Applica Incorporated

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Applica Incorporated

5980 Miami Lakes Drive
Miami Lakes, Florida 33014
U.S.A.
Telephone: (305) 362-2611
Fax: (305) 364-0502
Web site:http://www.applicainc.com

Public Company
Incorporated: 1963 as Save-Way Barber and Beauty Supply, Inc.
Employees: 17,000
Sales: $749 million (2000)
Stock Exchanges: New York
Ticker Symbol: APN
NAIC: 335211 Electric Housewares and Household Fan Manufacturing; 335221 Household Cooking Appliance Manufacturing; 421620 Electrical Appliance, Television, and Radio Set Wholesalers; 335228 Other Major Household Appliance Manufacturing

Applica Incorporated is a manufacturer and marketer of a wide range of branded, licensed, and private-label small household appliances, mostly in North America, Latin America, and the Caribbean. Through its operating subsidiary, Applica Consumer Products, Inc., the company markets products under licensed brand names such as Black & Decker. Under the Wind-mere name, Applica also designs and markets kitchen and seasonal products at discount prices. The company manufactures and distributes hair care appliances to the professional salon industry, personal care products, home environment products, and pet care products, such as the computerized LitterMaid cat litter box. In June 1998, Applica acquired Black & Decker’s Household Products Group, which designs kitchen and clothing-care appliances under Black & Decker licenses, and markets these products to retailers and distributors in North and Latin America. Within the United States, Applica holds leading market share in several product categories, such as toaster ovens and irons. Previously known as Windmere-Durable Holdings, Applica changed its name in May 2000.

Early History

Applica was founded in 1963 by Belvin Friedson, a longtime operator of five barber colleges in downtown Miami. With an initial capital investment of $45,000, the former college dropout launched Save-Way Barber and Beauty Supply, Inc., selling various hair-care products on a cash-and-carry discount basis to both professional shop owners and consumers. In 1964, Fried-son opened his first store in North Miami Beach and generated $2 million in sales, quickly taking advantage of the contacts he had developed during his career in the barber and beauty shop industry. In his fourth year of operating the company, Friedson took it public to raise funds for his rapidly expanding business. The $450,000 generated from the initial public offering of common stock not only stood as a visible sign of the promise shown by the young company, but it provided the capital for product diversification. Backed by this financial support, Save-Way’s early success continued in the late 1960s as Friedson began marketing women’s wigs and hairpieces nationwide.

With the new decade came the first serious test for the company. The market for beauty and barber supplies virtually dried up, forcing Friedson to focus on a new market. In 1972 he switched to the product line that would soon become the company’s backbone: hair dryers, curlers, and other personal care accessories. That same year, he enlisted the services of Durable, a Chinese manufacturing company that would later become a subsidiary, to supply Save-Way with appliances. Friedson established the Windmere Products division to handle the distribution of the new product line.

The new strategy showed early signs of success. By 1975, revenues had grown to $9 million. Save-Way had landed its most important sales contract to date, entering into an agreement with Eckerd Drugs, a nationally known retailer that would remain one of its largest customers through the 1990s.

During the mid-1970s, the Windmere division quickly rose to the forefront of the company. Friedson’s son David took over as the division’s national sales manager in 1976, after he dropped out of college. Under his direction, Windmere sales increased five-fold over the next eight years, jumping to $35 million in 1983, which represented 70 percent of revenue for the entire company.

The rapid expansion of Windmere products was fueled primarily by what Toni Mack of Forbes has called an “unabashed copycat” strategy. Instead of developing its own products, the company attempted to reproduce gadgets that others had made successful. For instance, when an industry leader such as Bristol-Myers’ Clairol was successful with an innovative curling iron or hair roller set, Windmere would quickly join forces with Durable to produce a replica of the product at a considerably lower cost. Taking advantage of cheap labor costs in Durable’s Hong Kong factories, Windmere was able to pass the savings along to its customers and become the low-cost producer in the industry. Durable became a 50 percent joint partner in 1979.

Explosive Growth in the 1980s

Having completed a second public offering that raised an additional $1 million, the company entered the 1980s with a sound balance sheet and momentum from a year that saw revenues increase by 50 percent to $41.8 million and net profit more than double to $4.6 million. Such rapid growth, however, was temporarily checked in the early 1980s by a shortage of labor in the company’s Hong Kong factories that made getting products out the door on time a difficult task. To fix the chronic problem, Friedson and Durable established manufacturing operations in China, where labor was abundant and half as costly. Although the decision proved to be sound in the long run, immediate gains were negated by high set-up costs that resulted in three years of slow growth.

A new marketing strategy would serve as another catalyst for the company’s strong growth in the mid-1980s. Having adopted the corporate name Windmere in 1983, making Save-Way Industries Inc. a division, the company attempted to increase its presence in the hair care products market and jump-start its profit margins through an aggressive mail-in rebate campaign. Hair dryers and curling irons, for instance, were advertised at an outrageously low “final cost”—usually below $5 and sometimes even free. Consumers had only to follow the rebate form correctly and mail it in with their coupon and sales receipt to take advantage of the savings. Although the company would, of course, lose money on consumers who were so diligent, Friedson wagered that most would not, after leaving the store, take the time to follow the correct procedure.

Friedson’s views on human nature proved correct; on average, only one out of every four buyers went to the trouble to claim the rebate money. And the cost of paying off that 25 percent, according to Friedson, did not come close to offsetting the increase in sales volume—at no additional cost—that the rebates generated. One product alone, the VIP Pro hair dryer, advertised at just $4.88 after rebate, netted a profit of $6.5 million. This was a large contribution to a 30 percent climb in total earnings in 1983.

Although this rebate gimmick provided a needed boost during a down period in the personal care appliance market, it could not sustain long-term growth. That would depend on the company’s ability to add reputable brand names to its product base through acquisition, while at the same time adapting rapidly to the trends in the volatile hair-care appliance industry.

To meet the first of these two marketing objectives, Wind-mere acquired a 44 percent interest in Extron International Inc. in 1983 and the remaining 56 percent the following year. The purchase of the Texas-based private corporation gave Wind-mere the licensing rights to the trade names Faberge, Brut, and Grand Finale.

Six months after signing the deal, Windmere acquired an exclusive license to market four lines of Ronson electric shavers and other small consumer appliances. By June 1984, the company had contracted Japanese and Austrian firms to manufacture rotary electric and rechargeable razors and was selling them by as much as $20 less than the competition. Six months later, Windmere controlled five percent of the national electric razor market. Licensing established product names such as these proved a more cost-effective strategy for expanding the company. Not only did the company save on research and development expenses, but it did not have to invest heavily in the expensive advertising campaigns needed to introduce a new product to the market.

Much of the company’s growth in the mid- and late 1980s, however, was the direct result of the strong performance of its own products. From its earliest days, the company had attempted to develop the Windmere product line by introducing products used in beauty salons to the general public. In the 1970s, for instance, Windmere began manufacturing and selling a pistol-grip hairdryer based on a model from its professional line. The company tried to make the same profitable transition a decade later with a product designed to make hair wavy, known as the Crimper. Although retailers initially showed little interest in the hair-crimper when it was introduced in 1987, once it became popular in trend-setting Hollywood, it became a huge success. A similar type of curling iron called the Waver was introduced that same year, along with the Clothes Shaver, a device that removed fuzz and fabric pills from clothing. Both products helped to give Windmere instant brand recognition, something it had struggled 12 years to achieve.

Company Perspectives:

Applica Incorporated aims to be a premiere marketer and manufacturer of consumer appliances that provide product solutions to help consumers through their day.

As young women across the country snatched up the newfangled curling irons in hopes of achieving the “in” look, Windmere revenues and profits soared to record levels. By 1987, the performance of the company had exploded to record-breaking levels. Sales climbed to $145 million and earnings had risen to $11.9 million, which represented increases of 54 percent and 120 percent, respectively, from the previous year. The momentum from these new products led the company to another year of torrid growth in 1988, as sales rose to $193 million and earnings more than doubled to $32.6 million. Meanwhile, its stock jumped from $11 a share to a high of $27 per share.

Late 1980s Setbacks

Although most outward signs suggested that Windmere had finally arrived as a major player in the personal appliances industry, a number of obstacles surfaced in the late 1980s that brought growth to a near standstill. In May 1989, the first sign of trouble appeared. Sales of hot products such as the Crimper fell victim to changing fashion trends, leading to an 11 percent decline in earnings and an alarming build-up of inventory. Moreover, products designed to fill the void performed poorly, exacerbating the problem. And in November, Friedson sold $2.9 million worth of company stock shortly before another quarter of disappointing financial results was released. As Windmere stock plummeted, revenues, which had been predicted by some analysts to exceed $285 million, dipped to $178 million and earnings fell to $7.6 million.

Perhaps the most serious threat to the stability of the company, however, came from China (the site for 90 percent of Windmere’s manufacturing operations) and the 30-cents-an-hour labor that made the company the low-cost producer in the industry. In June 1989, a series of student-led protests and period of political unrest temporarily slowed down production and jeopardized the future of Windmere’s manufacturing operations. Although the turmoil in China directly affected the company for only four to six weeks, it posed a serious threat to the company’s debt financing. With virtually all of the company’s manufacturing factories based within the tumultuous area of the violence in Tiananmen Square, the financial community viewed Windmere too much of a risk. For the next three years, the company would be forced to take out unsecured loans on a 60-to 90-day basis.

Early 1990s Recovery

Windmere’s downward spiral continued into the new decade. It failed to come up with a new premier product that could pick up the slack left by declining sales of the Crimper, the Waver, and the Clothes Shaver. The company’s entrance into the health-related products industry, through the introduction of an electric rotary toothbrush called PlakTrak, did not live up to the high expectations suggested by a $3 million advertising campaign. Furthermore, an ongoing unfair competition and patent infringement lawsuit brought by Philips Electronics regarding a rotary electric shaver manufactured by Izumi Products and sold by Windmere, initiated in 1984, continued to divert much-needed resources and energy from the development of a viable management strategy for renewal.

In 1990, however, Windmere emerged from the lawsuit victorious and was awarded an $86.9 million judgment. Two years later, the company collected $57 million as part of a full settlement from Philips. The decision not only gave the company a financial shot in the arm—a net gain of $29 million after legal fees, taxes, and other expenses—but it enabled Friedson and his managerial team to focus on reshaping the business, n May 1997, Windmere paid Izumi Products $4.5 million, effectively removing itself as a party to the Japanese manufacturer’s suit against Windmere and Philips Electronics, which claimed that the settlement between Windmere and Philips took place without Izumi’s consent and was therefore unfair.

Between the time of the decision and the time of the final settlement in 1992, Windmere devoted its attention primarily to reorganization and restructuring. The company cut costs at its Durable manufacturing facilities, reducing the break-even point by more than one-third, largely by reducing its work force by 30 percent, down to 7,000. At the same time, the company worked to reduce its inventories and tighten up its balance sheet. Not only did the company trim its inventories by more than 16 percent, but it used the money from the lawsuit to pay off debts.

A favorable decision by the U.S. government to retain China’s status as a most favored nation added to the positive momentum of the lawsuit. If duties had been imposed, Wind-mere would have had to raise prices and most likely would have lost its advantage over such competitors as Conair, Bristol-Myers Squibb, and Helen of Troy. These companies manufactured in Costa Rica or bought from the Far East, locations that all had higher labor and manufacturing costs.

Key Dates:

1963:: Save-Way Barber and Beauty Supply founded by Belvin Friedson as a wholesale and retail supplier.
1964:: Friedson opens first retail store in Miami.
1968:: Company completes its initial public offering.
1975:: Company lands its first wholesale supply contract with retailer Eckerd Drugs.
1976:: David Friedson becomes Windmere’s national sales manager.
1979:: Japanese manufacturer Durable becomes a joint partner.
1984:: Unfair competition and patent infringement lawsuit is initiated against the company by competitor Philips Electronics.
1988:: The 180 retail barber and beauty supply store chain is sold for $23 million.
1989:: Company shares become listed on the New York Stock Exchange.
1992:: Company wins $57 million settlement with Philips.
1998:: Company purchased the Black & Decker Household Products Group for $315 million.
1999:: Windmere-Durable Holdings consolidated its sales, marketing, and product development business into a single division.
2000:: Windmere changed name to Applica Inc.
2001:: Applica extended its trademark license agreement with the Black & Decker Corporation through December 2006.

The Mid-1990s Renewal

As Windmere celebrated its 30th anniversary in 1993, it showed several visible signs of renewed financial health. Total revenues, for the second straight year, approached the record levels of 1988. More significant, the company attained the strongest financial position in its history, with $146 million in equity, $25 million in cash, and virtually no debt. An aggressive television and print campaign to support new lines of hair and curling irons, combined with completely redesigned packaging, represented the company’s renewed commitment to its core business. The following year, the company strengthened its presence by acquiring the licensing rights to the Helene Curtis Salon Selectives brand name for a line of personal hair care appliances. This opened the way for a new line of hair dryers, curling irons, hair setters, combs, and brushes.

As Windmere entered the second half of the 1990s, it looked to distance itself further from the 1990-1991 decline and regain the respect of its stockholders and the financial community. While continuing to improve the efficiency of its operations, the company also hoped to develop a gadget that would do for the 1990s what the Crimper and the Clothes Shaver did for the 1980s. In a June 1996 meeting with shareholders, Friedson unveiled one of the leading candidates: the LitterMaid, a computerized cat box billed as the “pooper scooper” for the Internet Age. Friedson planned an extensive marketing campaign, including infomercials and adding specialty retailers to market the company’s latest gadget to the 65 million cat owners in the United States. Since LitterMaid was introduced in 1997, more than 1.5 million cats and their owners have enjoyed this product, which uses infrared signals to activate an automatic raking system to keep litter clean and virtually odor free. In late 2000, Applica relaunched the brand with a new logo, redesigned packaging, and designed an improved Web site and an updated infomercial to capitalize on the momentum.

Brand-Building and Millennial Marketing

In the late 1990s, brands were big business in the kitchenware industry. In January 1997, Windmere bought the rights to the Farberware name. Also that year, through partners Salton, Inc., and NewTech Electronic Industries, Inc., the company signed agreements with Kmart to become a supplier of a wide range of small electrical appliance and consumer electronics under the White-Westinghouse brand name. In July 1999, CBS Corp. and White Consolidated Industries, Inc., settled a dispute over the Westinghouse trademark, allowing both Salton, Inc., and Wind-mere to continue to use the White-Westinghouse name.

For more than two years, Windmere searched for a high-profile brand it could champion. In June 1998, Black and Decker agreed to sell its household products division to Wind-mere-Durable Holdings for $315 million. As part of its acquisition of the Black & Decker Household Products Group in June 1998, Applica licensed the Black & Decker brand in North America, Central America, South America (except Brazil), and the Caribbean for specific household appliances. Black and Decker would keep lighting and cleaning products, such as the Dustbuster cordless vacuum. The licensing agreement was subject to renewal if desired by both companies. In July 2001, Applica extended its trademark license agreement with the Black & Decker Corporation through December 2006. Applica’s early renewal was partially motivated by its intent to use the Black & Decker brand on the first product being developed under a strategic alliance with a yet-to-be announced package-goods firm.

In December 1999, Windmere-Durable Holdings consolidated its sales, marketing, and product development business into a single division called the Consumer Product Group, headed by Mike Michienzi. The reorganization combined the company’s Household Products Group and Windmere Corporation into one entity, based in Shelton, Conn. Michienzi now oversaw all Windmere’s small electrics brands and personal care, professional care, Jerdon, and LittleMaid divisions. Until this point, the parent company operated Windmere and Household Products as separate entities. Windmere’s Miami headquarters would now house back-office functions, such as financial and supply-line operations. The company consolidated operations at its plants in China and Mexico, and integrated its back-office operations in Miami.

The millennial year was a significant one for the company, which changed its name to Applica Incorporated in May 2000. The word “Applica” comes from the English word “appliance” and the Latin word “plicare,” which means to fold into one unified whole. At the beginning of 2000, the company recorded $700 million a year in sales and planned to extend the Black & Decker name to seasonal products such as air conditioners, heaters, humidifiers, and fans. Product innovation was a key piece of Applica’s overall strategy, and the company debuted 40 new products at the industry Housewares Show, including countertop coffeemakers—a category that Black & Decker had vacated. At this juncture, the company’s five-year strategy included plans to capitalize on the growing personal care market, estimated at $1 billion annually. Applica, which sold primarily through mass market and drug channels, was seeking alternative distribution channels for its wares. Meanwhile, Applica developed a dual-brand strategy that positioned the Black and Decker line as the premiere brand, while Windmere appliances served consumers at bargain price points. Eager to launch new product categories, Applica developed rice cookers, grills, griddles, waffle makers, and irons. The company was taking steps to be a leader in small appliances and a player on the global stage. New Black & Decker kitchen products on the horizon included the Smart Brew coffeemaker line, which included a perfect-pour feature, tying in with Applica’s strategy to link the brand with innovative, solution-oriented products.

Meanwhile, the company was also building upon retail brands through partnerships with companies such as Starbucks and Target. In mid-2000, Applica added the Black & Decker slow cooker to the housewares collection launched the previous year by famed architect Michael Graves at discount chain Target, which rounded out its products in the collection. Around this time, Kmart expanded its merchandise of Applica-manu-factured Black & Decker small electric products, a line that now included products made exclusively for Kmart. The retailer stated an intention to become a destination for Black & Decker small electrics, which now contributed 60 percent of Applica’s annual revenue. In November 2000, amid much industry speculation, Applica entered a joint production-development deal with an unnamed packaged goods firm, with the first product to be unveiled by 2002. (Because of a confidentiality agreement, Applica has not been allowed to name the partner until the release of the first product.)

Although Applica’s fourth-quarter 2000 bottom line declined because of the slower economy and higher raw material costs, the company managed to lower its inventory levels and cut debt. The company remained ambitious, with a goal of 50 percent market share in each category in which it competes. Looking at how the company can continue to grow, Applica knows it must develop innovations for products that serve an eternal purpose. “A toaster still makes toast. A can opener still opens cans,” Michienzi said in the April 9, 2001 edition of HFN. “How do you get people to spend more for those products?”