IDEAS AT WORK
"E-lec-tro-lux! E-lec-tro-lux!" the crowd at the Fairmont
Hotel ballroom bellows enthusiastically after an ear-blasting
rendition of rapper Will Smith's Will 2K has rousted them to their
feet. The Dallas Mavericks Dancers fuel fervor from the predominantly
male audience of 700 sales managers gathered to hear the latest
strategy from Electrolux's new owner and chairman, Dallas businessman
Joe Urso.
"This is who we are," says Mr. Urso, watching intently
from the back of the room as he awaits his turn in the spotlight.
His tone is both proud and sheepish, knowing that button-down
types might find this spectacle a tad over the top. His investment
firm, Engles, Urso, Follmer Capital, bought the 75-year-old
vacuum cleaning icon in 1998 and moved it from Atlanta to Dallas
last year.
For many in the audience, this is the first chance to hear
from their new leader. And he's nervous. You see, not so long
ago, these same sales leaders wouldn't have cheered anything
that Electrolux management had to say. The Rolls-Royce of American-made
sweepers was sucking wind - and not the kind that picks up dirt
- the victim of a previous leveraged buyout that short-circuited.
Once on stage, the 45-year-old CEO makes a series of rapid-fire
announcements: Electrolux will launch a national advertising
campaign, re-enter the finance business, initiate an employee
stock ownership plan and set up a national telemarketing center
with more than 300 employees in Dallas.
He tells them he expects Electrolux, which last year sold about
$350 million in upright and canister vacuum cleaners, central
vacuuming systems and carpet shampooers, to boldly blossom into
a $1 billion powerhouse. Since the acquisition, more than $40
million in profits have been plowed back into Electrolux, including
product development.
"How about a hand-held shampooer and an upright with on-board
tools?" he asks.
This news is greeted with more hoots, whistles and applause
than the dancers' earlier gyrations. "It has taken us 19
months to capture their hearts and enthusiasm, " beams
a relieved Mr. Urso, exiting to a standing ovation. "We
had to re-engineer the entire business."The previous owners
sold a cheaper version in discount retail chains, undercutting
its door-to-door sales force. "It's the biggest cardinal
sin you can make in direct sales," Mr. Urso says. "It
would be like Mary Kay being available at Dillard's, or even
worse, Sam's or Drug Emporium. They cannibalized their sales
force with a less-profitable product."
Sara Lee Corp., which had owned Electrolux for nearly 30 years
before the leveraged buyout, and three note-holding banks repossessed
the floor-care company two years later in 1989. But the damage
was done. Half of the sales force had quit, and a once-proud
company that had earned $60 million in annual net income was
bleeding losses at
a $10 million rate.
The Sara Lee-bank ownership coalition nursed Electrolux back
to slightly profitable health but did nothing over the next
decade to revitalize the patient. "This was an Olympic
champion on life support," says Mr. Urso. "We're rehabbing
it back to Olympic status." Wake-up call Passion for Electrolux
comes naturally to Joseph P. Urso, who grew up near the company's
original plant in Greenwich, Conn. Most of the workers on the
factory line were neighbors and relatives from his Italian immigrant
community.
Ironically, he now signs one aging aunt's retirement check.
"I was the first person in my neighborhood of several thousand
people to go to college," Mr. Urso reflects. He was president
of his senior class but a less-than-serious student. His high
school counselor had told his parents that Joe wasn't college
material. That stung deeply, and he was going to prove her
wrong. He didn't. He landed a scholarship, but spotty attendance
and a D-plus average his first semester nearly got the 18-year-old
kicked out of Marietta College in Ohio.
"I'll never forget the disappointment and fear in my parents,"
he says. "My dad [a bricklayer] could not imagine that
I would have to do what he did, which was work in a ditch, sweat
and labor all day. They were terrified. They saw their dream
evaporate." That was Joe Urso's wake-up call. He hunkered
down, graduated with honors, went to law school in
Florida and then earned his graduate degree in taxation from
New York University.
In 1980, he and his wife came to Dallas and found it to be
the land of opportunity. After 15 years of doing real estate
and tax legal work for other dealmakers in town, Mr. Urso was
making more money than he'd ever imagined but felt professionally
unfulfilled. He'd saved enough money to keep his family of five
comfortably ensconced in its Highland Park lifestyle for three
years without additional income.
"So I jumped into business without a parachute,"
he says. "My wife was a little nervous about it."
He formed a buyout company in 1995 with equal partners Todd
Follmer, a former investment banker, and Gregg Engles, who spends
his full- time business energy as CEO of Suiza Foods. The next
year, they purchased a small vacuum cleaner company in California
and two private telephone companies that provide prison pay
phones. But money needed to flow into those companies and not
out, so any payoff had to wait. Just as things were beginning
to stretch thin at the Urso household, the partnership was able
to take out some cash.
Improved morale When Mr. Urso spotted Electrolux, he believed
the match was heaven-made. His firm was already in the vacuum
business, and production could be consolidated at Electrolux's
manufacturing facility in Bristol, Va. But there was plenty
of work to be done. Leading his list of changes were people
issues. The commission structure was so screwed up with chargebacks
to the sales organization that, in some cases, employees lost
money when they made a sale.
"I actually sold a vacuum cleaner and owed the company
$19 in commissions," says Joe Lino, an eight-year vacuum
veteran and Electrolux's top individual salesman for the last
three years. "It was crazy."
And if customers used credit cards, the salespeople had to
pay MasterCard and Visa's retail fees. Talk about reverse incentives.
Mr. Urso boosted compensation and commissions to the sales force,
improved medical and retirement benefits and tossed out the
chargebacks. "We reignited our people," he says. "We
made life simple again. We got back to the basics of doing the
right thing." He listened to employees about problems that
irked them. The upright didn't have on-board tools. And they
wanted a hand-held rug shampooer to use as a door opener or
as a deal closer. (Hence the rousing applause at the sales meeting.)
Then there was the switch on the upright that broke too often.
"It cost us $2 more a unit to put in a new switch. If we
sell 100, 000 uprights, that's $200,000," Mr. Urso says
with a shrug. "We did it in the first 90 days." Electrolux
introduced a top-of-the-line, air-filtration canister vacuum
system, the Guardian. Backed by a 25-year warranty, the new
model is hell on wheels for those irritating dust mites, according
to independent testing. Mr. Urso swears straight-faced that
at $1,500 the Guardian is underpriced against comparable offerings
from door-to-door rivals Kirby and Rainbow. And he ontends that
its $850 models can compete with top-of-the-line sweepers offered
in retail stores. "But for us to be competitive in the
long haul, I need to have price receptiveness at many levels,"
he says. Electrolux is developing a new generation of cleaners
that will include a unit in the $600 range.
A map on Mr. Urso's office wall pinpoints 600 cities with Electrolux
sales branches. There's a heavy concentration of pins along
the Eastern corridor and throughout Canada, where more than
80 percent of sales take place. Texas, where people used to
say they "Hoovered" their floors, is a wide-open prairie.
"It's a wonderful growth opportunity," he says. Electrolux
is missing potential sales all over that map. Two out of three
customers contacted the company about buying a machine - not
the other way around. He'd like to double his sales troops by
2003, and that presents a challenge. "To be honest, there
aren't a lot of people who wake up and want to sell vacuums
door-to-door, OK?"
That's why compensation and training issues were so vital at
the outset. "My Number 1 problem is getting my sales organization
over the psychological hurdle of knocking on someone's door
and saying, 'OK, I can do this.' " Cheryl Hall is the financial
editor and columnist of The Dallas Morning News. Ideas at Work
is intended as a forum for ideas and opinions of interest.
PHOTO(S): (The Dallas Morning News: Mona Reeder) "We
reignited our people," Electrolux CEO Joe Urso said. "We
made
life simple again. We got back to the basics of doing the right
thing."
© 2000 The Dallas Morning News All Rights ReservedCheryl
Hall / Financial Editor of The Dallas Morning News, Making a
clean sweep: Electrolux's CEO continues torejuvenate vacuum
firm. , The Dallas Morning News, 01-09-2000, pp 1H.