Electrolux Group

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Electrolux Group

Lilla Essingen
S-105 45 Stockholm
Sweden
(08) 736 6000
Fax: (08) 564478

Public Company
Incorporated: 1910
Employees: 152,900
Sales: SKr84.92 billion (US$13.68 billion)
Stock Exchanges: Stockholm London Geneva Oslo Paris Zürich Basel NASDAQ

To the average consumer, the name Electrolux says two things: vacuum cleaners and refrigerators. Through expansion, diversification and, latterly, a voracious appetite for acquisition, Electrolux Group has become a major multinational. It still supplies its traditional products, claiming top position in the European household-appliance market and is the third-largest producer of household appliances, such as vacuum cleaners and refrigerators, in the United States. These products account for just over half of its 1989 turnover, but Electrolux also supplies a wide range of commercial and industrial products and services. Under the Electrolux umbrella comes a host of other familiar brand names, such as Flymo lawnmowers in Europe and Eureka vacuum cleaners in the United States.

This empire has its origins in the perspicacity and the 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 he was to find the building blocks for the future Electrolux: Lux and Elektromekaniska AB.

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 popularity of electric lighting, Lux head C.G. Lindblom proposed to Sven Carlstedt a joint venture for the production and marketing of a new vacuum cleaner.

In 1912 Wenner-Gren became the agent for the Lux vacuum cleaner in Germany, subsequently taking on the United Kingdom and France in addition. Over the next few years, Wenner-Gren’s role in the company grew, while 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 in readiness, he overcame their reluctance by guaranteeing a minimum sales figure through his own sales company, Svenska Elektron.

Lux and Elektromekaniska merged in 1919 as Aktiebolaget Elektrolux. Wenner-Gren was president and major shareholder. In 1921, the Lux V appeared. In many ways it resembled a modern cylindrical vacuum cleaner, but it glided along the floor on ski-like runners instead of wheels. This model 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 its chief 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 the 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 in 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, firstly 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 all of this it was often short of funds, partly because of the system of payment by installments. To grow further, the company needed to raise capital. 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 which Wenner-Gren owned, 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 were to prove unfounded.

The company had already started to diversify. Floor-polishers, a natural progression from vacuum cleaners, came 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. The other system of refrigeration is compression, which relies on electric power. Early compressors were noisy and bulky, so Electrolux had several advantages over its competitors, which were producing 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 install a central research laboratory.

In 1926, Wenner-Gren had become 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, was president throughout the 1930s, having succeeded Aurell in 1930.

With intensive marketing and continued investment in research and development, Electrolux rode out the Depression years. By 1939 annual sales stood at SKrSO million.

In 1939 Gustaf Sahlin, former president of the United States Electrolux Corporation, took over from Faulkner. Throughout World War II, despite the non-availability of some plants, Electrolux managed to sustain 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 had become president in 1951, and from 1963 to 1967 under his successor Harry Wennberg. The period was not without its setbacks, however. Firstly, many subsidiaries which had been opened in eastern European countries before the war disappeared from view behind the Iron Curtain, and secondly, 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 which consumers were now demanding. Though it at first 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 extended floor-cleaning-equipment production to an increasing number of countries, including Brazil and Norway. When, in 1956, Axel Wenner-Gren sold his remaining shares in Electrolux to the Swedish finance group Wallenberg, annual turnover exceeded SKr500 million. The association with Wallenberg has often stood Electrolux in good stead, for instance in helping to arrange overseas funding and insulating the group from any hostile takeover bids.

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

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 Werthen was recruited from Ericsson, another member of the Wallenberg group of companies. Werthen has remained with Electrolux for over 20 years, first as president, and since 1975 as chairman, with first Gosta 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.

Werthen found the Electrolux group 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 Werthen’s own words, “they represented 125% of the profits.”

Approaching the problem from outside, Werthen 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 United States appliance factories. Werthen believed that Electrolux’s problems could not be overcome simply by operational improvements. It had a more fundamental problem: size.

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

The initial focus was on Scandinavia. One smaller competitor after another, many of them struggling for survival, was bought up swiftly. The Norwegian stove manufacturer Elektra and Danish white-goods company Atlas 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 absorption refrigerator. Being quiet-running, they are ideally suited to installation in living spaces, such as caravans and hotel rooms. Electrolux managers soon scented these new opportunities. After taking over competitors Kreft and Siegas in 1972, the group became world leader in this sector.

As well as expanding its share of its existing markets, Electrolux soon started to see acquisition as a way of entering new areas, usually those related to existing products, as with the British lawnmower manufacturer, Fly mo, which it bought in 1968. Werthen saw lawnmowing as an activity allied to floor-cleaning. The provision of cleaning services seemed a logical extension to the production of cleaning equipment, and this prompted 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 has enabled Electrolux to claim leadership of the worldwide chainsaw market.

There were some more radical departures from existing product lines. In 1973, Electrolux bought Facit, a Swedish office equipment company. 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 scepticism, since again the connection between the new and existing businesses appeared to be rather tenuous. Granges was seen as a loss-making company, but when Electrolux bought it in 1980, Werthen 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 today Granges’ aluminum products and car seat belts represent a major aspect of Electrolux’s business, although other parts of Granges have been sold off.

Under the presidency of Anders Scharp from 1981, the emphasis was on consolidation and expansion of existing lines. Within this area the takeovers became increasingly ambitious as Electrolux saw within its grasp the title of one of the world leaders in household appliances. Major steps in this direction were the acquisitions of Zanussi in Italy, White Consolidated in the United States, and the white-goods and catering-equipment divisions of the United Kingdom’s Thorn EMI, in 1984, 1986, and 1987, respectively.

Electrolux has a reputation for buying only when the price is right and for turning around sick companies, even at the cost of heavy staff cuts and management shakeups. As The Wall Street Journal of March 21, 1986, pointed out, discussing the acquisition of White Consolidated, the group balance sheet has looked unhealthy immediately after some of the larger acquisitions, showing an equity-asset ratio as low as 21%.

Electrolux has bounced back confidently, making divestments as well as acquisitions. One of Werthen’s earliest acts as president was the sale of AB Electrolux’s minority shareholding in the United States Electrolux Corporation to Consolidated Food, which raised SKrSOO million. The purchase of the long-established company Eureka a few years later gave the Swedish group a new foothold in the United States vacuum cleaner market, although it found itself in the curious position of competing against its own brand name. Further divestments were made 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 is through the sale of assets, although Electrolux acquisitions have not been primarily motivated by a desire to asset-strip. For example, 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 has been 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 is delighted to hear Electrolux knocking on its door. Many a takeover has been resisted by the target company, although Electrolux has also been called in to rescue a troubled company—as happened with Zanussi— or asked to act as a white knight—notably for the United States household appliance company Tappan in 1979.

Experience has helped Electrolux assimilate new companies into the group. Even when its attentions were not originally welcomed, its undeniable success in rapidly reversing the fortunes of sick companies like Husqvarna have won over many doubters.

By dint of sound design, effective marketing, and sheer opportunism, Electrolux has grown in 70 years from a single-product, all-European company into an international group of around 550 companies covering 50 countries. Although it cannot promise to sustain the phenomenal growth of the 1970s and 1980s, Electrolux is optimistic about the future. Already at or near the top of the domestic appliances tree it is now looking to attain the same international status in other product lines, such as lawnmowers, industrial cleaning equipment, and components such as refrigerator compressors. It is also looking for new geographical markets; already doing business in many parts of the Far East, in 1989 Electrolux arranged for Sharp to distribute some of its products in Japan.

Electrolux still invests significantly in improving its traditional products. Vacuum cleaners continue to get lighter and refrigerators quieter and more efficient. A robotic vacuum cleaner for the industrial market is expected by the year 2000. In the interests of the environment, the company plans to eliminate chlorofluorocarbons from Electrolux refrigerators by 1995.

The group’s future depends very much on the successful integration of members in different parts of the world. For a consumer-goods manufacturer it is particularly important to remain sensitive to local preferences while exploiting economies of scale to the full. There is, therefore, a delicate balance to be attained between local and central control. The group says it aims to use local managers in its subsidiaries wherever possible.

The Electrolux board has always consisted predominantly of Swedes, though, and according to The Financial Times of June 30, 1989, this has led to accusations that the group is not a multinational but “an international company run by Swedes.” President Anders Scharp told the Financial Times that he, too, felt the company to be too Swedish. His objective, he said, is to internationalize his management team. To this end an internationally oriented executive development program has been introduced.