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Newell Rubbermaid (NWL)Stock (Consumer Products Industry, Housewares & Accessories Industry, Real Estate Industry)
 Since 2004, Newell Rubbermaid has completed 15 strategic acquisitions and divestitures[2] and outsourced 75% of production to China.[3] However, in the first quarter of 2008, macroeconomic conditions like slowing U.S. consumer spending and a 22% increase in the cost of resin[4] have driven up costs and decreased potential revenue, ultimately causing its gross margin to drop 10 basis points compared to the first quarter of 2007.[5] Rising costs are linked to a larger trend of raw material inflation, especially of oil, the basic raw material used to make plastic. Also, Newell Rubbermaid changes its prices only twice per year, and most of its pricing decisions reflect the demands of its large retail customers, like Wal-Mart.[6] [edit] Business Overview [edit] Structure
 [edit] Geographic DistributionAs of 2007, approximately 72% of Newell Rubbermaid's revenue comes from the United States, but the company has been taking steps to expand into new markets and reduce its dependence on American consumers. For instance, Newell Rubbermaid’s 2008 acquisitions, Aprica and Technical Concepts, are part of a larger effort to enter international marketplaces. The acquisition of Aprica, a Japanese car seat and stroller manufacturer, is intended to serve as a "springboard" for expanding into the parenting products market in Asia. Technical Concepts, an “away-from-home” washroom hygiene product provider, already gets 40% of its revenue from outside the United States.[10]  [edit] Growth Strategy[edit] Acquisitions and DivestituresSince 2004, Newell Rubbermaid has made 11 divestitures and 4 acquisitions. [12] The divestitures targeted under-performing units and got rid of redundant products or brands. For instance, the sale of European Cookware in January 2006 let the company focus on its stronger Calphalon cookware brand. [edit] Outsourcing ProductionFor seven years, Newell Rubbermaid has outsourced manufacturing to suppliers in developing countries in order to cut costs. From 2001 to 2008, the percentage of goods produced in China rose from 25%[13] to over 75%.[14] In the same time period, Newell Rubbermaid reduced the number of manufacturing facilities under its direct control from 136 to 35,[15] maximizing the benefit of economies of scale. [edit] Trends and Forces[edit] The cost of resin, a critical oil-based input, rose 22% between 2007 and April 2008.As oil costs rose 57% from 2007 to 2008, Newell Rubbermaid has been impacted on two fronts: production and distribution.[16] For one, the price os resin rose 22% between April 2007 and April 2008,[17] accounting for over 10% of Newell Rubbermaid’s total production costs in the first quarter of 2008.[18] Simultaneously, the rising cost of oil drives up transportation costs, functionally undermining the benefit of outsourced manufacturing. Since Asia provides around 75% of Newell Rubbermaid's goods, but less then 4% of revenue, the company has no choice but to transport goods over long distances from manufacturing centers to markets. Moreover, because Newell Rubbermaid only revises product prices every six months (January and July), any unanticipated input cost inflation cuts into the company's gross margin until the company's next opportunity to raise prices.[19] [edit] Newell Rubbermaid's reliance on a few major, high-volume customers limits its ability to raise prices to match costs.Newell Rubbermaid's top 10 customers include “big box” commercial retailers like Wal-Mart, Target, Office Depot, and Home Depot.[20] Wal-Mart, Newell Rubbermaid’s largest customer, has accounted for 12-13% of total sales from 2005[21] to the present.[22] The consolidation of the retail industry into a few major stores has given retailers a bargaining advantage, encouraging price competition between suppliers and making it harder for Newell Rubbermaid to maintain its profit margins.[23] For instance, when resin costs tripled between 1994 and 1996, Rubbermaid’s attempt to raise prices to maintain its gross margin caused Wal-Mart, its largest customer, to backlash and replace Rubbermaid products with those of a competitor. Rubbermaid lost millions and was driven into a merger with Newell by 1999.[24] Moreover, when faced with low discretionary spending, large retailers promote their own private label goods to compete directly with Newell Rubbermaid's branded products.[25] [edit] Newell Rubbermaid’s revenue fluctuates with the economy, since it relies on discretionary consumer spending.In May 2008, 54% of consumers stated that they would spend less on discretionary items in coming months, which includes most of Newell Rubbermaid's products. [26] In economic downturns, consumers either delay the purchase of discretionary goods or opt for cheaper alternatives, like private label products. As a result, Newell Rubbermaid's total operating income in the first quarter of 2008 dropped 8% compared to the first quarter of 2007.[27] This year-over-year decline in operating income resulted largely from a 15.9% drop in Cleaning, Organization, and Décor and 2% drop in in Office Products -- two business segments featuring almost entirely discretionary and substitutable goods.[28] [edit] CompetitionCleaning, Organization, and Décor
Tools and Hardware
Home and Family
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