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Newell Rubbermaid Destroys a Growth Mode – Case Summary November 2, 2006

Posted by Laxmi Goutham Vulpala in case studies, Uncategorized.
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Background

Newell Rubbermaid was formed in 1999 when Newell acquired Rubbermaid, a competitor for $6.3 billion. Prior to the acquisition until the 1990’s Rubbermaid was growing very strongly with the stock routinely returning 25% annually, but it began faltering in mid 1990’s partly because of its inability to meet the service demands from Wal-Mart its major customer. Newell specialized in buying small marginal firms and improving their operations, it focused on buying firms that had a strong brand name but mediocre customer service.

Newell’s assessment was that Rubbermaid was a troubled company and by improving its operations and customer service up to Newell’s performance standards they could enhance the profitability and deliver value to the shareholders. Newell’s plans never materialized after the acquisition as it could not turn around quickly which led to the tanking of stock price leading to a loss of around 50% of the company’s value.
Mistakes

Newell underestimated the problems at Rubbermaid prior to the acquisition, though they used a similar strategy of acquisitions earlier, the size of these firms was small compared to the size of Rubbermaid. Rubbermaid’s on time delivery problems to their biggest customer Wal-Mart surfaced in 1995, in spite of spending around $62 million in technology they could not appreciable improve their delivery provides the most damning indictment of its operations. Newell’s eagerness to acquire a strong brand caused them to overlook the deficiencies at Rubbermaid and overestimating Rubbermaid’s value and synergies the merger would offer.
Lessons Learnt

Rubbermaid did not provide adequate service to its biggest customer Wal-Mart and took too long to correct the situation. When dealing with big retailers Brand Name only goes so far, meeting their service and delivery standards is absolutely essential for the success for a manufacturing company.

Big acquisitions should not be done in haste; enough research needs to be done about the state of the company being acquired and the potential savings and synergies that will result from the acquisition.

Once the firm retracts from growth mode it is difficult to get back on track as it is evident from Newell Rubbermaid, which even after the hiring a high-profile marketing CEO could not turn around the company.
Case Source (Marketing Mistakes and Sucesses Hartley)

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Newell Rubbermaid’s customer service is based on a confrontational approach to dissatisfied customers by CSR’s working from a script and not thinking about what they are saying. When these CSR’s are frustrated, even supervisors, the customer is targeted with hostile interrogation and asked to answer several times questions which have already been posed. Makes it very hard to be loyal to this brand.

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Newell Rubbermaid Destroys a Growth Mode


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