Maytag Cleans Up With Shift to High End

If you build it, they will come.

Maytag Corp.--yes, the home of the lonely repairman--was lumbering along a decade ago making me-too appliances that, while reliable, fought constant price wars with rivals and generated sluggish sales and earnings growth. Maytag’s lackluster stock told the story.

“It was difficult to convince people that they should buy your product over another,” recalled Maytag Chairman Leonard Hadley.

Then in the early 1990s, Hadley and his crew had an idea: Why not build newly designed, more expensive washing machines, refrigerators and vacuum cleaners that utilized new technology and carried fancy features that made them stand out from the crowd?

It was a risky move to peddle machines with higher price tags, especially when “big-ticket” appliances aren’t cheap in any case. But rather than turning consumers off, Maytag’s products were quickly seen as innovative and worth the extra cash--and sales took off.

The result: Maytag’s profit and stock price have been soaring in the late 1990s. The Newton, Iowa-based company last year posted the best showing in its 106-year history, as sales rose 19% to $4.1 billion and net income surged 56% to $281 million.

In just the last four years, the company’s overall stock-market value has quadrupled to a current $6.2 billion. The stock closed Tuesday at $70.06 a share, down 50 cents on the New York Stock Exchange.

Maytag’s shares also have outperformed the benchmark Standard & Poor’s 500 index by better than 2 to 1 over the same period. The stock of rival Whirlpool Corp., by contrast, has climbed only 13% since mid-1995.

Maytag also claims to be finally gaining market share on Whirlpool and the other big appliance maker, General Electric Co., at least in the high end of the market. The most recent figures from Appliance magazine, for 1997, show Maytag’s share of overall U.S. shipments of major appliances holding steady at 15%, against 36% for Whirlpool and 30% for GE.

In any case, Maytag in the first three months of 1999 again turned in “a blowout quarter,” helped also by the thriving U.S. economy and last year’s decision by Sears, Roebuck & Co.--which handles about one-third of the nation’s home appliance sales--to carry Maytag brand products, analyst Robert Cornell of Lehman Bros. recently told clients.

Maytag, he added, “is continuing to bring out new products at high price points with features customers will pay for.”

Those products include not only appliances with the Maytag name, but Maytag’s stable of other brands, including Jenn-Air, Magic Chef and Admiral. The company also owns Hoover vacuum cleaners and Dixie-Narco, a leading maker of soda-pop vending machines.

Hadley, an Iowa native himself, said Maytag’s shift repeated the strategy that first made its brands popular many decades ago: “Selling an innovative product that performed its task better than the competition, for which one could charge extra money.”

Perhaps the poster child for the changes is Neptune, a front-loading washing machine that sells itself as more energy efficient than conventional washers--but that also sells for up to $1,100. When it was being considered, market tests showed consumers didn’t much like front-loading washers at home. And the price was double the average price of a U.S. washer.

“Yes, it was counterintuitive” to develop Neptune, Hadley said. But Maytag had one advantage, he said: It’s a big supplier of washers to laundermats and other commercial users, which liked the Neptune because it would pare their utility bills. Knowing it could expect strong sales to that group “made the gamble to sell the consumer product substantially less than it would have been,” he said.

The gamble paid off when Neptune debuted in 1997. The washer was a smash--it’s become a cult item among many upscale consumers, analysts say--and it spearheaded a 25% surge in Maytag’s home-appliance sales in just 24 months, to $3.5 billion last year from $2.8 billion in 1996.

Moreover, Neptune and the other new products fattened Maytag’s profit margin as planned, so that its home-appliance group’s operating income soared 82% during those two years, to $505 million in 1998.

Nearly all of Maytag’s appliance groups have been given the same design overhaul. “In fact, the fastest-growing revenue and earnings streams in the corporation right now have come from Hoover floor-care products,” Hadley said.

The company “has done just about everything right, and its fundamental recovery has been dazzling,” Merrill Lynch & Co. analyst Jonathan Goldfarb wrote in a recent report.

Hadley, though, is set to retire this summer at age 65 after a 40-year career at Maytag, so the job of extending Maytag’s momentum falls to his successor, Maytag President Lloyd Ward, 50.

Ward, a Michigan native and former PepsiCo Inc. executive, joined Maytag in 1996 and played a major role in getting Neptune and other new products to the market.

And he won’t be slowing Maytag’s pace, Goldfarb said, because the company this year will unveil more than 20 new products, or “twice the combined total of the past two years.”

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Big-Ticket Payoff

Maytag’s decision to build pricey yet innovative appliances has sparked a surge in its profit and stock price in the last few years. Monthly closes and latest on the NYSE:

June 1997: $26.50

Tuesday: $70.06, down 50 cents

Source: Bloomberg News