits. Muller quickly came up with a strategy to take full advantage of this boon. First, he implemented a cost-cutting program, funnelling half of the company's capital spending into the development of more efficient production in an attempt to reduce costs by 2 percent each year. The second, revenue-generating part of his plan called for a new emphasis on upscale cookware that would enable the company to enjoy higher profit margins.

While the company was doing its best to maximize its enamelware profits during the four-year tariff protection period, it did not neglect the other promising aspects of its business. In 1979, it introduced its Magnalite Professional line of cast aluminum and magnesium skillets and bakeware. Having invested $350,000 on an electrolytic coating that gave the pans a professional-looking satiny gray appearance, the company hoped to find a match with its more affluent customers who could afford to pay up to $130 a pot. Encouraged by an annual 50 percent growth in Magnalite Professional sales during the early 1980s, the company also developed a Chateau line of high-end enamel pots, with a European-looking bulge bottom, and a Gear country motif collection of enamelware marketed to compete favorably with comparable products such as Pfaltzgraff stoneware.

Muller's twofold strategy of cost-reduction and luxury product development enabled the company to survive and prosper during a second wave of high interest rates in the early 1980s. In June 1982, a year that saw record sales of $74.3 million and profits of $3.7 million, the company made its first appearance on the New York Stock Exchange. Spurred by the company's strong performance and demographic trends that showed strong increases in young households and disposable income, investors showed their confidence in General Housewares, more than doubling the price of the stock from $8 to $21 during its first year on the exchange.

But such high expectations for the company as it emerged from the 1981-82 recession were not fulfilled--at least in the short run. Although earnings were increasing and costs were declining, foreign competition was also on the rise. As the U.S. economy recovered and the dollar strengthened, cheap imports undercut sales and eroded profits. By 1985, the company again found itself in the red, reporting a loss of nearly $3 million. Two years later, its stock sank to a low of $6.

One of the most important steps to General Houseware's recovery was its purchase of Chicago Cutlery in 1988. Founded by Ronald J. Gangelhoff in the 1960s to supply meat-packing houses with razor-sharp knives, the company was instrumental in creating a consumer market for fine-edged knives in the United States. After his first encounter with the cancer that would take his life six years later, Gangelhoff sold Chicago Cutlery to General Housewares and accepted a position as vice chairman of the board. The acquisition of the Consumer Reports category winner proved to be one of Muller's wisest decisions. Not only did the addition contribute substantially to the company's attempts to market brands that "surprise and delight" the customer, but it provided a major source of new revenue and profit.

Streamlining and Recovery in the Early 1990s

Just as it had a decade earlier, General Housewares recovered by divesting itself of its ancillary businesses to reduce debt and focus its energy and resources on its most profitable product lines, such as Magnalite cookware and Chicago Cutlery. Having lowered its debt to 30 percent of capitalization through the $15-million sale of unprofitable businesses, the company hoped to take advantage of strong growth in the gourmet cooking market, which was expanding at a faster rate than the housewares market in general.

Another segment of this streamlining strategy came in the form of a corporate headquarters relocation. In June 1990 the company moved its corporate offices from Stamford, Connecticut, to Terre Haute, Indiana. According to Paul Sexton, who took over as CEO the following year, the migration to the Midwest was undertaken to jettison the high operation costs of the East Coast. In an age of fax machines and computers, proximity to Wall Street was no longer an important component to running a profitable business. By transferring the corporate offices to the same building as one of its ceramic-on-steel factories, the company's top executives could not only have a closer link to their employees, but they could save money on rent as well.

In October 1992, a year that saw revenue jump to $79 million and profits increase to $4.4 million, the company took another step towards increasing its presence in the gourmet cooking market, purchasing OXO International, a New York-based manufacturer of a broad line of specialty kitchen tools. Known for their distinctive handles and ergonomic design, OXO tools--marketed under the brand names Good Grips, Prima, and Plus--quickly became a strong performer for the company. In the next two years, sales from the OXO Division would more than double as several new products, including a new line of Sierra Club gardening tools, were added.

While the early 1990s were marked by reasonable levels of growth--revenue increased 15 percent between 1989 and 1993--the company reevaluated its marketing strategy and made the painful decision to eliminate some of its less profitable operations to make room for growth in industries with greater potential. In 1993, for instance, it sold its stainless steel cookware operation, having lost market share due to competition from countries such as Korea, Taiwan, Mexico, and China. At the same time, though, General Housewares introduced a new line of nonstick cast aluminum cookware and strengthened its hold on the enamelware industry by acquiring the Normandy line of enamelware from its chief competitor in that segment, National Housewares Corporation. In October 1994 the company also significantly increased its presence in the $10-billion North American hobby and craft market, purchasing the Olfa Products Corporation, the exclusive distributor in the United States and Canada of precision cutting tools and accessories made by Olfa Corporation of Osaka Japan. The high-performance line of razor-sharp scissors and specialty knives was slated as one of the company's most promising businesses as it entered the mid-1990s.

The Mid-1990s and Beyond

Driven primarily by explosive growth in its OXO and Olfa divisions, the company recorded a healthy 10 percent growth in sales in 1994. During the fourth quarter of that year, however, the company encountered customer service difficulties that prevented it from taking advantage of a 33.3 percent jump in sales from the previous year. Unprepared for such rapid growth, the company tried to catch up on orders through plant overtime and expensive air freight, used to bring in important products and components. Despite the best efforts of its employees, the company struggled to meet the challenge and saw its ability to deliver orders on time dip to as low as 50 percent, minimizing the strength of its outstanding performance in advertising, packaging, pricing, and promotion.

Factors other than successful marketing contributed to the dramatic shift in orders to the fourth quarter. As the industry became more dependent upon on the latest in information technology, many of the company's retail customers sought to ease the burden of carrying and financing inventory by developing sophisticated electronic data interchange (EDI) software. The widespread use of such technology, however, placed a greater burden on vendors such as General Housewares, requiring them to respond more quickly to orders, carry a larger inventory, and spend more money on interface software and the training needed for its employees to be able to use it.

In response to the late-1994 crisis, the company engineered a comprehensive overhaul of its supply chain the following year. Realizing that its largest customers--Wal-Mart, Kmart, Target, and Sears--were judging the company more on its ability to deliver goods to the retail shelf often and accurately than on product price and attractiveness, the company introduced a Supply Chain Management System to improve the logistics end of the business. The new, tightly controlled Production/Sales/Inventory program--billed as the single most important "New Product" in the company's history&mdash-abled General Housewares to improve its overall 1995 service level to 88 percent. The improvement in efficiency contributed to a 22 percent increase in total revenue.

In January of the following year the company took additional measures to streamline its operations and allow for growth in its fastest growing businesses, putting its Magnalite Classic, Magnalite Professional, and Wagner 1891 Cast Iron lines of cookware up for sale. Although once among the company's strongest performers, these product lines, which accounted for about 15 percent of total revenue in 1995, lost significant market share in the face of tougher competition from domestic companies such as Calphalon and Meyer, and from Hong Kong imports. Instead of continuing to support the flagging, and expensive, cookware lines, the company opted to redeploy those resources in its four stronger performing businesses: OXO gadgets, Chicago Cutlery, Granite Ware enamel-on-steel cookware, and Olfa precision cutting tools.

Principal Subsidiaries: Chicago Cutlery Inc.; General Housewares Corp. Sidney Div.

Principal Divisions: Olfa Products Group; OXO International.