Milwaukee Electric to TTI

Wow! It has been incredible to watch, but today's news about Ryobi (TTI) buying the ATlas Copco power tool business including Milwaukee Electric Tool Company signals aonther huge step in the changing of an industry. This news is another huge step in the movement of the U.S. Tool business off-shore. There will be lots of fall-out from this acquisition and the Black & Decker acquisition of the Pentair Tool Group. It is going to be interesting to see what brands stay and what brands go as well as how they are positioned in the markets. STAY TUNED!

Prepare for the Coming Energy Boom in the U.S.

It seems like every morning I open my newspaper to read about ever higher prices for oil. In my mind, it hung like a dark cloud over our economy. Over the weekend, I began to see a silver lining. Having lived in Western Pennsylvania and Southern Illinois, I couldn't help but learn a little about energy production. In the early 80's, I remember listening to stories of producers shutting down wells not because their wasn't any oil left to pump but because it wasn't economically feasible at $25 per barrel. Now with oil at prices above $45 per barrel, I believe there will be a boom in the oil, gas and coal fields as entrepreneurs go after the reserves that now look profitable again and people look for other forms of energy production.

Our requirements for energy are not going to diminish. Technology for solar power, wind power and fuel cells aren't quite ready for prime time. Sufficient reserves exist in this country especially at current prices to meet our needs.

I think this bodes well for hand and power tool manufacturers as drilling and mining are large users of hand and power tools. Over the last 20 to 30 years, this has not been a very active segment of our economy, but I think it is very possible that we may experience a boom in this segment very shortly.

Want to buy a looser?

Yesterday the news reported that Toys-R-Us wants to get out of the toy business and concentrate on baby merchandise because they aren't making any money on toys. It seems that Wal-Mart is too much competition for them. This is really strange as it makes you wonder why they think they can be any better at baby merchandise if Wal-Mart and Target are going after that market as well. Even the announcement causes one to pause and ask, "Why would someone want to buy a looser and go through the same thing Toys-R-Us is currently experiencing?" Certainly, if they want to sell, it would make more sense to find a way to put some lipstick on the pig and make it more attractive to prospective buyers.
As I was thinking about Toys-R-Us, my mind raced ahead to thinking about the power tool industry. TTI has become the Wal-Mart of the power tool manufacturing industry. Pentair put some lipstick on their Tool Group and sold it to Black & Decker. Meanwhile Atlas-Copco is trying to sell their power tool companies including Milwaukee Electric Tool Company. While no one has actually said it, could it be that Pentair and Atlas-Copco weren't making a decent return on power tools and decided to sell out without telling the world why like Toys-R-Us did?

Books for bringing the next level of democracy to organizations

I am just finishing the book "Presence" by Peter Senge, C. Otto Scharmer, Joseph Jaworski and Betty Sue Flowers. If you can cut through some of the early "hug-a-tree" stuff, there is a gold mine of information to think about as it relates to the demonstrated failures or so many of our institutions and the possibility that exists for making them better by looking at the Whole rather than the parts. This work is a logical extension of the work of Dee Hock in "Birth of the Chaordic Age" and the work of Margaret Wheatley in "Leadership and the New Science."
If you are in a leadership role today and thinking about the future of your organization, I highly recommend these books for your reading list.

Hardware Thoughts

The last couple of days, I have called a number of people in the industry to try and find out what people are thinking. Most are still struggling with the price of steel. Some took price increases earlier and now realize the increase wasn't big enough to cover the latest increases. Others have held off and are now faced with the need to increase. Acceptance may be more difficult in the Industrial and Automotive area as those segments have not been as strong as Hardware. (One friend reported that at least one GM supplier closed his doors when he could not get a price increase based on increased steel prices.) Another manufacturer reported difficulty getting steel outside his regular contract.

Rising oil prices are going to have an impact on our business. Not only can we expect higher freight costs, but we can expect increases in energy intensive products as well as expecting other forms of energy to cost more as demand is increasing across the board. As we look at rising energy costs, it is going to be extremely difficult to go back and get another increase anytime soon.

I have also been talking to folks about the Hardware Shows. There is no excitement about returning to Chicago in 2005. Some are considering Las Vegas, but more companies are looking at Functional Shows like the World of Concrete, the Builders Show, etc. My guess is that most of the activity will center on these functional shows until someone comes up with some kind of show that will draw the 20,000 hardware store owners.

Power Tools and Buggy Whips

The sale of the Pentair Tool Group has been on my mind for the last couple of weeks. Finally the pieces started to come together and my old paranoia helped me make this comparison.
First, you have to understand that I started my working career in the textile industry and watched that business move off shore. Then I moved to the bicycle industry and watched that move off shore as well. So my current views are tainted by what I have seen before.
For those of you who are subscribers to my newsletter, you may remember my article about TTI, "The Prototypal Chinese Manufacturer." That article was my first clue that something is going on in this industry. My next clue came several months ago when Atlas Copco announced it's intention to sell off it's power tool division including the power house brand Milwaukee Electric Tool Company. Finally, the sale of the Pentair Tool Group to Black & Decker sealed the thinking.
Power Tools have been the whipping boy of the hardware industry for some time now. They have been used as price leaders to get people into the stores for so long that I doubt anyone is making any money. Several years ago, I was talking to people at Skil-Bosch about a new battery powered tool and they told me that inorder to maintain their volume with the retail community that it was imperative that they reduce prices by 10% to 15% every year. New products were critical, but so was the ability to cost reduce the products.
The rise of TTI, the sale of Pentair Tool Group to Black & Decker and the offering of the Atlas Copco Power Tool Division all lead me to believe we are watching the demise of another domestic industry. High volume power tools produced in the United States are rapidly becoming a thing of the past.
The good news in this is that our cost to purchase power tools may in fact continue to decline. The other piece of good news is that there will probably be an opportunity for manufacturers to produce high quality, niche products in this country as the far east will concentrate on high volume, long lead time products. At least that has been what has happened in other industries that I have watched.