B&O Restructures, Cuts Costs;

Bang & Olufsen of America left largely unscathed, sees gaines

By Joseph Palenchar -- TWICE, 10/22/2008

UPDATE! Struer, Denmark — Bang & Olufsen announced a worldwide reorganization and cost cuts of $28.1 million in the current fiscal year to restore profitability, but Bang & Olufsen of America (BOA) went largely unscathed and expects to gain from accelerated A/V product development and other benefits promised by the restructuring, BOA president Zean Nielsen said.

The Danish parent’s restructuring won’t slow down the pace at which BOA is opening new B&O-branded stores in the U.S., Nielsen added. BOA is on target to expand its store count by five per year, having recently opened one store in Washington, D.C., and expecting to have four more up and running before February, he told TWICE. The current store count is 53.

The restructuring follows two quarters of net losses and a worldwide sales decline of about 7 percent in the fiscal year ending May 31 to around $707.4 million. The previous year, the company posted the highest sales in its 83-year history. B&O sales continued to drop in the current fiscal year’s first quarter, ending Aug. 31, with a decline of 18.3 percent to $132.2 million. During the quarter, the company posted a $10.2 million loss before taxes compared with a year-ago $9.9 million profit. The company posted a minor loss in the previous quarter, a spokesperson said. Dollar figures are based on conversion rate of $1 to 5.69 Danish kroner.

Almost all of the personnel reductions made by B&O occurred at the company’s Denmark offices and production facilities, with BOA suffering only a “small” headcount reduction in its logistics department, BOA’s Nielsen said. That reduction was driven by a new logistics process that will also accelerate delivery times of out-of-stock products ordered by U.S. dealers, Nielsen said.

As part of the worldwide restructuring, B&O this week announced the immediate layoff of 165 employees in Europe, the reduction of 135 more staff positions through attrition and leaving open positions unfilled, and the consolidation of seven independent sales organizations around the world into one organization. The single organization will adopt “a uniform sales system with clear guidelines, action plans, and follow-up tools,” a company statement said. The consolidation will also merge each sales organization’s back-office and service functions, add a shared in-house business school to train the organization’s salespeople, and enable sharing of expertise among each of the seven organizations’ dealer-training staffs.

B&O president/CEO Karl Nielsen, who joined the company Aug. 1, also announced these plans to bolster future profits:

reducing the number of digital platforms per core category in future products to accelerate product development and increase sales and marketing efficiencies. In TVs, he said, B&O has “four fundamentally different technologies.” In the future, BOA’s Nielsen added, the company will build TVs on “global platforms,” allowing for sales of a particular model in all countries with only minor modifications. The company will remain in the plasma and LCD TV markets, he added.
focusing R&D resources on three core categories — TV/video, audio (home and OEM car), and home integration – to deliver higher profits from fewer product categories and to accelerate product development.
easing out of such non-core product categories as MP3 players, cellphones, DVD players and standalone hard-drive recorders. These products account for only about 5 percent of total sales. Among these products, only MP3 players and cellphones are available in the U.S.

At the retail level, the company will focus greater resources on B&O-branded stores “with the strongest growth potential,” while other stores “will also be given renewed attention when resources are available,” the company said in a written statement. The strategy, explained BOA’s Nielsen, will funnel more resources to opening stores in countries whose economies are growing strongly, including Russia and China, but will not scale back BOA’s plans for opening new stores.

The company plans to double the number of stores in such growth markets as China and Russia within the next two years. The China store count is currently 20, and 16 stores currently operate in Russia.

The company sells through more than 1,200 B&O-branded stores around the world, some located within other stores, and most operated by licensees.

B&O also appointed a new corporate management team under Nielsen and is searching for a new product development director and a top-level marketer.