State of the US Automotive Industry
YPO Global Conference Call – 10/12/08
Dennis Desrosiers, Desrosiers Automotive Consultants, http://www.desrosiers.ca/
· Dennis Desrosiers is a long time auto industry analyst and consultant – based in Canada and specializes in the Canadian sector but tracks and comments on North America and the Global trends and issues. He is one of the special advisors to the Canadian Government on this industry issue.
Conclusion
· This issue is here to stay for a while. There is a global market issue but the industry crisis is really centered in the US.
· The market must return first – and that could take until 2013 or beyond to get back to current new car demand levels
· The “structural” issues with the Big 3 will take even longer – realistically it’s a 2015 “fix”.
· The Big 3 need to become the Big 2 or potentially the Big 1 – Chrysler will be the first to go and has several quality assets that will be split up and acquired/assumed by others.
· The current financial assistance plans are not the solution, not even a good band aid – realistically the $15B assistance will provide 90 days of life support and the same issues will exist at the end of that window.
Comments
· The market issue is driven by 10 years of overbuying and there is no short term solution out of this ….just a fundamental correction. Consumers, especially in the US have been incented into maintaining new car purchase levels at above sustainable levels.
· Interesting fact. Canada and the Global (ex US) data point is 0.7 cars per adult driver. The US ratio is 1.3. This overconsumption of cars in the US isn’t sustainable and will correct – this will and is causing a significant adjustment in US new car sales for the next 5 years.
· US Market – if you remove fleet and government sales from the mix 60% of the US market is now imports and the Domestic Big 3 are 40% share and declining.
Projections:
Canada – annual new car volume has been approx 1.6M units & is projected to drop to 1.5M
Mexico – projected 8% decline.
US. – much more complicated.
The US has been running at around 17.5M new car units per year. The normalized run rate should have been approx 15M units. So the market has been over consuming by 2.5M per year driven through purchase incentives.
Conservative estimates suggest that the market will correct to 12M in 09 and ’10 and then grow to 14M (’11), 15M (’12) and 16 (’13) – still below today’s new car levels by 2013. There are some scarier scenarios that suggest that should US consumers begin to adjust their 1.03 cars per adult ratio and with the glut of used cars in the field that the normalized demand could be as low as 9M – 10M new units for the 2009 and 2010. That significant drop would cause a massive adjustment in the Big 3 – Big 2 – Big 1 scenario.
· Chrysler – no likely purchaser for the full package (GM and Renault/Nissan would be the front runners but clearly GM is out of the race and the European market conditions would make a full deal impossible for Renault). Viewed that the Chinese are no longer probable candidates – their product range is just too far away 5+ years. The more likely scenario is a break up – GM takes the minivan range, Renault takes the truck business, Jeep will have multiple party interest, the Chrysler car range will have no interest and get buried.
· Legacy costs are insurmountable. Not discussed in the media but on current mfr costs – the legacy costs for health care and pensions are approximately $2,000 per new vehicle – the same input cost as steel. No matter what the industry does to reposition it can’t get out from underneath the legacy burdens – it really progresses the Chapter 11 scenario.
· Future state of the dealerships. Projected significant shakeout – up to 50% of the dealership count. Highly unlikely the industry can restructure to a pull through model so the dealers will still be counted on for carrying the inventory burden but projected that in the future model/colour variety options will be reduced as will the high touch state of the dealership structure today. Desrosiers is a big fan of how the Japanese and Koreans are managing their dealer network and believes that they value dealer profitability and are structuring their networks to create profitable (powerful) dealers. On the other hand he states that a fundamental competitive disadvantage for the Big 3 is they built their structure on wanting a weak dealer base (to protect factory power) and this is really hurting them in a time of need. Desrosiers believes in dealership consolidation and dealer groups and believes that it’s serving to better equalize the power base between the factory and the dealerships. He believes that the future of the dealership network will be a web of dealer groups – smaller dealer count, consolidated ownership, better structure, more powerful voice.
· Future state of product mix. Green/fuel efficient technologies/car downsizing is a here to stay trend globally. BUT Desrosiers suggests that there is nothing to suggest that (despite all of the press) that the US consumer is really ready for this trend and is prepared to make the personal switch. He therefore sees political requirements for green technology as part of the Big 3 support plan a huge red flag – political pressure and hooks may require the Big 3 to change faster than their customer base is prepared to change – thus more market and market share issues in the future. He also believes that green technology is too diverse right now – too many technologies to choose from, too many people working on different solutions. In order to make a real impact there needs to be quick convergence – pick the leading technology and divert the massive research $’s into commercialization. Get focused.
· Future state of parts and accessories. OE suppliers are in massive trouble and there will be tremendous Chapter 11 occurrences with the significant reduction in 5 year new car demand. On the other hand, aftermarket parts suppliers and retailers will do okay. The prediction is the used car over supply will get sucked up in the next 3-5 years which will mean more repair and investment in an ageing road fleet.
Tuesday, December 16, 2008
Tuesday, December 9, 2008
The Grinch and the Meaning of Christmas
“And the Grinch, with his Grinch-feet ice cold in the snow,
stood puzzling and puzzling, how could it be so?
It came without ribbons. It came without tags. It came without packages, boxes or bags.
And he puzzled and puzzled 'till his puzzler was sore.
Then the Grinch thought of something he hadn't before.
What if Christmas, he thought, doesn't come from a store.
What if Christmas, perhaps, means a little bit more.”
Dr. Seuss
Copied by permission from the December 5, 2008 issue of OPEESA's "OPE-In-The-Know, The Business of Outdoor Power Equipment" newsletter which can be found at http://www.opeesa.com/.
No. 12 December 2008
Economists are predicting the beginning of an economic turn-around in the third or fourth quarter of 2009. I don’t know about you but my vote would be to see a turn-around a whole lot sooner! Please?As Tecumseh Snow King engines become NLA, the result will be both problems and opportunities in the OPE marketplace. If you produce snowthrowers, you have to have snowthrower engines. Unfortunately there are not a lot of choices left. I heard one snowthrower engine rumour about a US equipment manufacturer who imported Chinese manufactured snowthrower engines for both the US and Canadian markets in 2008, only to discover a casting defect in the block that resulted in an oil leak. Supposedly all the engines had to be replaced. If true, it will be the first major problem this company has had with Chinese manufactured engines. The rumour says heads have rolled in China at the engine manufacturing plant……..I hope that doesn’t mean literally. Here’s hoping all OPE manufacturers find the snow engines they need and that we have lots of snow this winter, and lots of snowthrower sales. It would definitely be a bright spot in an otherwise dismal product sales year.
Christmas time always reminds me of the four stages of life. Stage 1 - you believe in Santa Claus; Stage 2 - You don’t believe in Santa Claus; Stage 3 - You are Santa Claus; and Stage 4 - You look like Santa Claus.
There are two auto industries in the US today. One is in the Midwest, unionized with huge pension and health care obligations and making vehicles few people want to buy. The other is in the South, non-unionized and making vehicles people do want to buy. The three companies located primarily in the Midwest (GM, Ford and Chrysler) are suffering because they’re too large, too inefficient and as described by one pundit, “have essentially gotten their collective butts kicked by foreign automakers since the 1980’s.”
It was mentioned in the September 17, 2008 issue of USA Today that the Big Three US auto makers have an average hourly compensation rate of $73.20, while Toyota’s average hourly rate is $48.00. The article also listed the average hourly US compensation for Management and Professional Workers as $47.57. Manufacturing/Goods-Producing workers had an average hourly rate of $31.59, and all workers overall had an average hourly rate of $28.48.
When you do the math, GM, Ford and Chrysler compensate their employees 52.5% more than the competitors like Toyota, 54% more than US management and professional workers’ average wage, 132% more than the average US manufacturing wage, and 157% more than the average compensation of all American workers?
I’m sorry, but I just can’t see why we (taxpayers) should bail out (reward) these three companies and their unions for consistently making poor decisions for the past 30 years. Let them fall into bankruptcy so they can quickly and easily restructure or merge, eliminate brands they should have gotten rid of years ago, shut down inefficient plants making vehicles nobody wants, shed outrageous pay and benefit packages, improve their quality, and hopefully become competitive once again. I believe that even if we dump money into these companies at taxpayer expense to try to save them, it will only briefly delay the ultimate outcome.
There was a terrific article on the front page of the November 7, 2008 Wall Street Journal called “A Snowthrower Maker Braces for Slump’s Blizzard of Woe.” It’s about Ariens and the impact of the country’s economic problems and the shuttering of Tecumseh Power on the company. You can read a copy of the article at http://www.opeesa.com/ in Volume 131 of their business newsletter “OPE-In-The-Know.” You’ll really enjoy reading the article and learn a few things too, just as I did.
During this holiday season, take a minute to filter through the bad news and think about all the good things going on in your life and our country. When you hear a high unemployment rate, think about the other side of the equation and the 90+ percent of Americans who do hold jobs. If you’re employed, receiving a pay-check, have family health insurance, have children and grandchildren living nearby and doing reasonably well, then give thanks for all those blessings you do have. It’s very hard to look at a glass and call it half-full instead of half-empty. Your positive and grateful state-of-mind touches everyone around you, including your family and your employees. You have a choice every day about how you approach life and the people around you. Make it positive. Make it thankful. Count your blessings. Then share a few.
Merry Christmas and Happy Holidays.
Tuesday, November 11, 2008
No. 11 November 2008
As of early October 2008, total U.S. employment had fallen by more than 760,000 jobs and by the time you read this, I suspect the number will be much larger. This loss compares to a gain of 1.1 million net new jobs in 2007 and the addition of nearly seven million net new jobs during 2004-2006.Since World War II, (and prior to this year’s election), the nation’s unemployment rate has risen only twice in the year leading up to the elections. In both cases, the incumbent party lost (www.bloomberg.com).
Platinum Equity is shutting down the Dunlap Tennessee-based Tecumseh Engine plant. It will take until April 2009 to complete the shutdown. It’s bad enough that 180 people will lose their jobs. Some OPE OEM’s will lose their primary source of snow engines. At one time there were 600 people employed at the Dunlap plant.
I never understood why a smart outfit like Platinum Equity would buy Tecumseh. If Platinum Equity wanted to get into the engine business, I know what would have been the wiser thing to do, but it wasn’t my money and no one there asked me for my opinion. Perhaps by the time you read this we’ll know if Tecumseh will be shut down or all production simply shifted overseas or if it might be sold again.
I think the story of the rise and fall of Tecumseh would make an excellent book. It’s a story of family, money, ego’s, marketing or a lack thereof. From afar, many wondered if they were really reinvesting in the business. No, I don’t have any special insight into the story. It was a nice clean line to carry from a distributor standpoint. We loved to sell the Peerless Division’s parts and units. Tecumseh parts didn’t change very often…just like Murray parts didn’t change. Now there’s a rumor on the street that perhaps a major OPE OEM who does not make their own gear boxes will buy Peerless from Platinum Equity, but it’s not yet credible.
If you want to learn about the “soap opera” side of the story, go to my Blog at http://anonymousdistributor.blogspot.com/ and read my March, 2007 entry I wrote titled “Tecumseh - A Soap Opera or an Opportunity Waiting?” It covers the first three months of 2007, and it’s a sad episode in a much larger and depressing story.
I was reading the other day about what some big companies are doing to combat the excessive use and the high cost of energy. Did you know Sam’s Club is selling milk in square cartons? As a new design, they probably are more expensive to make. But the square design allows them to stack better and without crates. You can get three times more square containers in a cooler than the normal shaped milk container saving money and energy, and requiring 60 percent fewer trucks.
Speaking of coolers, some grocery stores are putting doors on refrigerated cases and cutting energy use 70% on that aisle.
Staples cut fuel use 15% just by placing a 60 mph limit on its drivers. The trucks move slower, but stop for gas less often. And total delivery time is the same.
Another writer mentioned UPS’s “no-left-turns” program to avoid waiting to cross traffic. Using GPS data, UPS routes basically now go in concentric circles to the right. The saving have been about 28 million miles of driving and 3 million gallons of gas since it was implemented. That’s impressive!
My point is that reducing energy usage (and costs) is often just using common sense. Simply turning out lights in a room not being used or completely turning off your computer or TV rather than leaving them on stand-by are simple ways to start getting in the habit of thinking about energy usage. I have a strong suspicion that we’ll all be thinking a lot more about it in the years to come.
You know from reading my past columns that I’m a big fan of Warren Buffett. (I believe a few other people admire Mr. Buffett also.)
In a recent interview with CNNMoney.com, Mr. Buffett said he wasn’t interested in placing blame for the (recent financial) crisis. “I don’t worry too much about pointing fingers at the past,” he said. “I operate on the theory that every saint has a past, every sinner has a future.”
He said the problem boils down to a widely-held assumption during the housing boom that prices could only go up. And while the theory's flaws are all too apparent now, the misconception is understandable, said Buffett, pointing to previous asset bubbles going back centuries.
"There are not bad guys in that situation," said Buffett. "It's a condition of human nature."
Wednesday, October 15, 2008
No. 10 October 2008
The stock market has been looking like a roller coaster lately. Just remember that the only people that get hurt on a roller coaster are the ones that try to get off in the middle of the ride.
Could you hear the sound of generator manufacturers running their plants at full capacity in August and September of this year? Even though it meant people were suffering the consequences of two major hurricanes, the sound of production lines operating at full tilt was music to many ears. There’s talk that after two relatively quiet years, demand for generators after Hurricanes Gustav and Ike could exceed the demand that followed Hurricane Katrina.
The weak domestic economy and the stupidity and mindless risk-taking that came to light on Wall Street this past year helped fuel lower domestic demand for many OPE products. Contracting demand and a crowded field of manufacturers wanting to supply that smaller demand created many interesting opportunities and dilemma’s in the OPE marketplace.
The playing field in OPE retail product placement in 2009 will be quite interesting. Which OEM’s lost placement and which ones gained placement? Which OEM’s got their price increases to stick and which ones had to back down under a major customer’s “gentle” persuasion? Who’s on the list of OEM’s that could potentially disappear, merge or be bought out?
If the Bill the House of Representatives failed to pass on Monday, September 20 had been called the 2009 Financial Reform Bill instead of a Bailout, would it have passed?
Dan Wiener, who writes The Independent Advisor for Vanguard Investors newsletter (http://www.advisoronline.com/) thinks this is a good time to be investing. Here’s how he arrived at his conclusion:
“The 4.4% drop in the Dow on September 15, 2008 ranked as the 76th worst decline in the Dow in modern times … Since World War II, we've seen 17 declines greater than 4.4% in the Dow, with more than half of them occurring during the '80s. They often have signaled a terrific time to invest in stocks. On average, the one-year return for the Dow after one of these 17 big declines was 12.8%, and the two-year return was 26.4%. In only two instances were the two-year returns negative. Look ahead a couple of years, and I think you'll see these days as fantastic ones for adding money to the markets. Let the naysayers have their word—they probably weren't around to tell you how to make money 8 years or 9 years ago. I was. We did. End of story.”
One day a father of a very wealthy family took his son on a trip to the country with the purpose of showing his son how poor people live. They stayed with a very poor family.
When they returned, the father asked the son what he thought of their trip. "It was great, Dad." "Did you see how poor people live?" the father asked. "Oh yeah," said the son. "So, tell me, what did you learn from the trip?" asked the father.
The son answered: "I saw that we have one dog and they had four. We have a pool that reaches to the middle of our garden and they have a creek that has no end. We have imported lanterns in our garden and they have the stars at night. Our patio reaches to the front yard and they have the whole horizon. We have a small piece of land to live on and they have fields that go beyond our sight. We have servants who serve us, but they serve others. We buy our food, but they grow theirs. We have walls around our property to protect us; they have friends to protect them."
The boy's father was speechless. Then his son added, "Thanks, Dad, for showing me how poor we are."
Isn’t perspective a wonderful thing?
So if Wall Street is dead, was it murder or suicide? I suppose it doesn’t really matter at this point. But whatever happens/happened with the bailout, don’t bail out!
Could you hear the sound of generator manufacturers running their plants at full capacity in August and September of this year? Even though it meant people were suffering the consequences of two major hurricanes, the sound of production lines operating at full tilt was music to many ears. There’s talk that after two relatively quiet years, demand for generators after Hurricanes Gustav and Ike could exceed the demand that followed Hurricane Katrina.
The weak domestic economy and the stupidity and mindless risk-taking that came to light on Wall Street this past year helped fuel lower domestic demand for many OPE products. Contracting demand and a crowded field of manufacturers wanting to supply that smaller demand created many interesting opportunities and dilemma’s in the OPE marketplace.
The playing field in OPE retail product placement in 2009 will be quite interesting. Which OEM’s lost placement and which ones gained placement? Which OEM’s got their price increases to stick and which ones had to back down under a major customer’s “gentle” persuasion? Who’s on the list of OEM’s that could potentially disappear, merge or be bought out?
If the Bill the House of Representatives failed to pass on Monday, September 20 had been called the 2009 Financial Reform Bill instead of a Bailout, would it have passed?
Dan Wiener, who writes The Independent Advisor for Vanguard Investors newsletter (http://www.advisoronline.com/) thinks this is a good time to be investing. Here’s how he arrived at his conclusion:
“The 4.4% drop in the Dow on September 15, 2008 ranked as the 76th worst decline in the Dow in modern times … Since World War II, we've seen 17 declines greater than 4.4% in the Dow, with more than half of them occurring during the '80s. They often have signaled a terrific time to invest in stocks. On average, the one-year return for the Dow after one of these 17 big declines was 12.8%, and the two-year return was 26.4%. In only two instances were the two-year returns negative. Look ahead a couple of years, and I think you'll see these days as fantastic ones for adding money to the markets. Let the naysayers have their word—they probably weren't around to tell you how to make money 8 years or 9 years ago. I was. We did. End of story.”
One day a father of a very wealthy family took his son on a trip to the country with the purpose of showing his son how poor people live. They stayed with a very poor family.
When they returned, the father asked the son what he thought of their trip. "It was great, Dad." "Did you see how poor people live?" the father asked. "Oh yeah," said the son. "So, tell me, what did you learn from the trip?" asked the father.
The son answered: "I saw that we have one dog and they had four. We have a pool that reaches to the middle of our garden and they have a creek that has no end. We have imported lanterns in our garden and they have the stars at night. Our patio reaches to the front yard and they have the whole horizon. We have a small piece of land to live on and they have fields that go beyond our sight. We have servants who serve us, but they serve others. We buy our food, but they grow theirs. We have walls around our property to protect us; they have friends to protect them."
The boy's father was speechless. Then his son added, "Thanks, Dad, for showing me how poor we are."
Isn’t perspective a wonderful thing?
So if Wall Street is dead, was it murder or suicide? I suppose it doesn’t really matter at this point. But whatever happens/happened with the bailout, don’t bail out!
Friday, September 19, 2008
No. 9 September 2008
Harvey MacKay, in his July newsletter, tells this American Indian story about where we should look for guidance in our lives:
“The Lakota, a tribe of Native Americans, tell a story of the great spirit of creation, "Wakan Tanka." The story goes that after Wakan Tanka arranged the other six directions—east, south, west, north, above (the sky) and below (the earth)—the seventh direction remained to be placed. Because it was the most powerful, containing the greatest wisdom and strength, Wakan Tanka wished to place it somewhere it could not easily be found.
And so it was hidden in the last place humans usually look—in each person's heart.”
“Mackay's Moral: Don't let your heart be the last place you look for direction.”
I always try to read Ed Lemco’s columns whenever they appear in various powersports magazines. Ed is totally focused on helping powersports dealers be successful in today’s tough business environment. And his thoughts and suggestions can serve OPE dealers equally as well.
In a July column, Ed says “The last thing a dealer having a tough time needs is a simplistic generalized solution, so I will try not to offer one. I also will not use any ink to expand on the (current) ills of the marketplace and economy. You don’t need to hear anymore, and even if I could formulate a lame answer to the ills of the world, there is nothing I or anyone reading this can do about it.”
“So it is back to control what you can control. You can’t control what the media talks about, but you can control and eliminate the negativity in your dealership. The only economic indicator that really matters is how many people came through your door and what you did for them when they did. So since a complaint without a solution is just bitching, let’s look at…what you can do about it.”
In running several powersports businesses that he has ownership in, Ed stated that, (In our businesses) “we are not content to be average. We have implemented changes in the sales process that are totally focused on providing a quality experience to every showroom visitor. We have increased, not decreased the number of salespeople and kept them focused and directed at pursuing the sales opportunities that do exist.”
“… you do not have to accept what the marketplace gives you. In fact, with so many dealers lost in the swirl and cutting back hours and staff, the opportunity to make money is, in many cases, better than ever.”
What have you done in your business lately to stay positive, sell more, and provide every potential customer that walks through your door with a truly superior customer experience that they will remember and share with friends and family. There is no amount of money you could spend on advertising that can equal the power of a positive and memorable customer experience.
There's an old joke about a guy who goes into a hardware store to buy a saw to cut firewood. The clerk convinces him to buy a top of the line chainsaw claiming it will cut a cord of wood in an hour. The guy brings it back the next day saying it took him all day to cut just one cord. So the clerk primes the saw, pulls the handle and starts the chainsaw right up. The guy looks at him in amazement and asks, "What's all that noise?"
One of the greatest violinists of all time was Nicolo Paganini. Born in 1782, he had a long illustrious career before his death in 1840. One day as Paganini was about to perform before a packed opera house, he suddenly realized that he had walked out on the stage with a strange violin in his hands—not his own treasured instrument.
Panic-stricken, but realizing that he had no other choice, he began to play with all the skill he possessed. Everyone agreed afterward that he gave the performance of his life. When he was finished, the audience gave him a standing ovation.
In his dressing room after the concert, when he was praised for his superlative performance, Paganini replied, "Today, I learned the most important lesson of my entire career. Before today I thought the music was in the violin; today I learned that the music is in me."
“The Lakota, a tribe of Native Americans, tell a story of the great spirit of creation, "Wakan Tanka." The story goes that after Wakan Tanka arranged the other six directions—east, south, west, north, above (the sky) and below (the earth)—the seventh direction remained to be placed. Because it was the most powerful, containing the greatest wisdom and strength, Wakan Tanka wished to place it somewhere it could not easily be found.
And so it was hidden in the last place humans usually look—in each person's heart.”
“Mackay's Moral: Don't let your heart be the last place you look for direction.”
I always try to read Ed Lemco’s columns whenever they appear in various powersports magazines. Ed is totally focused on helping powersports dealers be successful in today’s tough business environment. And his thoughts and suggestions can serve OPE dealers equally as well.
In a July column, Ed says “The last thing a dealer having a tough time needs is a simplistic generalized solution, so I will try not to offer one. I also will not use any ink to expand on the (current) ills of the marketplace and economy. You don’t need to hear anymore, and even if I could formulate a lame answer to the ills of the world, there is nothing I or anyone reading this can do about it.”
“So it is back to control what you can control. You can’t control what the media talks about, but you can control and eliminate the negativity in your dealership. The only economic indicator that really matters is how many people came through your door and what you did for them when they did. So since a complaint without a solution is just bitching, let’s look at…what you can do about it.”
In running several powersports businesses that he has ownership in, Ed stated that, (In our businesses) “we are not content to be average. We have implemented changes in the sales process that are totally focused on providing a quality experience to every showroom visitor. We have increased, not decreased the number of salespeople and kept them focused and directed at pursuing the sales opportunities that do exist.”
“… you do not have to accept what the marketplace gives you. In fact, with so many dealers lost in the swirl and cutting back hours and staff, the opportunity to make money is, in many cases, better than ever.”
What have you done in your business lately to stay positive, sell more, and provide every potential customer that walks through your door with a truly superior customer experience that they will remember and share with friends and family. There is no amount of money you could spend on advertising that can equal the power of a positive and memorable customer experience.
There's an old joke about a guy who goes into a hardware store to buy a saw to cut firewood. The clerk convinces him to buy a top of the line chainsaw claiming it will cut a cord of wood in an hour. The guy brings it back the next day saying it took him all day to cut just one cord. So the clerk primes the saw, pulls the handle and starts the chainsaw right up. The guy looks at him in amazement and asks, "What's all that noise?"
One of the greatest violinists of all time was Nicolo Paganini. Born in 1782, he had a long illustrious career before his death in 1840. One day as Paganini was about to perform before a packed opera house, he suddenly realized that he had walked out on the stage with a strange violin in his hands—not his own treasured instrument.
Panic-stricken, but realizing that he had no other choice, he began to play with all the skill he possessed. Everyone agreed afterward that he gave the performance of his life. When he was finished, the audience gave him a standing ovation.
In his dressing room after the concert, when he was praised for his superlative performance, Paganini replied, "Today, I learned the most important lesson of my entire career. Before today I thought the music was in the violin; today I learned that the music is in me."
No. 8 August 2008
Electric lawnmowers and manual reel-type push mowers are, for good reason, “hot” once again. You may want to look very closely at these types of units when you go to the GIEE (Green Industry and Equipment Expo) show in Louisville October 23-25 this year.
Battery life and cutting power have improved in the newer cordless units being produced today, at least in the demonstrations that I’ve seen. But we’ll have to wait for new types of batteries to come to market before we’ll see significant battery life improvement.
Husqvarna (Electrolux at the time) invested in a battery company called Firefly Energy a few years ago that was spun-off from Caterpillar in May of 2003.
Since yard maintenance is seasonal and people put away their riding mowers in the fall until the next spring, the battery is usually dead when it’s time to use the mower again in the spring. In this instance, a dead battery is usually caused by sulfation.
Batteries that die due to sulfation generally recharge back to about 80% capacity or less. The Firefly battery’s construction makes it resistant to damage by sulfation and when recharged in prototype testing, it regularly came back to 100% capacity.
Husqvarna signed up to be the first commercial customer for Firefly’s batteries which currently are still not available.
To learn more about batteries and in particular, Firefly Energy, check out http://www.fireflyenergy.com/ or http://www.electrifyingtimes.com/firefly_energy.html
It’s been reported in the trade press that OEM companies like American Lawnmower have sold every unit they had of cordless electric mowers. That indicates to me that this market segment is worth considering for your business. It will also be interesting to see what other new electric-powered products will be displayed at this years GIEE show.
Harley Manke, of Manke’s Outdoor Equipment & Appliances in Owatonna, MN recently sent me two sayings that have influenced his life and business:
Harley told me that “When I got married in 1963, my wife's boss gave me a new tie clip that had these letters on it: YCDBSOYA, which means "You can't do business sitting on your ‘apple’” (or use a word of your own choosing instead of apple.) Harley said “If you go by that motto, you will succeed every time.”
He also said “when a customer comes in your store, he comes in for only three things: (1) Information, (2) to make a purchase, or (3) to use the can, so be fully prepared for all three.”
This proves to me once again that experience teaches a person important things they would never learn from a text book! Thanks for sharing these, Harley.
John Deere is using an interesting term in their 2008 marketing campaign, “ruralpolitan,” to describe a key customer lifestyle.
Consumer Reports defined “ruralpolitan” in a December 2007 issue as “a professional who has abandoned the urban dwelling for a rural lifestyle and lives on three acres of more, typically within 40 miles of a city.” The Magazine also states the term is being used in the outdoor power equipment market.
Deere says their dealers recognize the “ruralpolitan” lifestyle in their customer base and that Deere is modifying their products and services to reflect that lifestyle. Jennifer Cox, Deere’s manager of PR and media for the Commercial and Consumer Equipment division says “even if people are staying at home, they are investing in their property; their property is their escape.”
Do you believe high gas prices will affect where people choose to live in the future? Will access to public transportation and having shopping and restaurants close-by become more important to people than the benefits of a rural lifestyle? Today I suspect people choosing where to live will have to give more weight than ever to the high cost of commuting long distances for work or shopping.
Understanding your customers’ changing lifestyles has always been crucial to running a successful business. There’s no better time than now to reexamine who your customers are and how changes in their lifestyles are affecting your business. You may find that you will need to make significant changes in the current focus of your business or perhaps in the types of products you are selling. This is another instance where a little knowledge will go a long way in keeping your business viable and successful.
Battery life and cutting power have improved in the newer cordless units being produced today, at least in the demonstrations that I’ve seen. But we’ll have to wait for new types of batteries to come to market before we’ll see significant battery life improvement.
Husqvarna (Electrolux at the time) invested in a battery company called Firefly Energy a few years ago that was spun-off from Caterpillar in May of 2003.
Since yard maintenance is seasonal and people put away their riding mowers in the fall until the next spring, the battery is usually dead when it’s time to use the mower again in the spring. In this instance, a dead battery is usually caused by sulfation.
Batteries that die due to sulfation generally recharge back to about 80% capacity or less. The Firefly battery’s construction makes it resistant to damage by sulfation and when recharged in prototype testing, it regularly came back to 100% capacity.
Husqvarna signed up to be the first commercial customer for Firefly’s batteries which currently are still not available.
To learn more about batteries and in particular, Firefly Energy, check out http://www.fireflyenergy.com/ or http://www.electrifyingtimes.com/firefly_energy.html
It’s been reported in the trade press that OEM companies like American Lawnmower have sold every unit they had of cordless electric mowers. That indicates to me that this market segment is worth considering for your business. It will also be interesting to see what other new electric-powered products will be displayed at this years GIEE show.
Harley Manke, of Manke’s Outdoor Equipment & Appliances in Owatonna, MN recently sent me two sayings that have influenced his life and business:
Harley told me that “When I got married in 1963, my wife's boss gave me a new tie clip that had these letters on it: YCDBSOYA, which means "You can't do business sitting on your ‘apple’” (or use a word of your own choosing instead of apple.) Harley said “If you go by that motto, you will succeed every time.”
He also said “when a customer comes in your store, he comes in for only three things: (1) Information, (2) to make a purchase, or (3) to use the can, so be fully prepared for all three.”
This proves to me once again that experience teaches a person important things they would never learn from a text book! Thanks for sharing these, Harley.
John Deere is using an interesting term in their 2008 marketing campaign, “ruralpolitan,” to describe a key customer lifestyle.
Consumer Reports defined “ruralpolitan” in a December 2007 issue as “a professional who has abandoned the urban dwelling for a rural lifestyle and lives on three acres of more, typically within 40 miles of a city.” The Magazine also states the term is being used in the outdoor power equipment market.
Deere says their dealers recognize the “ruralpolitan” lifestyle in their customer base and that Deere is modifying their products and services to reflect that lifestyle. Jennifer Cox, Deere’s manager of PR and media for the Commercial and Consumer Equipment division says “even if people are staying at home, they are investing in their property; their property is their escape.”
Do you believe high gas prices will affect where people choose to live in the future? Will access to public transportation and having shopping and restaurants close-by become more important to people than the benefits of a rural lifestyle? Today I suspect people choosing where to live will have to give more weight than ever to the high cost of commuting long distances for work or shopping.
Understanding your customers’ changing lifestyles has always been crucial to running a successful business. There’s no better time than now to reexamine who your customers are and how changes in their lifestyles are affecting your business. You may find that you will need to make significant changes in the current focus of your business or perhaps in the types of products you are selling. This is another instance where a little knowledge will go a long way in keeping your business viable and successful.
Tuesday, July 8, 2008
No. 7 July 2008
Harvey Mackay recently wrote that the fear of failure keeps many people from being more successful.
He said “refusing to try new ideas, methods or products because you’re afraid they might fail can prevent you from growing your business and your customer base. Fear can cloud your judgment and make calculated risks look like Mt. Everest.”
But then he went on to say that we should stop worrying and start learning from our experiences. Sometimes what looks like a mess can be fixed with a tweak or it might be that we have to toss the “mess” away and start all over. The goal is to take the opportunity, prosper from it or learn from it, and move on.
Karl Wallenda, the famous tightrope walker, fell many times in his life, but he always got up and tried again. At the age of 73, he was finally killed in a tragic fall from a tightrope.
His widow said, “All Karl thought about for three straight months prior to the accident was falling. It seemed to me that he put all his energy into (thinking about) not falling,” instead of putting all his energy in thinking about walking the tightrope.
Mackay sums up his feelings by saying, “Keep your eye on the prize, and understand that sometimes you don’t win. But you only lose if you stop trying.”
“The biggest failure of all is not trying again.” To read more of Harvey Mackay’s thoughts, visit http://www.harveymackay.com/
He said “refusing to try new ideas, methods or products because you’re afraid they might fail can prevent you from growing your business and your customer base. Fear can cloud your judgment and make calculated risks look like Mt. Everest.”
But then he went on to say that we should stop worrying and start learning from our experiences. Sometimes what looks like a mess can be fixed with a tweak or it might be that we have to toss the “mess” away and start all over. The goal is to take the opportunity, prosper from it or learn from it, and move on.
Karl Wallenda, the famous tightrope walker, fell many times in his life, but he always got up and tried again. At the age of 73, he was finally killed in a tragic fall from a tightrope.
His widow said, “All Karl thought about for three straight months prior to the accident was falling. It seemed to me that he put all his energy into (thinking about) not falling,” instead of putting all his energy in thinking about walking the tightrope.
Mackay sums up his feelings by saying, “Keep your eye on the prize, and understand that sometimes you don’t win. But you only lose if you stop trying.”
“The biggest failure of all is not trying again.” To read more of Harvey Mackay’s thoughts, visit http://www.harveymackay.com/
Gas is over $4.00 a gallon. I don’t know whether to laugh or cry. I can remember the gas crisis and the gas lines back in the 1970’s when there were “gas shortages.” The worst thing is that 30 years after those events, the United States still doesn’t have a comprehensive energy policy.
Are you still providing pickup and delivery or at-home service for products you sell? I hope you’ve raised your prices to help compensate for high gas prices. I don’t think you really have a choice.
As Matthew Borden of Ed & Matt Equipment Company said in the Dealer’s Domain section of the May issue of this magazine, “At the end of the year, it is not how much money passed through your business, it’s how much there was to keep that matters.”
Knowing what your exact costs of doing business are – and controlling and managing every penny of those costs - has never been more important than it is now for the good health and profitability of your business. Don’t forget.
Stanley Bing, my favorite Fortune magazine columnist, recently talked about relationships we have with friends. He lamented the fact that most “relationships we have in the world we work in are contextual.” In other words, most of the friends we have can be found in our businesses and in our personal business relationships.
He goes on to say that once the context is removed, as in when you retire, “…old pals have very little to talk about. Even golf and booze, after a while, are not enough” to sustain the relationship.
But he ends with this positive thought, “The good news is that some friendships, improbably and against the odds, do endure.” The lesson is to treasure your friends and their friendship. And to cherish even more the friendships that endure.
William Gladstone and Benjamin Disraeli were two of the fiercest political rivals of the 19th century. Ambitious, powerful, and politically astute, both men were spirited competitors and masterful politicians. Though each man achieved impressive accomplishments for Great Britain, the quality that separated them as leaders was their approach to people.
The difference is best illustrated by the account of a young woman who dined with the men on consecutive nights.
When asked about her impression of the rival statesmen, she said, "When I left the dining room after sitting next to Mr. Gladstone, I thought he was the cleverest man in England. But after sitting next to Mr. Disraeli, I thought I was the cleverest woman in England."
Benjamin Disraeli was a truly brilliant man. He knew the power of words and how to use them effectively. Do you?
Monday, June 2, 2008
No. 6 June 2008
In case you haven’t noticed, prices for food have been going up a lot lately, right in step with gasoline prices. I know you, like me, are amazed at what you pay today for your weekly grocery cart of food compared to a few months ago.
You may already be seeing or receiving supplier announcements of price increases for products and service items you sell or use everyday in your business. Many OPE manufacturers, if they haven’t already, will soon be announcing price increases for replacement parts and issuing new price lists that will take effect almost immediately. Many won’t be waiting as they usually do until fall or the end of the selling season for an annual price increase.
An article in the UK newspaper, The Guardian, on May 19, stated that global steel prices are up 40% since the beginning of 2008. While many companies had long-term contracts with raw materials suppliers that locked in prices through the first half of the year, they will soon be expiring and there will be a lot of pressure to pass on some of the increased costs to customers.
If surges in the price of steel, energy and other commodities continue, we’ll be seeing multiple supplier price increases this year. Be vigilant. Don’t hesitate to pass on price increases to protect your margins and protect the viability of your business. Make sure your customer service and support makes you stand out from your competitors and justifies your pricing. Pay attention more than ever to the “details” of your business. “Working smarter” was never more important than it is today.
With commodity prices like copper, zinc and nickel going the roof, Congress will most likely soon give their approval to begin making pennies and nickels from steel. Steel is still nowhere as expensive as these other metals, so pennies and nickels will be clad in alloy to look the same, but won’t have copper and nickel in them anymore. Switching to steel will save the government about $100 million a year. How come I have this feeling that we won’t be benefiting from that extra $100 million that becomes available annually. Oh well. I suppose this also means we won’t be seeing a copper lawnmower anytime soon.
Over the years I’ve been fortunate to have heard Jeff Thredgold, an economic futurist, talk several times at association annual meetings. Jeff puts out a weekly economic newsletter called the “Tea Leaf,” which is free, to the point and easy to read plus it’s full of interesting and thought provoking economic opinion and information. Recently he had this comment about the value of education or lack thereof on employment statistics this year:
“As nearly always, education level is commensurate with employment. Those with a bachelor’s degree or higher had a jobless rate of 2.1% in April, while those with some college or an associate’s degree had a 3.9% jobless rate. High school graduates with no college had a jobless rate of 5.0%, while those with less than a high school diploma had a 7.8% jobless rate.”
As former Harvard President Derek Bok once stated, “If you think education is expensive…try ignorance.”
If you would like some regular insight into what’s going on in our economy, you can subscribe for free to the “Tea Leaf” at http://www.thredgold.com/html/leaf.html .
In a desperate attempt to stabilize a faltering economy, Zimbabwean authorities recently introduced a new $50 million bank note. The new note is worth roughly one American dollar and buys just three loaves of bread. Imagine the things you could buy here in the US with a $50 million dollar bill and the looks you would get when you pulled it out to pay for something. You could have a thin wallet or light pocketbook, but getting change back could be a real problem!
Italian manufacturer Pramac Industries just bought many of the assets of Powermate and the rights to use the name. They better be quick as many generator manufactures are trying to quickly fill the Powermate product void in the large national retailer marketplace.
A lot of smart people over the past several years have gotten into the portable generator business, mostly by importing product from China or buying or investing in domestic manufacturers. One would think that marketplace was getting rather crowded about now. I’m very glad it’s their money and not mine. The portable generator business can be very fickle and painful when consumers don’t have a reason to buy one.
You may already be seeing or receiving supplier announcements of price increases for products and service items you sell or use everyday in your business. Many OPE manufacturers, if they haven’t already, will soon be announcing price increases for replacement parts and issuing new price lists that will take effect almost immediately. Many won’t be waiting as they usually do until fall or the end of the selling season for an annual price increase.
An article in the UK newspaper, The Guardian, on May 19, stated that global steel prices are up 40% since the beginning of 2008. While many companies had long-term contracts with raw materials suppliers that locked in prices through the first half of the year, they will soon be expiring and there will be a lot of pressure to pass on some of the increased costs to customers.
If surges in the price of steel, energy and other commodities continue, we’ll be seeing multiple supplier price increases this year. Be vigilant. Don’t hesitate to pass on price increases to protect your margins and protect the viability of your business. Make sure your customer service and support makes you stand out from your competitors and justifies your pricing. Pay attention more than ever to the “details” of your business. “Working smarter” was never more important than it is today.
With commodity prices like copper, zinc and nickel going the roof, Congress will most likely soon give their approval to begin making pennies and nickels from steel. Steel is still nowhere as expensive as these other metals, so pennies and nickels will be clad in alloy to look the same, but won’t have copper and nickel in them anymore. Switching to steel will save the government about $100 million a year. How come I have this feeling that we won’t be benefiting from that extra $100 million that becomes available annually. Oh well. I suppose this also means we won’t be seeing a copper lawnmower anytime soon.
Over the years I’ve been fortunate to have heard Jeff Thredgold, an economic futurist, talk several times at association annual meetings. Jeff puts out a weekly economic newsletter called the “Tea Leaf,” which is free, to the point and easy to read plus it’s full of interesting and thought provoking economic opinion and information. Recently he had this comment about the value of education or lack thereof on employment statistics this year:
“As nearly always, education level is commensurate with employment. Those with a bachelor’s degree or higher had a jobless rate of 2.1% in April, while those with some college or an associate’s degree had a 3.9% jobless rate. High school graduates with no college had a jobless rate of 5.0%, while those with less than a high school diploma had a 7.8% jobless rate.”
As former Harvard President Derek Bok once stated, “If you think education is expensive…try ignorance.”
If you would like some regular insight into what’s going on in our economy, you can subscribe for free to the “Tea Leaf” at http://www.thredgold.com/html/leaf.html .
In a desperate attempt to stabilize a faltering economy, Zimbabwean authorities recently introduced a new $50 million bank note. The new note is worth roughly one American dollar and buys just three loaves of bread. Imagine the things you could buy here in the US with a $50 million dollar bill and the looks you would get when you pulled it out to pay for something. You could have a thin wallet or light pocketbook, but getting change back could be a real problem!
Italian manufacturer Pramac Industries just bought many of the assets of Powermate and the rights to use the name. They better be quick as many generator manufactures are trying to quickly fill the Powermate product void in the large national retailer marketplace.
A lot of smart people over the past several years have gotten into the portable generator business, mostly by importing product from China or buying or investing in domestic manufacturers. One would think that marketplace was getting rather crowded about now. I’m very glad it’s their money and not mine. The portable generator business can be very fickle and painful when consumers don’t have a reason to buy one.
Wednesday, April 30, 2008
No. 5 May 2008
After the May 21, 2007 announcement that Kioritz Corp. (Echo’s parent) and Shindaiwa were forming an alliance to seek operational and product synergies, I assumed that it would not be long before a more formal union was announced. Eleven months later, on April 14, 2008, Kioritz and Shindaiwa announced plans “to form a joint holding company which will own and operated the two companies (Echo and Shindaiwa.”)
The announcement went on to say that “Selective trading of existing products has already started and joint development and advanced engineering will commence soon. The companies have also begun cooperation on various operational matters including purchasing, production, computer systems, and logistics.”
“Existing shares of Kioritz and Shindaiwa common stock will be exchanged for shares of the newly formed holding company on or about December 1, 2008.”
So if it sounds like a merger, and looks like a merger, then I’m going to call it a merger of two strong companies with two strong brand names. And because of this merger, the support, the products and the strength of the brand names will only become stronger.
I hope we’ll be seeing more “strategic alliances,” “mergers” and “joint ventures” in the future that are crafted as carefully as this one appears to have been. If it strengthens the industry, it will receive my vote of support.
In Jim Citrin’s Blog “Leadership By Example,” he recently wrote about “the importance of having a small group of professional and personal relationships to serve as your sounding board, brain trust or personal board of directors.”
Citrin went on to say: “Students of leadership and history know that this advice isn't new. From Alexander the Great to Elizabeth I to Andrew Carnegie, many of the most successful people have created small circles of trusted people to help them think through important issues.”
“Napoleon Hill, the great-grandfather of the motivational movement, coined the term ‘Master Mind group’ to describe this strategy. After working closely with steel magnate Carnegie for over two decades, Hill wrote in his seminal work ‘Think and Grow Rich’ that one of the keys to Carnegie's success was relying on his personal network to challenge key assumptions, develop alternative courses of action, and support him in his strategy development and decision-making.”
“The benefits of building your own personal board of directors are both professional and psychological, as your advisors will not only help keep you on the right track but also become invested in your success. So how do you go about building your board, and how can it help?”
“It's advisable to build a group that consists of people both inside and outside your own organization. You can speak to them individually or host quarterly or annual dinners to bring them together.”
“Ask yourself these questions: Who are the mentors that have helped support you so far? Which friends or family members have been most consistently accurate and dispassionate with their advice over time? Who are the most respected analysts, journalists, or consultants that cover your industry? How can you be helpful to them so that they in turn are motivated to be helpful to you? Who are the few people you should inform of your recent successes?”
“The more you find these people and figure out how to be valuable to them, the more they'll become invaluable to you. Ask them to review an assessment of your own strengths, weaknesses, and action plans, imploring them to be honest and direct. Getting valuable advice can literally change the course of your career and life.”
Rodney Rom from Rom’s Reworks in Butler, MO, liked the quote in February’s AD column from Denzel Washington’s mother about what is truly important in our daily lives. Rom shared his father’s philosophy that Rodney still lives by today: “No matter how many material possessions you accumulate in your lifetime, the only thing you will ever truly own is your reputation.” Thanks for sharing your father’s words of wisdom, Rodney.
Is there a family philosophy or thought that guides how you live your life or run your business? Send it to my email address with your contact information and I’ll share some of the best with the rest of our OPE Magazine readers. Perhaps it will also be an inspiration to other readers.
The announcement went on to say that “Selective trading of existing products has already started and joint development and advanced engineering will commence soon. The companies have also begun cooperation on various operational matters including purchasing, production, computer systems, and logistics.”
“Existing shares of Kioritz and Shindaiwa common stock will be exchanged for shares of the newly formed holding company on or about December 1, 2008.”
So if it sounds like a merger, and looks like a merger, then I’m going to call it a merger of two strong companies with two strong brand names. And because of this merger, the support, the products and the strength of the brand names will only become stronger.
I hope we’ll be seeing more “strategic alliances,” “mergers” and “joint ventures” in the future that are crafted as carefully as this one appears to have been. If it strengthens the industry, it will receive my vote of support.
In Jim Citrin’s Blog “Leadership By Example,” he recently wrote about “the importance of having a small group of professional and personal relationships to serve as your sounding board, brain trust or personal board of directors.”
Citrin went on to say: “Students of leadership and history know that this advice isn't new. From Alexander the Great to Elizabeth I to Andrew Carnegie, many of the most successful people have created small circles of trusted people to help them think through important issues.”
“Napoleon Hill, the great-grandfather of the motivational movement, coined the term ‘Master Mind group’ to describe this strategy. After working closely with steel magnate Carnegie for over two decades, Hill wrote in his seminal work ‘Think and Grow Rich’ that one of the keys to Carnegie's success was relying on his personal network to challenge key assumptions, develop alternative courses of action, and support him in his strategy development and decision-making.”
“The benefits of building your own personal board of directors are both professional and psychological, as your advisors will not only help keep you on the right track but also become invested in your success. So how do you go about building your board, and how can it help?”
“It's advisable to build a group that consists of people both inside and outside your own organization. You can speak to them individually or host quarterly or annual dinners to bring them together.”
“Ask yourself these questions: Who are the mentors that have helped support you so far? Which friends or family members have been most consistently accurate and dispassionate with their advice over time? Who are the most respected analysts, journalists, or consultants that cover your industry? How can you be helpful to them so that they in turn are motivated to be helpful to you? Who are the few people you should inform of your recent successes?”
“The more you find these people and figure out how to be valuable to them, the more they'll become invaluable to you. Ask them to review an assessment of your own strengths, weaknesses, and action plans, imploring them to be honest and direct. Getting valuable advice can literally change the course of your career and life.”
Rodney Rom from Rom’s Reworks in Butler, MO, liked the quote in February’s AD column from Denzel Washington’s mother about what is truly important in our daily lives. Rom shared his father’s philosophy that Rodney still lives by today: “No matter how many material possessions you accumulate in your lifetime, the only thing you will ever truly own is your reputation.” Thanks for sharing your father’s words of wisdom, Rodney.
Is there a family philosophy or thought that guides how you live your life or run your business? Send it to my email address with your contact information and I’ll share some of the best with the rest of our OPE Magazine readers. Perhaps it will also be an inspiration to other readers.
Wednesday, April 2, 2008
No. 4 April 2008
Did you know Sears is considering selling some of it’s best known brands – Craftsman® , DieHard®, Kenmore® and Lands’ End® – through retailers beyond it’s nearly 3,800 US and Canadian stores?
Imagine walking into a Lowe’s or Home Depot and seeing Craftsman outdoor power equipment in the OPE section. Or going into your local Goodyear Tire store or even a Wal-Mart to buy a DieHard battery. Or visiting your local Best Buy store and buying a Kenmore refrigerator.
Here’s what Sears Chairman Eddie Lampert recently had to say about this new strategy.
“One of our most important resources is the great brands we own, in particular DieHard, Craftsman, Kenmore, and Lands’ End,” said Sears Chairman Edward S. Lampert in a letter to shareholders. “All four of these brands have significant equity with customers and provide tremendous opportunity for value creation.”
The move to sell Sears brands through other retailers “is an opportunity for us to rethink our brand distribution strategy to create value,” said Lampert.
Lampert went on to explain that DieHard “leads in customer recognition among car battery brands by a wide margin, but it lags dramatically in market share . . . due to fewer points of distribution.”
DieHard batteries are only sold today in Sears automotive departments, while competing batteries are sold at thousands of locations nationwide, many of which are more conveniently located for customers. Some analysts see this as an admission that Sears’ primary distribution channel, its stores, are hopelessly broken.
In 2007, Sears deployed $4.3 billion in capital: $3.5 billion went to share repurchases and debt reduction, while only $580 million was reinvested in the business.
On the other hand, Wal-Mart invested $14.9 billion into its stores and business in 2007.
Successful retailers start with a winning store operating model as the core to build from, and then follow with brand and channel extension.
This is not the Sears strategy and it shows. In 2007, Sears had dreadful sales performance and a 41% drop in earnings.
Sears does have lots of staying power and cash, however, so it will be interesting to follow how successful their brand extension strategy will be. And which retailers will end up selling one or more of these four strong Sears’ consumer brands.
I wanted to share a few of Warren Buffett’s comments from his annual Chairman’s Letter to the Shareholders of Berkshire Hathaway, Inc., found in the Berkshire Hathaway 2007 Annual Report. His annual letter is always enlightening and great fun to read.
In mentioning the current problems affecting financial institutions, Mr. Buffet quoted John Stumpf, CEO of Wells Fargo, as aptly dissecting the recent behavior of many financial lenders: “It is interesting that the industry has invented new ways to lose money when the old ways seemed to work just fine.”
In further comments about the current financial situation, Mr. Buffett said: “You may recall a 2003 Silicon Valley bumper sticker that implored ‘Please, God, Just One More Bubble.’ Unfortunately, this wish was promptly granted as just about all Americans came to believe that house prices would forever rise. That conviction made a borrower’s income and cash equity seem unimportant to lenders, who shoveled out money, confident that HPA – house price appreciation – would cure all problems. You can only learn who has been swimming naked when the tide goes out – and what we are witnessing at some of our largest financial institutions is an ugly sight.”
On acquisitions, Mr. Buffett said “To date, Dexter (a shoe company) is the worst deal that I’ve ever made. But I’ll make more mistakes in the future – you can bet on that. A line from Bobby Bare’s country song explains what too often happens with acquisitions: ‘I’ve never gone to bed with an ugly woman, but I’ve sure woke up with a few.’”
Leading into a section on his insurance companies, Mr. Buffett wrote about “the best anecdote I’ve heard during the current presidential campaign. Mitt Romney asked his wife Anne, ‘When we were young, did you ever in your wildest dreams think I might be president?’ To which she replied, ‘Honey, you weren’t in my wildest dreams.’” So there…
I highly recommend, as I did last year, that you read all of Mr. Buffett’s Letter to the Shareholders of Berkshire Hathaway in the 2007 Annual Report. You can read it here: www.berkshirehathaway.com/letters/2007ltr.pdf
Imagine walking into a Lowe’s or Home Depot and seeing Craftsman outdoor power equipment in the OPE section. Or going into your local Goodyear Tire store or even a Wal-Mart to buy a DieHard battery. Or visiting your local Best Buy store and buying a Kenmore refrigerator.
Here’s what Sears Chairman Eddie Lampert recently had to say about this new strategy.
“One of our most important resources is the great brands we own, in particular DieHard, Craftsman, Kenmore, and Lands’ End,” said Sears Chairman Edward S. Lampert in a letter to shareholders. “All four of these brands have significant equity with customers and provide tremendous opportunity for value creation.”
The move to sell Sears brands through other retailers “is an opportunity for us to rethink our brand distribution strategy to create value,” said Lampert.
Lampert went on to explain that DieHard “leads in customer recognition among car battery brands by a wide margin, but it lags dramatically in market share . . . due to fewer points of distribution.”
DieHard batteries are only sold today in Sears automotive departments, while competing batteries are sold at thousands of locations nationwide, many of which are more conveniently located for customers. Some analysts see this as an admission that Sears’ primary distribution channel, its stores, are hopelessly broken.
In 2007, Sears deployed $4.3 billion in capital: $3.5 billion went to share repurchases and debt reduction, while only $580 million was reinvested in the business.
On the other hand, Wal-Mart invested $14.9 billion into its stores and business in 2007.
Successful retailers start with a winning store operating model as the core to build from, and then follow with brand and channel extension.
This is not the Sears strategy and it shows. In 2007, Sears had dreadful sales performance and a 41% drop in earnings.
Sears does have lots of staying power and cash, however, so it will be interesting to follow how successful their brand extension strategy will be. And which retailers will end up selling one or more of these four strong Sears’ consumer brands.
I wanted to share a few of Warren Buffett’s comments from his annual Chairman’s Letter to the Shareholders of Berkshire Hathaway, Inc., found in the Berkshire Hathaway 2007 Annual Report. His annual letter is always enlightening and great fun to read.
In mentioning the current problems affecting financial institutions, Mr. Buffet quoted John Stumpf, CEO of Wells Fargo, as aptly dissecting the recent behavior of many financial lenders: “It is interesting that the industry has invented new ways to lose money when the old ways seemed to work just fine.”
In further comments about the current financial situation, Mr. Buffett said: “You may recall a 2003 Silicon Valley bumper sticker that implored ‘Please, God, Just One More Bubble.’ Unfortunately, this wish was promptly granted as just about all Americans came to believe that house prices would forever rise. That conviction made a borrower’s income and cash equity seem unimportant to lenders, who shoveled out money, confident that HPA – house price appreciation – would cure all problems. You can only learn who has been swimming naked when the tide goes out – and what we are witnessing at some of our largest financial institutions is an ugly sight.”
On acquisitions, Mr. Buffett said “To date, Dexter (a shoe company) is the worst deal that I’ve ever made. But I’ll make more mistakes in the future – you can bet on that. A line from Bobby Bare’s country song explains what too often happens with acquisitions: ‘I’ve never gone to bed with an ugly woman, but I’ve sure woke up with a few.’”
Leading into a section on his insurance companies, Mr. Buffett wrote about “the best anecdote I’ve heard during the current presidential campaign. Mitt Romney asked his wife Anne, ‘When we were young, did you ever in your wildest dreams think I might be president?’ To which she replied, ‘Honey, you weren’t in my wildest dreams.’” So there…
I highly recommend, as I did last year, that you read all of Mr. Buffett’s Letter to the Shareholders of Berkshire Hathaway in the 2007 Annual Report. You can read it here: www.berkshirehathaway.com/letters/2007ltr.pdf
Friday, March 7, 2008
No. 3 March 2008
During these tough economic times, motorcycle dealers aren’t selling the amount of product they once did. The author of a column in a motorcycle business journal recently stated that all the information and statistics we have at hand to help explain bad times doesn’t really help a dealer stay focused on a small business owner’s real challenge: “staying focused on the front door.”
He went on to say “the only real analysis a dealer needs to make is did you do everything you could to give that last customer a good experience, and did you make it easy for him/her to buy?”
What we can change in tough economic times is our attitude and our focus. Those are two attributes we can control in ourselves and in our employees that will provide us with the best chance to be successful, even when times are tough. A positive attitude and a focus “on the front door” can only help make a tough time better.
Cub Cadet Commercial just announced that they will introduce a new line of turf application equipment at the Golf Industry Show.
I don’t know much about the turf equipment industry, but I do know that Toro and John Deere have a huge market share in that business arena.
All three manufacturers produce high quality equipment, so it will be interesting to watch and see if Cub Commercial Turf Equipment can take market share away from Toro and Deere by providing golf course superintendents features and innovations that differentiate their products and overcome a superintendent’s current brand loyalty. Just another day in the OPE business.
I was just thinking about the Snapper brand being sold at Sears and what Snapper dealers’ reactions would be. Then it dawned on me “Does it really matter to a dealer any more where a product is sold?” Does it matter to you as much as it once did?
Sears is having their own problems and is just beginning to revamp the way they go to market, planning to rely more on “brand” stores for the future. Even with their strong brands like Diehard® and Craftsman® and Kenmore®, many wonder about the future of Sears. Things keep changing.
There was an article recently in a Florida newspaper with the title “Mowing Helmets Hot Items at Elder Fair.” Well, I thought I’d been around long enough to have heard of every product relating to lawn mowing, but this was a new one for me.
What they turned out to be were giveaways of bike-style helmets for elderly wheelchair, scooter and lawnmower users, plus bikers.
81 year old Ray Sears said he took a free helmet for lawn mowing because “…I fell off my riding mower once, and I’m always bumping my head on tree branches.” His wife Ruth Sears was thankful he accepted the gift. “The way the wind blows the palm fronds, it’s a smart thing to have,” said Ruth. “Now that he’s got the helmet, I’m going to next send him out to clean the back yard.”
See what happened to Ray when he accepted his safety helmet? More work! I think that in Ray’s case a seat belt would have been more useful. And its use would not have resulted in additional yard work for him.
John Shiely, chairman, president and CEO of Briggs & Stratton, recently wrote an op-ed column in the Milwaukee Journal Sentinel Online on “Somehow, We Have to Put an End to Milwaukee’s Zero-Sum Culture.”
Specifically he was talking about Milwaukee’s (and Wisconsin’s) business environment and how that impacted Brigg’s decision-making about where to put their new plants. He mentioned that Briggs & Stratton has no plants in Mexico and that China accounts for less than 10% of Brigg’s total output. In addition, he stated that “90% of our production occurs in the United States.”
As Shiely discussed the positive economic business climate in Kentucky, he mentioned this interesting fact: “Our Kentucky plant is so productive it turns out a completed engine with only one half -hour of labor (at essentially the same cost as shipping an engine from China to the U.S.).”
Read all of Shiely’s interesting column elsewhere in this Blog.
He went on to say “the only real analysis a dealer needs to make is did you do everything you could to give that last customer a good experience, and did you make it easy for him/her to buy?”
What we can change in tough economic times is our attitude and our focus. Those are two attributes we can control in ourselves and in our employees that will provide us with the best chance to be successful, even when times are tough. A positive attitude and a focus “on the front door” can only help make a tough time better.
Cub Cadet Commercial just announced that they will introduce a new line of turf application equipment at the Golf Industry Show.
I don’t know much about the turf equipment industry, but I do know that Toro and John Deere have a huge market share in that business arena.
All three manufacturers produce high quality equipment, so it will be interesting to watch and see if Cub Commercial Turf Equipment can take market share away from Toro and Deere by providing golf course superintendents features and innovations that differentiate their products and overcome a superintendent’s current brand loyalty. Just another day in the OPE business.
I was just thinking about the Snapper brand being sold at Sears and what Snapper dealers’ reactions would be. Then it dawned on me “Does it really matter to a dealer any more where a product is sold?” Does it matter to you as much as it once did?
Sears is having their own problems and is just beginning to revamp the way they go to market, planning to rely more on “brand” stores for the future. Even with their strong brands like Diehard® and Craftsman® and Kenmore®, many wonder about the future of Sears. Things keep changing.
There was an article recently in a Florida newspaper with the title “Mowing Helmets Hot Items at Elder Fair.” Well, I thought I’d been around long enough to have heard of every product relating to lawn mowing, but this was a new one for me.
What they turned out to be were giveaways of bike-style helmets for elderly wheelchair, scooter and lawnmower users, plus bikers.
81 year old Ray Sears said he took a free helmet for lawn mowing because “…I fell off my riding mower once, and I’m always bumping my head on tree branches.” His wife Ruth Sears was thankful he accepted the gift. “The way the wind blows the palm fronds, it’s a smart thing to have,” said Ruth. “Now that he’s got the helmet, I’m going to next send him out to clean the back yard.”
See what happened to Ray when he accepted his safety helmet? More work! I think that in Ray’s case a seat belt would have been more useful. And its use would not have resulted in additional yard work for him.
John Shiely, chairman, president and CEO of Briggs & Stratton, recently wrote an op-ed column in the Milwaukee Journal Sentinel Online on “Somehow, We Have to Put an End to Milwaukee’s Zero-Sum Culture.”
Specifically he was talking about Milwaukee’s (and Wisconsin’s) business environment and how that impacted Brigg’s decision-making about where to put their new plants. He mentioned that Briggs & Stratton has no plants in Mexico and that China accounts for less than 10% of Brigg’s total output. In addition, he stated that “90% of our production occurs in the United States.”
As Shiely discussed the positive economic business climate in Kentucky, he mentioned this interesting fact: “Our Kentucky plant is so productive it turns out a completed engine with only one half -hour of labor (at essentially the same cost as shipping an engine from China to the U.S.).”
Read all of Shiely’s interesting column elsewhere in this Blog.
Monday, January 28, 2008
"Somehow, We Have To Put An End To Milwaukee's Zero-Sum Culture" by John Shiely
An Op-Ed Piece By John S. Shiely, Chairman, President And Chief Executive Officer Of Briggs & Stratton Corp. in the January 26, 2008 Milwaukee Journal Sentinel Online
"At a recent Public Policy Forum discussion aimed at getting insights from local CEOs on economic development in Milwaukee, I made the point that, in general, the No. 1 factor CEOs consider in choosing a site for a new office or plant is the tone of the local political economy.
Absent a positive tone toward capital providers, the potentially attractive aspects of a region (many of which I mentioned in regard to Milwaukee) will not be given a hearing. I suggested that the most important thing Milwaukee community leaders could do to improve our prospects for economic development in this region was to bury the vestiges of the old Milwaukee socialist ethic by abandoning the local zero-sum culture that views all wealth creation as coming at someone's expense and embrace an integrative, pie-expanding view.
Predictably, Michael Rosen, in a breathtaking neosocialist rant in a Crossroads op-ed, proved my point. Rosen has described himself as chairman of the Economics Department at Milwaukee Area Technical College and is frequently sought out by the local media for "objective" comment. He writes that CEO "demands for lower taxes, deregulation, privatization . . . have resulted in increased poverty, unemployment and growing inequality" ("Milwaukee businesses leaders seem to want a return to the 19th century," Jan. 20).
According to Rosen, prosperity only comes to a political economy when it increases taxes, promulgates more burdensome regulations and nationalizes various industries. If this Hugo Chavez brand of "economics" is what MATC is teaching the next generation work force, it's no wonder we have a problem. This is the same MATC that runs two taxpayer-financed business incubators that a recent Journal Sentinel report revealed as hopeless failures.
For the record, Rosen is the brother of Laura Drake, a former leader at Briggs & Stratton's union, an architect of the mindlessly confrontational "corporate campaign" against her company in the mid-1990s, which was designed to insult and harass Briggs' executives, banks, directors, customers and other constituents. Drake's strategies produced substantial local job loss, and Briggs management is supposed to accept responsibility for that?
If this mind-set was limited to an economics teacher and a radical unionist, the harm would be limited, but the campaign against Briggs was supported by Milwaukee community leaders at the highest levels. The mayor excoriated Fred Stratton by name on Labor Day. Milwaukee's religious community ran a negative campaign against our company, including a vicious stealth attack by our local Catholic archbishop that was well chronicled in an article I wrote, which was published in The Wall Street Journal. These counterproductive initiatives just don't happen anywhere else we do business.
Where did these jobs go?
Rosen would have you believe they're in Mexico and China. First of all, we have no operations in Mexico, and our Chinese factory accounts for well under 10% of our output. Over 90% of our production occurs in the United States.
I was recently interviewed by Time magazine for an article on companies that still operate competitively in the U.S. I described our cost-effective, high-productivity, focus factory model, which has withstood competitive onslaughts from the Japanese and Chinese. Our Kentucky plant is so productive it turns out a completed engine with only one half -hour of labor (at essentially the same cost as shipping an engine from China to the U.S.).
Journal Sentinel columnist Patrick McIlheran properly noted that the community in Kentucky works with us to develop a college student work force to meet seasonal demands and develop a talent pool. I can think of reasons this "win-win" program would not be possible in Milwaukee's zero-sum culture.
Milwaukee needs to understand that all economic value is created through unique, economically positive relationships with value-creating constituencies. This is a process where capital is brought in to support the firm's special relationship with customers, employees, suppliers and the communities in which they do business. We call this the firm's "value discipline."
The calculus is very simple: no special relationship, no value creation, nobody brings capital.
Another example of Milwaukee's zero-sum culture is seen in local attitudes toward wage disparity. When the media performs its annual survey of executive compensation, does it solicit the comments of a truly insightful expert on pay-for-performance? No, it dredges up the grandson of one of our former socialist mayors who remarks that these CEOs are overpaid in that they make "200 times what the lowest-paid worker on the shop floor makes."
Whether it's entertainers, players, coaches or executives, talent has a market price, and you have to pay for it. Some time ago, a couple of Milwaukee columnists criticized our company for providing products free to our directors so they could test them. Their beef was that directors could afford their own lawnmowers. I was ashamed how parochial and small-bore this made Milwaukee look to executives from around the country.
I've heard criticism that CEOs do not promote business development in this region. Local CEOs should, and do, promote the region. For example, I will host the annual board meeting and retreat for the corporate boards of the Rock and Roll Hall of Fame to promote Milwaukee to a national business community. But, as with any marketing program, we've got to have an attractive product. CEOs cannot force a change in the tone of the local community toward business.
Here's my prescription for changing the tone in Milwaukee so that the positive aspects of doing business here will get a fair hearing:
• Keep it simple. Most prospects don't view targeted tax cuts, uneconomic transportation initiatives and special subsidies positively over the long term. They are generally inefficient. Create a broadly positive business climate.
• Choose the right model to emulate. Rosen suggests Germany, but Germany is a welfare state with chronic unemployment and is exporting an alarming number of jobs to Eastern Europe, despite having academic achievement far superior to Milwaukee. We do not want to be Germany. Maybe we should look at Kentucky, Georgia, Missouri or Alabama. These regions admire capital providers, bend over backward to help local companies achieve a superior value proposition, keep taxes low and rarely use "two Americas" rhetoric.
• Educate for success. Initiatives should support the education, skills and work ethic desired by national businesses. Not many people can make a living carving driftwood (an MATC incubator). Want a model? Take a look at Ireland.
• Attract jobs to match skills. Rosen suggests we should pay high-skilled wages to low-skilled workers - a prescription for business failure. High-tech and innovation is great, but who's going to employ the more than 50% of MPS students who do not earn a diploma on time?
• Show support in the media. Milwaukee media seem to think their mission largely is watchdog and scold. That may be part of it, but, believe it or not, media in regions with healthy business climates are supportive of business.
• Support existing CEOs. While it may be emotionally satisfying to beat up the current crop of CEOs, the potential CEOs are watching. Communities with vigorous business development would not dream of alienating CEOs and scaring away the people who decide where to put the next plant.
• Understand the customer. CEOs don't want red carpets and motorcades. These are merely symbols of a customer-friendly approach. We do need to believe the community supports our mission of creating value.
• Encourage integrative political culture. Politicians must resist the zero-sum temptation to look at attracting businesses as simply a new source of revenue for government. A classic example: the recent proposed state law to force companies to disclose their strategies for minimizing corporate taxes.
• Embrace wealth creation. This is hard for some in Milwaukee to grasp, but the folks with money are the capital providers, and there is no prosperity without capital formation. These are the people who fund charitable and cultural initiatives that are generally more effective than government.
• Ditch the zero-sum work force mentality. If you fight initiatives that will improve productivity, you will lose factories.
• It's easier to keep 'em than to get 'em. Remember Allis-Chalmers, Master Lock, Tower Automotive, Heil, Koehring, Schlitz, Pabst, Cutler-Hammer, Nordberg, Oster, Louis Allis, Kearney & Trecker?
A journalist at the Public Policy Forum asked about the progress of the Milwaukee 7 regional initiative and demanded to know what the CEOs were going to do about it. This was like a heckler getting up at a comedian's show and saying,
"Make me laugh." Until greater Milwaukee makes substantial progress on the strategies I've mentioned, the Milwaukee 7 is operating with one hand tied behind its back. Progress will be slow."
"At a recent Public Policy Forum discussion aimed at getting insights from local CEOs on economic development in Milwaukee, I made the point that, in general, the No. 1 factor CEOs consider in choosing a site for a new office or plant is the tone of the local political economy.
Absent a positive tone toward capital providers, the potentially attractive aspects of a region (many of which I mentioned in regard to Milwaukee) will not be given a hearing. I suggested that the most important thing Milwaukee community leaders could do to improve our prospects for economic development in this region was to bury the vestiges of the old Milwaukee socialist ethic by abandoning the local zero-sum culture that views all wealth creation as coming at someone's expense and embrace an integrative, pie-expanding view.
Predictably, Michael Rosen, in a breathtaking neosocialist rant in a Crossroads op-ed, proved my point. Rosen has described himself as chairman of the Economics Department at Milwaukee Area Technical College and is frequently sought out by the local media for "objective" comment. He writes that CEO "demands for lower taxes, deregulation, privatization . . . have resulted in increased poverty, unemployment and growing inequality" ("Milwaukee businesses leaders seem to want a return to the 19th century," Jan. 20).
According to Rosen, prosperity only comes to a political economy when it increases taxes, promulgates more burdensome regulations and nationalizes various industries. If this Hugo Chavez brand of "economics" is what MATC is teaching the next generation work force, it's no wonder we have a problem. This is the same MATC that runs two taxpayer-financed business incubators that a recent Journal Sentinel report revealed as hopeless failures.
For the record, Rosen is the brother of Laura Drake, a former leader at Briggs & Stratton's union, an architect of the mindlessly confrontational "corporate campaign" against her company in the mid-1990s, which was designed to insult and harass Briggs' executives, banks, directors, customers and other constituents. Drake's strategies produced substantial local job loss, and Briggs management is supposed to accept responsibility for that?
If this mind-set was limited to an economics teacher and a radical unionist, the harm would be limited, but the campaign against Briggs was supported by Milwaukee community leaders at the highest levels. The mayor excoriated Fred Stratton by name on Labor Day. Milwaukee's religious community ran a negative campaign against our company, including a vicious stealth attack by our local Catholic archbishop that was well chronicled in an article I wrote, which was published in The Wall Street Journal. These counterproductive initiatives just don't happen anywhere else we do business.
Where did these jobs go?
Rosen would have you believe they're in Mexico and China. First of all, we have no operations in Mexico, and our Chinese factory accounts for well under 10% of our output. Over 90% of our production occurs in the United States.
I was recently interviewed by Time magazine for an article on companies that still operate competitively in the U.S. I described our cost-effective, high-productivity, focus factory model, which has withstood competitive onslaughts from the Japanese and Chinese. Our Kentucky plant is so productive it turns out a completed engine with only one half -hour of labor (at essentially the same cost as shipping an engine from China to the U.S.).
Journal Sentinel columnist Patrick McIlheran properly noted that the community in Kentucky works with us to develop a college student work force to meet seasonal demands and develop a talent pool. I can think of reasons this "win-win" program would not be possible in Milwaukee's zero-sum culture.
Milwaukee needs to understand that all economic value is created through unique, economically positive relationships with value-creating constituencies. This is a process where capital is brought in to support the firm's special relationship with customers, employees, suppliers and the communities in which they do business. We call this the firm's "value discipline."
The calculus is very simple: no special relationship, no value creation, nobody brings capital.
Another example of Milwaukee's zero-sum culture is seen in local attitudes toward wage disparity. When the media performs its annual survey of executive compensation, does it solicit the comments of a truly insightful expert on pay-for-performance? No, it dredges up the grandson of one of our former socialist mayors who remarks that these CEOs are overpaid in that they make "200 times what the lowest-paid worker on the shop floor makes."
Whether it's entertainers, players, coaches or executives, talent has a market price, and you have to pay for it. Some time ago, a couple of Milwaukee columnists criticized our company for providing products free to our directors so they could test them. Their beef was that directors could afford their own lawnmowers. I was ashamed how parochial and small-bore this made Milwaukee look to executives from around the country.
I've heard criticism that CEOs do not promote business development in this region. Local CEOs should, and do, promote the region. For example, I will host the annual board meeting and retreat for the corporate boards of the Rock and Roll Hall of Fame to promote Milwaukee to a national business community. But, as with any marketing program, we've got to have an attractive product. CEOs cannot force a change in the tone of the local community toward business.
Here's my prescription for changing the tone in Milwaukee so that the positive aspects of doing business here will get a fair hearing:
• Keep it simple. Most prospects don't view targeted tax cuts, uneconomic transportation initiatives and special subsidies positively over the long term. They are generally inefficient. Create a broadly positive business climate.
• Choose the right model to emulate. Rosen suggests Germany, but Germany is a welfare state with chronic unemployment and is exporting an alarming number of jobs to Eastern Europe, despite having academic achievement far superior to Milwaukee. We do not want to be Germany. Maybe we should look at Kentucky, Georgia, Missouri or Alabama. These regions admire capital providers, bend over backward to help local companies achieve a superior value proposition, keep taxes low and rarely use "two Americas" rhetoric.
• Educate for success. Initiatives should support the education, skills and work ethic desired by national businesses. Not many people can make a living carving driftwood (an MATC incubator). Want a model? Take a look at Ireland.
• Attract jobs to match skills. Rosen suggests we should pay high-skilled wages to low-skilled workers - a prescription for business failure. High-tech and innovation is great, but who's going to employ the more than 50% of MPS students who do not earn a diploma on time?
• Show support in the media. Milwaukee media seem to think their mission largely is watchdog and scold. That may be part of it, but, believe it or not, media in regions with healthy business climates are supportive of business.
• Support existing CEOs. While it may be emotionally satisfying to beat up the current crop of CEOs, the potential CEOs are watching. Communities with vigorous business development would not dream of alienating CEOs and scaring away the people who decide where to put the next plant.
• Understand the customer. CEOs don't want red carpets and motorcades. These are merely symbols of a customer-friendly approach. We do need to believe the community supports our mission of creating value.
• Encourage integrative political culture. Politicians must resist the zero-sum temptation to look at attracting businesses as simply a new source of revenue for government. A classic example: the recent proposed state law to force companies to disclose their strategies for minimizing corporate taxes.
• Embrace wealth creation. This is hard for some in Milwaukee to grasp, but the folks with money are the capital providers, and there is no prosperity without capital formation. These are the people who fund charitable and cultural initiatives that are generally more effective than government.
• Ditch the zero-sum work force mentality. If you fight initiatives that will improve productivity, you will lose factories.
• It's easier to keep 'em than to get 'em. Remember Allis-Chalmers, Master Lock, Tower Automotive, Heil, Koehring, Schlitz, Pabst, Cutler-Hammer, Nordberg, Oster, Louis Allis, Kearney & Trecker?
A journalist at the Public Policy Forum asked about the progress of the Milwaukee 7 regional initiative and demanded to know what the CEOs were going to do about it. This was like a heckler getting up at a comedian's show and saying,
"Make me laugh." Until greater Milwaukee makes substantial progress on the strategies I've mentioned, the Milwaukee 7 is operating with one hand tied behind its back. Progress will be slow."
Thursday, January 10, 2008
No. 2 February 2008
An OPE equipment dealer recently responded in a survey that the brand he was going to focus on building first in 2008 was his own company brand.
I don’t think he meant he was going to ignore the products he sold and the revenue and customers those product brands brought into his business. But he did realize that the most powerful, stable and enduring brand he had to sell was his business brand – what his company name and reputation meant to the people and potential customers living in his local community.
Product lines can come and go. But a business image, positive or negative, endures. And if that image isn’t as strong or stronger than the product brands being sold, getting a consumer to walk in the front door for the first time and then retain them as a customer becomes much harder.
It doesn’t necessarily take a lot of money to build your business’s brand. Customer perception of your business or more importantly – customer trust in your business can make all the difference in building your business reputation.
Once your customer has reason to trust you, your judgment, your knowledge and your service, he is yours for as long you meet his needs and exceed his expectations.
Remember, the value of a customer is not what he buys when he walks in your door for the first time, but the total of what he buys over a lifetime of coming into your store. Customer retention is the lifeblood of your business.
You have a lot of advantages in gaining or retaining customers that a larger company doesn’t have. Those advantages don’t necessarily cost a lot of money either. Use them every day. Think about them every day. Tell your customers about them every day. You have a lot to talk about.
Here’s a quote from the mother of Denzel Washington that sums up life pretty well: “Do what you have to do so you can do what you want to do.” That should be the primary reason we get up and go to work every day.
Snapper, owned by the Briggs & Stratton Power Products Group LLC, will soon be selling their brand of outdoor power equipment in Sears.
The primary and long-time supplier of outdoor power equipment to Sears currently is the consumer products division of Husqvarna (you might remember its predecessors including Roper, American Yard Products, then Frigidaire Home Products, and Husqvarna Outdoor Products.)
In 2007, Husqvarna Consumer Products used Briggs & Stratton manufactured engines almost exclusively on its Craftsman branded mowers sold at Sears.
Briggs & Stratton decided some time ago that one way to respond to the manufacturing threat from China was to change their business model of being an engine producer selling to end-product OEM’s and become an integrated low-cost producer of quality products in each market they serve. That strategy resulted in Briggs buying the small generator division of Generac and Simplicity, Snapper and many of the assets of Murray.
(I just read the most recent issue (Vol. 118) of OPEESA’s “OPE-In-The-Know, The Business of OPE” newsletter and found more information about this interesting strategy. You can request a copy at opeintheknow@yahoo.com .)
The risk to Briggs will be to keep most of their current engine customers like Husqvarna Consumer Products happy, while at the same time competing with them for end-product placement at national retailers like Sears.
This will be an interesting story to watch as it unfolds.
Domestic OPE engine and product manufacturers have no choice – they must change the way they do business to compete against and in the global marketplace. Briggs & Stratton appears to be one of several manufacturers leading the way.
Who wins and who loses may come down to who makes the best decisions on how to respond to the ever-changing business environment. Stay tuned.
I don’t think he meant he was going to ignore the products he sold and the revenue and customers those product brands brought into his business. But he did realize that the most powerful, stable and enduring brand he had to sell was his business brand – what his company name and reputation meant to the people and potential customers living in his local community.
Product lines can come and go. But a business image, positive or negative, endures. And if that image isn’t as strong or stronger than the product brands being sold, getting a consumer to walk in the front door for the first time and then retain them as a customer becomes much harder.
It doesn’t necessarily take a lot of money to build your business’s brand. Customer perception of your business or more importantly – customer trust in your business can make all the difference in building your business reputation.
Once your customer has reason to trust you, your judgment, your knowledge and your service, he is yours for as long you meet his needs and exceed his expectations.
Remember, the value of a customer is not what he buys when he walks in your door for the first time, but the total of what he buys over a lifetime of coming into your store. Customer retention is the lifeblood of your business.
You have a lot of advantages in gaining or retaining customers that a larger company doesn’t have. Those advantages don’t necessarily cost a lot of money either. Use them every day. Think about them every day. Tell your customers about them every day. You have a lot to talk about.
Here’s a quote from the mother of Denzel Washington that sums up life pretty well: “Do what you have to do so you can do what you want to do.” That should be the primary reason we get up and go to work every day.
Snapper, owned by the Briggs & Stratton Power Products Group LLC, will soon be selling their brand of outdoor power equipment in Sears.
The primary and long-time supplier of outdoor power equipment to Sears currently is the consumer products division of Husqvarna (you might remember its predecessors including Roper, American Yard Products, then Frigidaire Home Products, and Husqvarna Outdoor Products.)
In 2007, Husqvarna Consumer Products used Briggs & Stratton manufactured engines almost exclusively on its Craftsman branded mowers sold at Sears.
Briggs & Stratton decided some time ago that one way to respond to the manufacturing threat from China was to change their business model of being an engine producer selling to end-product OEM’s and become an integrated low-cost producer of quality products in each market they serve. That strategy resulted in Briggs buying the small generator division of Generac and Simplicity, Snapper and many of the assets of Murray.
(I just read the most recent issue (Vol. 118) of OPEESA’s “OPE-In-The-Know, The Business of OPE” newsletter and found more information about this interesting strategy. You can request a copy at opeintheknow@yahoo.com .)
The risk to Briggs will be to keep most of their current engine customers like Husqvarna Consumer Products happy, while at the same time competing with them for end-product placement at national retailers like Sears.
This will be an interesting story to watch as it unfolds.
Domestic OPE engine and product manufacturers have no choice – they must change the way they do business to compete against and in the global marketplace. Briggs & Stratton appears to be one of several manufacturers leading the way.
Who wins and who loses may come down to who makes the best decisions on how to respond to the ever-changing business environment. Stay tuned.
No. 1 January 2008
Goodbye 2007. And good riddance!
Does an oil company have an outstanding management team if profits soar when oil prices go up?
Would I be a visionary business leader with a brilliant strategy if sales and profits boomed when actually it rained regularly all spring and summer, and “the season” lasted until November 1st?
Would I be a business leader with poor vision and a flawed strategy who miserably failed when sales and profits “tanked” when actually the season got off to a poor start, there was a season-long drought, and the leaves didn’t fall until December?
I didn’t change at all, my leadership and vision didn’t change and my strategy remained mostly the same in both instances.
Yet the results in each scenario were dramatically different.
So what kind of business leader does that make me: Good, Bad, Lucky?
In this industry, I’ll always take all the luck I can get and hope I’m smart enough to recognize it and enhance it.
Didn’t find a flying lawnmower this Christmas under your Christmas tree? Watch one fly for real here: http://www.maniacworld.com/flying-lawnmower.html
There was an interesting article in the Christmas Eve issue of the Wall Street Journal titled “Why the Perfume Business is Beginning to Stink.” After seeing that headline, I couldn’t resist reading the article.
Apparently there are too many perfumes and even more celebrity scents and fashion-house fragrances being introduced every year. One perfume maker said “The (fragrance) offer is so enormous, you get lost going into a perfume shop. It’s like eating off a plate with too much food and you lose your appetite.”
In 2006, more than 200 new so-called prestige perfumes – those sold in department stores and cosmetics shops, rather than lower-end drugstores or supermarkets – were unveiled in the USA alone.
Yet despite more entries, sales have been slowing, while the overall luxury goods sector has grown by about 12% this year.
The reason is olfactory overkill. “All the new perfumes resemble each other too much,” said one shopper. “They just change their packaging, but everything smells the same inside.”
With so much competition, many companies spend as much as $50 million to promote a major new scent. That’s equivalent to an entire year of sales for most major perfume brands, making it increasingly difficult to recover the costs.
Some fashion brands have been trying a new strategy to make perfume an upscale purchase again. Many new fragrances have been introduced in the $135 to $600 range with aromas such as licorice and lavender or tobacco, gardenia and cedar.
But so far these ultra-exclusive perfumes aren’t selling enough or “reaping bouquets of profits,” mostly because they are so expensive to make. Yet makers continue to keep them on the market for years, even as they remain unprofitable.
And you thought the OPE business could be tough!
Does an oil company have an outstanding management team if profits soar when oil prices go up?
Would I be a visionary business leader with a brilliant strategy if sales and profits boomed when actually it rained regularly all spring and summer, and “the season” lasted until November 1st?
Would I be a business leader with poor vision and a flawed strategy who miserably failed when sales and profits “tanked” when actually the season got off to a poor start, there was a season-long drought, and the leaves didn’t fall until December?
I didn’t change at all, my leadership and vision didn’t change and my strategy remained mostly the same in both instances.
Yet the results in each scenario were dramatically different.
So what kind of business leader does that make me: Good, Bad, Lucky?
In this industry, I’ll always take all the luck I can get and hope I’m smart enough to recognize it and enhance it.
Didn’t find a flying lawnmower this Christmas under your Christmas tree? Watch one fly for real here: http://www.maniacworld.com/flying-lawnmower.html
There was an interesting article in the Christmas Eve issue of the Wall Street Journal titled “Why the Perfume Business is Beginning to Stink.” After seeing that headline, I couldn’t resist reading the article.
Apparently there are too many perfumes and even more celebrity scents and fashion-house fragrances being introduced every year. One perfume maker said “The (fragrance) offer is so enormous, you get lost going into a perfume shop. It’s like eating off a plate with too much food and you lose your appetite.”
In 2006, more than 200 new so-called prestige perfumes – those sold in department stores and cosmetics shops, rather than lower-end drugstores or supermarkets – were unveiled in the USA alone.
Yet despite more entries, sales have been slowing, while the overall luxury goods sector has grown by about 12% this year.
The reason is olfactory overkill. “All the new perfumes resemble each other too much,” said one shopper. “They just change their packaging, but everything smells the same inside.”
With so much competition, many companies spend as much as $50 million to promote a major new scent. That’s equivalent to an entire year of sales for most major perfume brands, making it increasingly difficult to recover the costs.
Some fashion brands have been trying a new strategy to make perfume an upscale purchase again. Many new fragrances have been introduced in the $135 to $600 range with aromas such as licorice and lavender or tobacco, gardenia and cedar.
But so far these ultra-exclusive perfumes aren’t selling enough or “reaping bouquets of profits,” mostly because they are so expensive to make. Yet makers continue to keep them on the market for years, even as they remain unprofitable.
And you thought the OPE business could be tough!
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