Our vision is for Electrolux to be the world leader in consumer durables for indoor and outdoor use, with a selected range of corresponding products for professional users. Through good growth and profitability, Electrolux shall create value for shareholders as well as for consumers, business partners, and employees. Value creation is our measure of operational performance within the Group, and is monitored for each sector, product line, and region.
Electrolux AB operates as the largest appliance manufacturer in the world with customers in more than 150 countries. The company manufactures a variety of household appliances including refrigerators, washing machines, dishwashers, ovens, vacuum cleaners, lawn mowers, and chain saws. The firm also manufactures professional foodservice and laundry equipment used by hotels, restaurants, and laundromats. Electrolux's brand arsenal includes its namesake, along with Eureka, AEG, Frigidaire, Kelvinator, Zanussi, Flymo, Weed Eater, and Husqvarna. In 2001, the firm held the leading market position in North America, Europe, Latin America, and Australia. Electrolux completed a major restructuring effort in 1999, which left it positioned with two main business segments: Consumer Durables and Professional Products. In 2000, the company purchased the rights to market the Electrolux brand in the United States--the company had sold the brand along with its U.S. floor-care business in 1969.
Beginnings in Vacuum Cleaners
The Electrolux empire originated with the perspicacity and 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 the building blocks for the future Electrolux, Lux and Elektromekaniska AB, were already in place.
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 introduction of electric lighting, Lux head, C.G. Lindblom, proposed to Sven Carlstedt that the two companies form a joint venture for the production and marketing of a new vacuum cleaner.
In 1912 Wenner-Gren became the agent for the Lux 1 vacuum cleaner in Germany, subsequently taking on the United Kingdom and France. Over the next few years Wenner-Gren's role in the company grew, and 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, he overcame their reluctance by guaranteeing a minimum sales figure through his own sales company, Svenska Elektron (later known as Finans AB Svetro).
Lux and Elektromekaniska merged in 1919 as Aktiebolaget Elektrolux (the spelling was changed to Electrolux in 1957). Wenner-Gren became president and a major shareholder of the new company. In 1921 the Lux V was introduced. This new model resembled a modern cylindrical vacuum cleaner, but it glided along the floor on ski-like runners instead of wheels. The Lux V 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 Electrolux's president 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 in 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 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 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, first in Berlin in 1926 and a year later in Luton, England, and Courbevoie, France.
By 1928 Electrolux had sales of SKr 70 million. It had five manufacturing plants, 350 worldwide offices, and 20 subsidiaries. In spite of this geographic expansion, the company was often short of funds, in part because of the system of payment by installments. It became clear that further growth would require increased capital, and 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 owned by Wenner-Gren, 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, however, were to prove unfounded.
Diversifying into Refrigerators in the Mid-1920s
During the 1920s Electrolux introduced a number of new products, including floor-polishers, a natural progression from vacuum cleaners, which were brought out in 1927. The main diversification of the 1920s, however, 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 as opposed to the compression method of refrigeration, which relies on electric power. Early compressors were noisy and bulky, so the new Electrolux system had several advantages over its competitors' 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 to install a central research laboratory.
In 1926 Wenner-Gren became 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, succeeded Aurell in 1930 and remained president throughout the 1930s.
With intensive marketing and continued investment in research and development, Electrolux rode out the Great Depression. By 1939 annual sales stood at SKr 80 million. In 1939 Gustaf Sahlin, former president of the United States Electrolux Corporation, took over the presidency of the parent company from Faulkner. Throughout World War II, despite the loss of some manufacturing plants, Electrolux managed to maintain 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 became president in 1951, and from 1963 to 1967 under his successor Harry Wennberg. The period was not without setbacks, however. Many subsidiaries that had been opened in Eastern European countries before the war disappeared from view behind the Iron Curtain. In addition, 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 that consumers were now demanding. Although at first the company concentrated on improving the design of the absorption refrigerator, Electrolux eventually was obliged to adopt compression technology.
Meanwhile, diversification continued. During the 1950s Electrolux started making household washing machines and dishwashers, and floor-cleaning equipment production was extended to an increasing number of countries, including Brazil and Norway. When, in 1956, Axel Wenner-Gren sold his remaining shares in Electrolux to Wallenberg, a Swedish finance group, annual turnover exceeded SKr 500 million. The association with Wallenberg has often stood Electrolux in good stead, helping, for example, to arrange overseas funding and to insulate the group from any hostile takeover bids.
In 1962, in an attempt to solve its refrigerator problems, Electrolux bought the Swedish firm of ElektroHelios. This firm, founded in 1919, had a major share of the Scandinavian market in compressor refrigerators and freezers, as well as making stoves. In the year following the acquisition, Electrolux launched a wide range of food-storage equipment, putting it in a strong position to benefit from the demands generated by the flourishing frozen food industry.
Major Acquisitions: Late 1960s-80s
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 Werthén was recruited from Ericsson, another member of the Wallenberg group of companies. Werthén remained with Electrolux for more than 25 years, first as president, and from 1975 to 1991 as chairman, with Gösta 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.
When Werthén took over management of the Electrolux group the company was 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 Werthén's own words, "they represented 125 percent of the profits."
Approaching the problem from a new perspective, Werthén 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 U.S. appliance factories. Werthén believed that Electrolux's problems could not be overcome simply by operational improvements. The company had a more fundamental problem: size.
As Werthén saw it, Electrolux was neither small enough to be a niche player, nor large enough to gain the economies of scale it needed to compete with such giants as Philips and AEG. Growth was the only way forward, and in the overcrowded market place for household goods, growth meant acquisitions.
The initial focus was on Scandinavia. One small competitor after another, many of them struggling for survival, was bought up by the growing company. The Norwegian stove manufacturer Elektra, the Danish white goods company Atlas, and the Finnish stove maker Slev 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 reemergence of the absorption refrigerator. The quiet-running units were ideally suited to installation in smaller living spaces, such as mobile homes and hotel rooms. Electrolux managers soon sensed these new opportunities. After taking over competitors Kreft (of Luxembourg) and Siegas (of Germany) in 1972, the group became world leader in this sector.
In addition to expanding its share of the company's existing markets, Electrolux soon started to see acquisitions as a way of entering new areas, particularly those related to existing product lines. Electrolux acquired the British lawn mower manufacturer Flymo in 1968 because Werthén saw lawn mowing as an activity allied to floor cleaning. The provision of cleaning services seemed a logical extension to the production of cleaning equipment, prompting 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--including the U.S. firm Poulan/Weed Eater in 1986--enabled Electrolux to claim leadership of the worldwide chainsaw market. The outdoor products sector was further strengthened and broadened through the acquisitions of American Yard Products in 1988 and of Allegretti & Co., a U.S. maker of battery-driven garden tools, in 1990.
This program of acquisitions brought some more radical departures from existing product lines. In 1973 Electrolux bought Facit, a Swedish office equipment company. The deal also brought to Electrolux the production of Ballingslöv kitchen and bathroom cabinets. Initial doubts about whether Electrolux had the know-how to manage a high-tech company proved unfounded.
The purchase of Swedish metal producer Gränges was greeted with equal skepticism, since again the connection between the new and existing businesses appeared to be rather tenuous. Gränges was seen as a troubled company, but when Electrolux bought it in 1980, Werthén had already been chairman of its board for three years and had overseen a marked upturn in its fortunes. Gränges became part of Electrolux in 1980, and by the late 1980s Gränges' aluminum products and car seat belts represented a major aspect of Electrolux's business, although other parts of Gränges were sold off.
Under the presidency of Anders Scharp, which began in 1981, Electrolux's program of acquisitions began to focus on the consolidation and expansion of existing lines. Takeovers became increasingly ambitious as Electrolux saw within its reach the chance to become one of the world leaders in household appliances. Major steps toward this goal were the acquisitions of Zanussi in Italy, White Consolidated in the United States (the third largest white goods company in that country), and the white goods and catering equipment divisions of the United Kingdom's Thorn EMI, in 1984, 1986, and 1987, respectively.
Through the years, Electrolux gained a reputation for buying only when the price was right and for turning around sick companies, even at the cost of heavy staff cuts and management shake-ups. As the Wall Street Journal pointed out in 1986 in a piece about the acquisition of White Consolidated, the group balance sheet looked unhealthy immediately after some of the larger acquisitions, showing an equity-asset ratio as low as 21 percent.
Electrolux bounced back confidently, making divestments as well as acquisitions. One of Werthén's earliest acts as president had been the 1968 sale of AB Electrolux's minority shareholding in the United States Electrolux Corporation to Consolidated Foods, which raised SKr 300 million, although the subsequent Eureka purchase had placed the company in the curious position of competing against its own brand name. Management continued this policy of judicious divestment 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 was through the sale of assets, although Electrolux acquisitions were not primarily motivated by a desire to strip assets. In the case of Husqvarna, the purchase price of SKr 120 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 was 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 was delighted to hear Electrolux knocking on its door. Many a takeover was resisted by the target company, although Electrolux was also sometimes called in to rescue a troubled company (as happened with Zanussi) or asked to act as a white knight (notably for the U.S. household appliance company Tappan in 1979).
Geographic Expansion and Restructurings in the 1990s
The 1990s brought major changes to Electrolux, spearheaded by a new management team. Werthén resigned as chairman in early 1991, Scharp became chairman and CEO, and Leif Johansson was named president of the firm, taking over as CEO himself in 1994. During Werthén's long reign, Electrolux had grown tremendously through acquisitions but had failed to effectively consolidate the acquired operations into existing ones. The result was an unwieldy array of brands, each of which needing the support of separate production and marketing operations. Electrolux was further hurt in the early 1990s by an economic downturn in its core European and North American operations and by the maturing of the white goods sectors in those same markets, which intensified competition. All told, profits for Electrolux from 1990 through 1994 were much lower than the heights reached during the late 1980s. The new management team responded by seeking out new markets for its core products, by gradually divesting its noncore industrial products operations, and by streamlining its remaining business units.
Electrolux targeted Eastern Europe, Asia, South America, the Middle East, and southern Africa in its 1990s push for global growth. The company had already, in 1989, arranged for Sharp Corporation to distribute some of Electrolux's products in Japan. Subsequent moves in Asia included the setting up of joint ventures in China for the manufacture of compressors, vacuum cleaners, and water purifiers, and the acquisition of majority stakes in refrigerator and washing machine factories in India. In January 1996 another Chinese joint venture was established for the production of refrigerators and freezers for commercial users. The newly opened markets of Eastern Europe were first targeted with the 1991 purchase of the Hungarian white goods company Lehel. A 1995 joint venture with Poland's Myszkow FNE Swiatowit began making washing machines under the Zanussi brand. In Latin America, where Whirlpool was dominant, Electrolux acquired 99 percent of Refrigeraçao Paraná S.A. (Refripar) in 1996. Refripar (soon renamed Electrolux do Brazil) held the number two position among Brazilian white goods companies. Also in 1996, Electrolux purchased a 20 percent stake in Atlas Eléctrica S.A. of Costa Rica, the leading producer of refrigerators and stoves in Central America. By 1994, about 10 percent of Electrolux's sales came from outside the European Union and North America. This figure more than doubled by 1996 to 20.4 percent, with non-EU Europe accounting for 7 percent, Latin America for 6.4 percent, Asia for 5.1 percent, Oceania for 1 percent, and Africa for 0.9 percent.
While undergoing this global expansion, Electrolux also moved gradually to concentrate solely on three core sectors: household appliances, commercial appliances, and outdoor products. Profits in the company's industrial products sector were falling and Scharp and Johansson determined that these noncore operations should be jettisoned. The culmination of this process came in 1996 and 1997, with the divestment of the Constructor group, producers of materials-handling equipment; the sale of the Swedish electronics operations of Electrolux Electronics, and a sewing machines unit; and the spinoff of Gränges to the public. The final divestment came in August 1997 when Electrolux's goods protection operation, which sold tarpaulins and storage halls, was sold to MVI, a privately owned investment fund.
Electrolux greatly reduced its acquisitions activity in the European Union and North America in the 1990s, although there was one major addition. In 1992 the company bought a 10 percent stake in AEG Hausgeräte, the household appliance division of Germany's Daimler-Benz. This stake was increased to 20 percent in 1993 and the following year Electrolux purchased the remaining 80 percent for about US$437 million. The purchase brought the company another strong European brand, which fit well into a renewed brand strategy for Electrolux. The company sought to position the Electrolux brand as a global brand and Electrolux, Zanussi, and AEG as pan-European brands, while continuing to maintain strong local brands such as Faure in France and Tricity Bendix in the United Kingdom.
Along with the new brand strategy, Electrolux began in 1996 to reduce its fragmented operations and become more efficient. A pan-European logistics function was set up for white goods and floor-care products. In late 1996 the company's North American white goods operation, Frigidaire Company, was combined with the two North American outdoor products companies, Poulan/Weed Eater and American Yard Products, to form Frigidaire Home Products. Merging these operations made strategic sense since the trend in retailing was toward single retailers selling both indoor and outdoor appliances. Similar consolidations were planned for Electrolux's operations elsewhere in the world.
In April 1997 Johansson left Electrolux to become the chief executive at Volvo AB. Replacing him as Electrolux president and CEO was Michael Treschow, who had been president and CEO at Atlas Copco AB, a maker of industrial equipment and, like Electrolux, part of the Wallenberg dynasty. It was left to Treschow to announce, in June 1997, a major restructuring plan, which had already been agreed upon before he took over. Over a two-year period, Electrolux would lay off more than 11,000 of its workers (11 percent of its workforce) and close 23 plants and 50 warehouses (half of its global total), with the reductions coming mainly in Europe and North America. A charge of SKr 2.5 billion (US$323 million) was incurred as the result of the restructuring in the second quarter of 1997.
Under the leadership of Treschow, Electrolux further streamlined its operations in 1998, divesting its recycling business, its kitchen and bathroom cabinets interests, and various professional cleaning and heavy-duty laundry equipment units. The following year, the firm sold off its food and beverage vending machine businesses and its professional refrigeration equipment business. That year, Electrolux nixed a large portion of its direct sales force.
The company completed its restructuring efforts in 1999 and began to focus on maintaining its leadership position in the future. Treschow was confident that the firm's efforts would pay off, claiming in a 1999 Appliance Manufacturer article that the company was "ideally placed to meet the challenges of the new millennium." To back up that claim, the company began to develop new products that utilized cutting edge technology. In 1999, it teamed up with Ericsson to develop and market products for the "networked home." Managed under the joint venture, e2Home, these products would be connected via the Web to a variety of information and service providers. Another product line, the Live-In Kitchen, connected appliances to mobile phones, which among other features, allowed the owner to preheat their oven from their cell phone. As part of its foray into new technology, Electrolux also developed the Trilobite vacuum cleaner, a robotic product that used sensors to vacuum a room, and a Smart Fridge, a top-of-the-line refrigerator complete with built-in computer screen and Internet access.
Focusing on Brand Alignment in the New Millennium
By 2000, both sales and net income had increased steadily over the past three years. Sales had grown from SKr 113 billion to SKr 124.4 billion. Net income also had recovered, skyrocketing from SKr 352 million recorded in 1997, to SKr 4.4 billion secured in 2000. During that year, the company repurchased its rights to the Electrolux brand in North America, which it had sold in 1969 upon divesting its U.S. floor-care company. The purchase was part of its plan to align its brand names, especially in North America.
The company's operating environment became turbulent in 2001. Weakening demand and high costs related to upgrades at its refrigerator factories in North America forced the firm's operating income to fall by nearly 23 percent over the previous year. Despite these challenges, the company made two key acquisitions, including Email Ltd., Australia's largest household appliance manufacturer, and Italy-based Marazzini, a lawn mower manufacturer.
In April 2002, Hans Straberg took over as president and CEO as Treschow left the firm to head up Ericsson. Under new leadership, Electrolux shifted its focus from cost cutting to brand realignment. At the time, the company managed more than 50 different brands. The Economist reported in April 2002 that the company realized that "rationalizing the brands can be dangerous if done too quickly--so the rebranding will be more evolution than revolution. The Electrolux name will become the master brand, but the company will keep strong local brands, such as the Flymo lawnmower in Britain."
Facing strong competition and uncertain economic times, Straberg most definitely had his work cut out for him. Although the repositioning of the Electrolux brand name would no doubt face challenges, the company appeared to be well on its way to maintaining its leadership position in the appliance industry in the years to come.
Principal Subsidiaries: Electrolux Home Products Pty. Ltd. (Australia); Electrolux Hausgerate GmbH (Austria); Electrolux Home Products Corp. N.V. (Belgium); Electrolux do Brasil S.A. (99.9%); Electrolux Canada Corp.; Electrolux Home Appliances Co. Ltd. (China); Electrolux Holding A/S (Denmark); Oy Electrolux Ab (Finland); Electrolux France S.A.; Electrolux Deutschland GmbH (Germany); Electrolux Kelvinator Ltd. (India; 76%); Electrolux Zanussi S.p.A. (Italy); Electrolux de Mexico, S.A. de C.V.; Electrolux Associated Company B.V. (The Netherlands); Electrolux Norge AS (Norway); Electrolux Espana S.A. (Spain); Husqvarna AB; Electrolux Professional AB; Electrolux Holding AG (Switzerland); Electrolux UK Ltd.; Electrolux Home Products Inc. (U.S.A.); Electrolux North American Inc. (U.S.A.).
Principal Competitors: BSH Bosch und Siemens Hausgeräte GmbH; GE Consumer Products; Whirlpool Corporation.