Aktiebolaget Electrolux

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Aktiebolaget Electrolux

Lilla Essingen
S-105 45 Stockholm
Sweden
(08) 736 6000
Fax: (08) 656 4478
Web site: http://www.electrolux.se

Public Company
Incorporated: 1919 as Aktiebolaget Elektrolux
Employees: 112,140
Sales: SKr110 billion (US$16.15 billion) (1996)
Stock Exchanges: Stockholm London Geneva Paris Zurich Basel NASDAQ
SICs: 3524 Lawn & Garden Tractors, Home Lawn & Garden Equipment; 3559 Special Industry Machinery, Not Elsewhere Classified; 3589 Service Industry Machines, Not Elsewhere Classified; 3631 Household Cooking Equipment; 3632 Household Refrigerators and Home & Farm Freezers; 3635 Household Vacuum Cleaners; 3639 Household Appliances, Not Elsewhere Classified

To the average consumer, the name Electrolux says two things: vacuum cleaners and refrigerators. Through expansion, diversification, and a voracious appetite for acquisition, Aktiebolaget Electrolux became a major multinational by the 1980s. It still supplies its traditional products, claiming top position in the European household-appliance market and the number three position in household appliances in the United States (behind Whirlpool and General Electric). These products—which are marketed under such well-known brands as Electrolux, Frigidaire, Zanussi, Eureka, and AEG—accounted for about two-thirds of the company’s 1996 turnover. About 10 percent of turnover came from such commercial appliances as food-service equipment for restaurants and institutions and commercial laundry equipment. Nearly 14 percent was derived from sales of outdoor products, including lawn mowers, garden tractors, chainsaws, and leaf blowers, under such brands as Husqvarna, Flymo, Poulan, and Weed Eater. The remaining 10 percent of turnover came from industrial products, whose operations were gradually divested in the 1990s in favor of a concentration on the other three core areas. The Wallenberg family of Sweden owns about half of Electrolux, with holdings dating back to 1956.

Beginnings in Vacuum Cleaners

The Electrolux empire originated in the perspicacity and marketing flair of Axel Wenner-Gren, who spotted the potential of the mobile vacuum cleaner only a few years after its invention by Englishman H. C. Booth in 1901. In 1910 the young Wenner-Gren bought a part share in the European agent of a U.S. company producing one of the early vacuum cleaners, the clumsy Santo Staubsauger. After a couple of years as a Santo salesman for the German-based agent, Wenner-Gren sold his share of the company and returned to Sweden, where the building blocks for the future Electrolux, Lux and Elektromekaniska AB, were already in place.

Sven Carlstedt had formed Elektromekaniska in 1910 to manufacture motors for a vacuum cleaner based on the Santo, which was produced by Swedish engineer Eberhardt Seger. Since its founding in 1901, Lux had manufactured kerosene lamps. Now confronted with a shrinking market owing to the introduction of electric lighting, Lux head, C. G. Lindblom, proposed to Sven Carlstedt that the two companies form a joint venture for the production and marketing of a new vacuum cleaner.

In 1912 Wenner-Gren became the agent for the Lux 1 vacuum cleaner in Germany, subsequently taking on the United Kingdom and France. Over the next few years Wenner-Gren’s role in the company grew, and the machine gradually became lighter and more ergonomic. Wenner-Gren foresaw a potential sales bonanza in Europe after the end of World War I. Initially unable to persuade his colleagues to step up production capacity, he overcame their reluctance by guaranteeing a minimum sales figure through his own sales company, Svenska Elektron (later known as Finans AB Svetro).

Lux and Elektromekaniska merged in 1919 as Aktiebolaget Elektrolux (the spelling was changed to Electrolux in 1957). Wenner-Gren became president and a major shareholder of the new company. In 1921 the Lux V was introduced. This new model resembled a modern cylindrical vacuum cleaner, but it glided along the floor on ski-like runners instead of wheels. The Lux V was to present serious competition to the upright Hoover machines in the 1920s.

The convenience and attractive styling of its product helped to get the new company off to a promising start, but the salesmanship of Electrolux’s president probably played an even bigger part. Wenner-Gren was a great believer in the door-to-door sales techniques already espoused by competitors such as Hoover in the United States. Vacuum cleaners were demonstrated to potential customers in their own homes, and buyers were allowed to pay for their machines by installments. Wenner-Gren knew how to get the best out of his sales force.

To today’s sales managers, sales training, competitions, and slogans like “Every home an Electrolux home” are familiar methods of boosting sales, but when Wenner-Gren introduced them they were revolutionary. He also believed in leading from the front. The story of how he sold a vacuum cleaner to the Vatican is part of company mythology. Four competitors demonstrated their machines first, each vacuuming their allocated area of carpet. When Wenner-Gren’s turn came, instead of vacuuming the fifth area, he went over the first four again. The resultant bagful of dust persuaded the pope to add his palace to the growing number of Electrolux homes. Advertising, too, was imaginative. Not only did Electrolux make extensive use of the press, but in the late 1920s, citizens of Stockholm, Berlin, and London were liable to encounter bizarre vacuum cleaner-shaped cars in the streets.

Bizarre or not, the sales methods worked, and the company grew. Throughout the 1920s, new sales companies sprang up, not only all over Europe but also in the United States in 1924, Australia in 1925, and South America. Many of these were financed by Wenner-Gren himself rather than by Electrolux in Sweden. Vacuum cleaner-manufacturing plants also started to open overseas, first in Berlin in 1926 and a year later in Luton, England, and Courbevoie, France.

By 1928 Electrolux had sales of SKr70 million. It had five manufacturing plants, 350 worldwide offices, and 20 subsidiaries. In spite of this geographic expansion, the company was often short of funds, partly because of the system of payment by installments. It became clear that further growth would require increased capital, and it was decided to float the company on the London Stock Exchange and to issue more shares. Prior to flotation in 1928, Electrolux bought out many of the related companies owned by Wenner-Gren, though he retained his minority shareholding in the American Electrolux Corporation until 1949.

Flotation on the Stockholm stock exchange was postponed until 1930 owing to the stock market crash. When the shares did appear they were greeted with some mistrust, as it was thought that the company was overvalued and that sales would suffer during the anticipated recession. These doubts, however, were to prove unfounded.

Diversified into Refrigerators in the Mid~1920s

During the 1920s Electrolux introduced a number of new products, including floor-polishers, a natural progression from vacuum cleaners, which were brought out in 1927. However, the main diversification of the 1920s came through the acquisition in 1925 of Arctic, a company manufacturing a novel machine, the absorption refrigerator. This type of refrigerator has no moving parts, though early models required connection to a source of running water. Power can be provided by electricity, gas, or kerosene as opposed to the compression method of refrigeration, which relies on electric power. Early compressors were noisy and bulky, so the new Electrolux system had several advantages over its competitors’ compression refrigerators.

A new air-cooled version of Electrolux’s absorption refrigerators was introduced in 1931, and by 1936 more than one million had been sold. Demand for the machines grew as restrictions were placed on the use of food preservatives by legislation such as the United Kingdom Food Preservative Act of 1927. In the United States, Servel Inc. had acquired a license to manufacture Electrolux’s refrigerators.

Electrolux’s original vacuum cleaner factory on Lilla Essingen was devastated by fire in 1936. When it was rebuilt the following year, the opportunity was taken to fit it with the latest equipment and to install a central research laboratory.

In 1926 Wenner-Gren became chairman of the board, with Ernst Aurell taking over as president. During the 1930s Wenner-Gren remained chairman but reduced his involvement in the running of the company, prior to resigning from his post in 1939. Harry G. Faulkner, a British accountant who had been instrumental in the company’s consolidation prior to the 1928 flotation, succeeded Aurell in 1930 and remained president throughout the 1930s.

Company Perspectives:

Electrolux is one of the world’s leading manufacturers of indoor and outdoor household appliances, and of corresponding products for commercial users. These products make daily tasks easier and more convenient in millions of homes throughout the world. Every year, consumers in almost 100 countries buy more than 55 million Group products. More than 90% of Electrolux sales are outside Sweden, and the Group operates more than 500 companies in over 60 countries.

With intensive marketing and continued investment in research and development, Electrolux rode out the Great Depression. By 1939 annual sales stood at SKrSO million. In 1939 Gustaf Sahlin, former president of the United States Electrolux Corporation, took over the presidency of the parent company from Faulkner. Throughout World War II, despite the loss of some manufacturing plants, Electrolux managed to maintain many of its usual activities, opening operations in Australia, Venezuela, and Colombia. At home in Sweden, it acquired companies in the fields of commercial laundry equipment and outboard motors. Much energy, however, was diverted into the war effort, including the manufacture of munitions and of air cleaners for the Swedish forces.

After the war Electrolux resumed its normal operations, initially under Elon V. Ekman, who became president in 1951, and from 1963 to 1967 under his successor Harry Wennberg. The period was not without setbacks, however. Many subsidiaries that had been opened in eastern European countries before the war disappeared from view behind the Iron Curtain. In addition, despite a British government contract to supply 50,000 built-in absorption refrigerators for prefabricated temporary houses, the company began to face problems in the refrigerator market. Compression technology had advanced and was proving more effective for the larger refrigerators that consumers were now demanding. Though at first the company concentrated on improving the design of the absorption refrigerator, Electrolux was eventually obliged to adopt compression technology.

Meanwhile, diversification continued. During the 1950s Electrolux started making household washing machines and dishwashers, and floor-cleaning-equipment production was extended to an increasing number of countries, including Brazil and Norway. When, in 1956, Axel Wenner-Gren sold his remaining shares in Electrolux to Wallenberg, a Swedish finance group, annual turnover exceeded SKr500 million. The association with Wallenberg has often stood Electrolux in good stead, helping, for example, to arrange overseas funding and to insulate the group from any hostile takeover bids.

In 1962, in an attempt to solve its refrigerator problems, Electrolux bought the Swedish firm of ElektroHelios. This firm, founded in 1919, had a major share of the Scandinavian market in compressor refrigerators and freezers, as well as making stoves. In the year following the acquisition, Electrolux launched a wide range of food-storage equipment, putting it in a strong position to benefit from the demands generated by the flourishing frozen-food industry.

Series of Major Acquisitions from Late 1960s Through Late 1980s

Until the 1960s Electrolux had continued to operate along the lines conceived by Wenner-Gren in the early years. A new phase began in 1967, when Hans Werthén was recruited from Ericsson, another member of the Wallenberg group of companies. Werthén remained with Electrolux for over 25 years, first as president, and from 1975 to 1991 as chairman, with Gósta Bystedt and then Anders Scharp succeeding him as president. Under this regime, a series of momentous acquisitions was to allow Electrolux to multiply its turnover by a factor of 60 in 20 years.

When Werthén took over management of the Electrolux group the company was in the doldrums; it had run into internal and external problems, and its technology was outmoded. Electrolux, an international company, had not been effectively integrated with its acquisition ElektroHelios, which still focused on the Scandinavian market. In many ways the merged companies had continued to behave as if they were still competitors, resulting in a net loss of market share in the refrigerator market. Only the vacuum cleaners were profitable: to use Werthén’s own words, “they represented 125% of the profits.”

Approaching the problem from a new perspective, Werthén managed to resolve the Electrolux-ElektroHelios conflict and get rid of the organizational overlap. His new head of production, Anders Scharp, set about updating production technology to challenge the much more advanced techniques he had seen in U.S. appliance factories. Werthén believed that Electrolux’s problems could not be overcome simply by operational improvements. The company had a more fundamental problem: size.

As Werthén saw it, Electrolux was neither small enough to be a niche player, nor large enough to gain the economies of scale it needed to compete with such giants as Philips and AEG. Growth was the only way forward, and in the overcrowded market place for household goods, growth meant acquisitions.

The initial focus was on Scandinavia. One small competitor after another, many of them struggling for survival, was bought up by the growing company. The Norwegian stove manufacturer Elektra, the Danish white goods company Atlas, and the Finnish stove maker Slev were among the first acquisitions of the late 1960s. Soon Electrolux was shopping for competitors outside Scandinavia. The 1974 acquisition of Eureka, one of the longest-established vacuum cleaner companies in the United States, gave Electrolux a large slice of a valuable market overnight.

At around this time there were glimmerings of hope for the reemergence of the absorption refrigerator. The quiet-running units were ideally suited to installation in smaller living spaces, such as mobile homes and hotel rooms. Electrolux managers soon sensed these new opportunities. After taking over competitors Kreft (of Luxembourg) and Siegas (of Germany) in 1972, the group became world leader in this sector.

In addition to expanding its share of the company’s existing markets, Electrolux soon started to see acquisitions as a way of entering new areas, particularly those related to existing product lines. Electrolux acquired the British lawnmower manufacturer Fly mo in 1968 because Werthén saw lawnmowing as an activity allied to floor cleaning. The provision of cleaning services seemed a logical extension to the production of cleaning equipment, prompting the purchase of a half share in the Swedish cleaning company ASAB.

Buying up the venerable Swedish firm of Husqvarna in 1978 gave Electrolux not only a new pool of expertise in commercial refrigeration, but also a flourishing chainsaw-manufacturing concern, which complemented its interests in outdoor equipment. Taking over a clutch of other chainsaw manufacturers over the following decade—including the U.S. firm Poulan/ Weed Eater in 1986—enabled Electrolux to claim leadership of the worldwide chainsaw market. The outdoor products sector was further strengthened and broadened through the acquisitions of American Yard Products in 1988 and of Allegretti & Co., a U.S. maker of battery-driven garden tools, in 1990.

This program of acquisitions brought some more radical departures from existing product lines. In 1973 Electrolux bought Facit, a Swedish office equipment company. The deal also brought to Electrolux the production of Ballingslov kitchen and bathroom cabinets. Initial doubts about whether Electrolux had the know-how to manage a high-tech company proved unfounded.

The purchase of Swedish metal producer Granges was greeted with equal skepticism, since again the connection between the new and existing businesses appeared to be rather tenuous. Granges was seen as a troubled company, but when Electrolux bought it in 1980, Werthén had already been chairman of its board for three years and had overseen a marked upturn in its fortunes. Granges became part of Electrolux in 1980, and by the late 1980s Granges’ aluminum products and car seat belts represented a major aspect of Electrolux’s business, although other parts of Gränges were sold off.

Under the presidency of Anders Scharp, which began in 1981, Electrolux’s program of acquisitions began to focus on the consolidation and expansion of existing lines. Takeovers became increasingly ambitious as Electrolux saw within its reach the chance to become one of the world leaders in household appliances. Major steps towards this goal were the acquisitions of Zanussi in Italy, White Consolidated in the United States (the third-largest white goods company in that country), and the white goods and catering equipment divisions of the United Kingdom’s Thorn EMI, in 1984, 1986, and 1987, respectively.

Through the years, Electrolux gained a reputation for buying only when the price was right and for turning around sick companies, even at the cost of heavy staff cuts and management shake-ups. As the Wall Street Journal pointed out in 1986 in a piece about the acquisition of White Consolidated, the group balance sheet looked unhealthy immediately after some of the larger acquisitions, showing an equity-asset ratio as low as 21 percent.

Electrolux bounced back confidently, making divestments as well as acquisitions. One of Werthén’s earliest acts as president had been the 1968 sale of AB Electrolux’s minority shareholding in the United States Electrolux Corporation to Consolidated Foods, which raised SKrSOO million, although the subsequent Eureka purchase had placed the company in the curious position of competing against its own brand name. Management continued this policy of judicious divestment following acquisitions, when it was considered that all or part of the new member did not fit in with the group’s strategy. Facit, for instance, was sold to Ericsson in 1983, and shortly after the purchase of White Consolidated, its machine-tool division, White Machine Tools, was sold off.

Another method of raising cash was through the sale of assets, although Electrolux acquisitions were not primarily motivated by a desire to strip assets. In the case of Husqvarna, the purchase price of SKrl20 million was more than covered within six months by the sale of its land and other property. A third way of recovering the costs of acquisition was the use of a troubled company’s accumulated losses wherever possible to reduce the group’s tax liability. This was a major incentive in the acquisition of Gränges.

Not every company was delighted to hear Electrolux knocking on its door. Many a takeover was resisted by the target company, although Electrolux was also sometimes called in to rescue a troubled company—as happened with Zanussi—or asked to act as a white knight—notably for the U.S. household appliance company Tappan in 1979.

Geographic Expansion and Restructurings Marked 1990s

The 1990s brought major changes to Electrolux, spearheaded by a new management team. Werthén resigned as chairman in early 1991, Scharp became chairman and CEO, and Leif Johansson was named president of the firm, taking over as CEO himself in 1994. During Werthén’s long reign, Electrolux had grown tremendously through acquisitions but had failed to effectively consolidate the acquired operations into existing ones. The result was an unwieldy array of brands, which each had to be supported with separate production and marketing operations. Electrolux was further hurt in the early 1990s by an economic downturn in its core European and North American operations and by the maturing of the white goods sectors in those same markets, which intensified competition. All told, profits for Electrolux from 1990 through 1994 were much lower than the heights reached during the late 1980s. The new management team responded by seeking out new markets for its core products, by gradually divesting its noncore industrial products operations, and by streamlining its remaining business units.

Electrolux targeted Eastern Europe, Asia, South America, the Middle East, and southern Africa in its 1990s push for global growth. The company had already, in 1989, arranged for Sharp Corporation to distribute some of Electrolux’s products in Japan. Subsequent moves in Asia included the setting up of joint ventures in China for the manufacture of compressors, vacuum cleaners, and water purifiers, and the acquisition of majority stakes in refrigerator and washing machine factories in India. In January 1996 another Chinese joint venture was established for the production of refrigerators and freezers for commercial users. The newly opened markets of Eastern Europe were first targeted with the 1991 purchase of the Hungarian white goods company Lehel. A 1995 joint venture with Poland’s Myszkow FNE Swiatowit began making washing machines under the Zanussi brand. In Latin America, where Whirlpool was dominant, Electrolux acquired 99 percent of Refrig-era9áo Paraná S.A. (Refripar) in 1996. Refripar (soon renamed Electrolux do Brazil) held the number two position among Brazilian white goods companies. Also in 1996, Electrolux purchased a 20 percent stake in Atlas Eléctrica S.A. of Costa Rica, the leading producer of refrigerators and stoves in Central America. By 1994, about 10 percent of Electrolux’s sales came from outside the European Union and North America. This figure more than doubled by 1996 to 20.4 percent, with non-EU Europe accounting for seven percent, Latin America for 6.4 percent, Asia for 5.1 percent, Oceania for one percent, and Africa for 0.9 percent.

While undergoing this global expansion, Electrolux also moved gradually to concentrate solely on three core sectors: household appliances, commercial appliances, and outdoor products. Profits in the company’s industrial products sector were falling and Scharp and Johansson determined that these noncore operations should be jettisoned. The culmination of this process came in 1996 and 1997, with the divestment of the Constructor group, producers of materials-handling equipment; the sale of the Swedish electronics operations of Electrolux Electronics, and a sewing machines unit; and the spinoff of Granges to the public. The final divestment came in August 1997 when Electrolux’s goods protection operation, which sold tarpaulins and storage halls, was sold to MVI, a privately owned investment fund.

Electrolux greatly reduced its acquisitions activity in the European Union and North America in the 1990s, although there was one major addition. In 1992 the company bought a 10 percent stake in AEG Hausgeráte, the household appliance division of Germany’s Daimler-Benz. This stake was increased to 20 percent in 1993 and the following year Electrolux purchased the remaining 80 percent for about US$437 million. The purchase brought the company another strong European brand, which fit well into a renewed brand strategy for Electrolux. The company sought to position the Electrolux brand as a global brand and Electrolux, Zanussi, and AEG as pan-European brands, while continuing to maintain strong local brands such as Faure in France and Tricity Bendix in the United Kingdom.

Along with the new brand strategy, Electrolux began in 1996 to reduce its fragmented operations and become more efficient. A pan-European logistics function was set up for white goods and floor-care products. In late 1996 the company’s North American white goods operation, Frigidaire Company, was combined with the two North American outdoor products companies, Poulan/Weed Eater and American Yard Products, to form Frigidaire Home Products. Merging these operations made strategic sense since the trend in retailing was toward single retailers selling both indoor and outdoor appliances. Similar consolidations were planned for Electrolux’s operations elsewhere in the world.

In April 1997 Johansson left Electrolux to become the chief executive at Volvo AB. Replacing him as Electrolux president and CEO was Michael Treschow, who had been president and CEO at Atlas Copeo AB, a maker of industrial equipment and, like Electrolux, part of the Wallenberg dynasty. It was left to Treschow to announce, in June 1997, a major restructuring plan, which had already been agreed upon before he took over. Over a two-year period, Electrolux would lay off 12,000 of its workers (11 percent of its workforce) and close 25 plants and 50 warehouses (half of its global total), with the reductions coming mainly in Europe and North America. A charge of SKr2.5 billion (US$323 million) was incurred as the result of the restructuring in the second quarter of 1997.

The streamlining efforts of the 1990s were a clear outgrowth of the somewhat haphazard expansion of the preceding two decades. With its program of global expansion, a new emphasis on operating efficiency, and a collection of very strong brands, Electrolux appeared to have a formula for not just competing but thriving in the 21st century.

Principal Subsidiaries

Electrolux Contracting AB; Husqvarna AB; Electrolux Storkók AB; Electrolux Danmark A/S (Denmark); Oy Electrolux AB (Finland); Electrolux S.A. (France); Electrolux Associated Co. B.V. (The Netherlands); Electrolux Holding B.V. (The Netherlands); Electrolux Holding AG (Switzerland); Electrolux UK Ltd.; Electrolux Deutschland GmbH (Germany); FHP Motors GmbH (Germany; 71.4%); FHP Motors Beteiligungsverwal-tungs-GmbH (Germany; 71.4%); Lehel Hütógepgyar Kft (Hungary; 42.8%); Electrolux Austria G.m.b.H. (Austria); Euro White Investment Corp. (Canada; 83.7%); White Consolidated Industries, Inc. (U.S.A.); Electrolux Ltda. (Brazil; 99.9%); Mexectro, S.A. de CV (Mexico); Maharaja International Ltd. (India; 51%); Electrolux (China) Co., Ltd., China; Electrolux Thailand Co. Ltd. (49%).