General Electric’s decision to sell its major appliance business may not have been a surprise to the industry, but it was to me. Maybe I was just distracted from our Top 100 CE Retailers report and the tons of breaking news this week, but I shouldn’t have been surprised.
Back in 1984 everyone was shocked that GE would sell its housewares business, to Black & Decker of all people, a tool company. And of course who could forget GE’s purchase of RCA and subsequent spin-off of the GE and RCA consumer electronics businesses to Thomson a few years later?
So I’m not waxing nostalgic about the end of GE’s 100-year run in major appliances. Instead, what we have here is a classic example about what has changed in American business.
Last month GE reported a 5.9 percent drop in net income for the first quarter, which was unexpected since a few weeks earlier it had projected better earnings. It also lowered projected earnings for the year.
Jeff Immelt, GE’s CEO and a veteran of the GE Appliance business, got hammered by Wall Street analysts and its investors, who sold enough stock that GE experienced its biggest one-day sell off in 20 years, according to the Wall Street Journal. Not to mention former GE CEO Jack Welch jumped in to pile on with second-guessing.
Immelt addressed Brand Source’s convention in August 2003. Of course it is almost five years ago, but look what he said about GE Appliances then: “We have no interest in selling… No one out there can run the business better than we can.” And he added that there is “room for improvement” Immelt wanted to “keep it in the family – a GE business.”
Within days of the earnings report last month the rumor mill kicked off as senior editor Alan Wolf noted in his blog. Wolf questioned the wisdom of GE selling its appliance business. He commented that if GE management decided to get rid of majaps, “How quick are they to forget the appliance industry’s record 10-year run,” due in large part to the housing market.
It seems General Electric could forget pretty quickly. Like the rest of the industry, its appliance business has taken a hit by the housing market, increased costs of raw materials and higher energy costs. You’d think a giant like this could ride out the storm. Guess again.
Immelt said in today’s statement on the sale that GE Appliances remains primarily a “U.S. business.” GE Appliances needs to get “the global reach and investment required to compete more effectively.” Why didn’t GE do that itself years ago? Was the company just living off of the U.S. housing boom of the past decade and not looking to other markets for growth?
GE needed to show it was doing something, anything, to appease the sharks on Wall Street and rebuild its stock price, which is what all of this is about. So they have thrown GE Appliances under the bus, a business that has annual revenues of $7.2 billion, around 4 percent of General Electric’s annual revenues of $173 billion. (Profits last year for the corporation were $23 billion.)
After The Wall Street Journal broke the story, Wall Street was not impressed. GE’s stock price fell the next day. Another division or three may have to be sold to get GE’s stock price back to where Wall Street wants it.
As for the effects of a sale or spin-off of GE Appliances, it could be profound for the industry and for independent retailers. As Wolf said in his blog, and Bob Lawrence, CEO of Brand Source told TWICE, just the loss of GE Appliances’ logistical support could “impact a lot of retailers.”
And as Lawrence, an ex-Maytag employee told TWICE yesterday, “After all the years I spent with Maytag, to see great American companies like this disappear… it’s staggering.”
It is staggering, but unfortunately, not unexpected.