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Things Look Up at Philips' North American Headquarters

Posted on: Thursday, 16 March 2006, 15:00 CST

By Bill Husted, The Atlanta Journal-Constitution

Mar. 16--During the dark winter days of 2003, the North American headquarters of Philips Consumer Electronics faced an ultimatum: Improve sales or fold.

The publicly announced edict scared employees at the Atlanta headquarters. It did nothing to soothe the nerves of always-jittery retailers. Who wants to stock products from a company on the edge of extinction?

What the headquarters needed was a miracle worker. What it got in January 2004 was a modest, plain-speaking Dutchman named Reinier Jens as its new chief executive.

Being Dutch is a plus when dealing with top brass at the company's global headquarters in the Netherlands, he said.

"It's easier for me to tell them no," he said.

His reputation back in the Eindhoven headquarters is as a trusted international trouble-shooter skilled at turning around troubled units.

"There has to be a lot of trust when you are thousands of miles away," he said.

The trust seems to have paid off. Today the North American headquarters has undergone a transformation. Philips' flat-screen TVs are in the No. 1 position on sales charts in at least two categories. The company finished 2005 as the North American sales leader for LCD televisions and in fourth position for plasma TVs, according to DisplaySearch, an industry research firm in San Diego.

In an interview at Philips' offices in Perimeter Center East, Jens said much of the foundation for the turnaround was in place when he arrived.

"A lot of things were already happening," he said.

Painful cuts had been made, for instance. About 113 jobs were eliminated in 2003, and further cuts pared the staff to its current level of about 250.

But Philips still needed to invigorate North American sales. Jens came in asking questions. He likes simple answers.

"The simplicity part is very much me," he admits. "If I don't get it, I ask again."

One of his questions: How could the headquarters efficiently manage so many different products?

"We had 600 to 700 different products at the time; no one can keep up with all that," he said.

He narrowed the product line to 150 or so. Jens used a simple rule: "If it is unprofitable, it has to go."

Instead of eliminating entire categories of products, Philips removed the least-profitable products in a category. After the winnowing process, Philips was offering five DVD players instead of 15, four personal CD players instead of 13.

Jens said he made decisions with the idea of increasing profits, not cutting costs. One high-profile example: The company is sticking with a 20-year deal, inked in 1999, that puts its name on the downtown Philips Arena.

The naming deal has been good for Philips in two ways, said Katrina Blauvelt, a company spokeswoman. It's boosted brand recognition in the Southeast, and given the company a prestigious and productive way to entertain clients.

Jens also wanted products that were easy to understand. He introduced managers to what he terms the "out-of-the-box experience." New products, boxed just as they are in stores, were delivered to executives. If the device was hard to assemble or directions were confusing, changes were made.

"The world is complex enough," Jens said.

More changes came with Jens' decisions about how products get delivered to retailers and which were targeted as prime customers.

The company started focusing on large national retailers that order by the truckload, such as Best Buy, Circuit City, Wal-Mart and Sam's Club.

Jens followed an industry trend by encouraging chains to pick up products at the manufacturing facilities in Asia. That saved money for Philips, helping it compete in the low-margin world of consumer electronics.

In cases where that tactic isn't practical, salespeople get incentives for full-truckload orders, which hold down distribution costs.

"If you ship a 27-inch CRT [tube-type television] from a warehouse in small quantities on a truck, it costs $20 or so to deliver it," Jens explained. "In a full truckload, the cost drops to $7 or $8."

Tamaryn Pratt, principal analyst for Quixel Research, an Oregon-based market intelligence firm specializing in home theater products, said Philips had to be bold.

Because "they were already in no-man's land, they were able to take a risk because people had written them off," said Pratt.

Pratt has a unique view of Philips since she worked for it -- both in the United States and at the Netherlands headquarters -- from 1991 to 2001.

Jens and his direct ways made a difference, she said.

"I do find a lot more direction," she said. "The idea seems to be, 'let's not go willy-nilly.' That kind of direction and discipline is needed right now."

She expects a shakeout among electronics makers but puts Philips on the survivor list. The Philips name is an asset, she noted, and the North American headquarters is now stabilized.

David Naranjo, vice president for consumer electronics market research at Display Research, said recent industry trends have helped Philips.

"Frankly I think the LCD TV market has helped them. That market has grown tremendously in the North American market," he said. "Philips basically has the No. 1 position in LCD, primarily because of their Magnavox brand that does well at Wal-Mart and stores like it."

Philips uses its own name for higher-end products and Magnavox for lower-end items.

Another plus, he said, is Philips' ownership of manufacturing facilities, which enables it to control supply. For part of 2004 -- a time when demand was growing for flat-screen TVs -- Panasonic had supply difficulties. That opened the door to competitors such as Philips.

Lately the company is touting its Ambilight line of flat-screen TVs. The monitor electronically duplicates color shadings of a program and displays complementary colors on the wall.

It's restful for the eyes, and the flickering light on the wall makes the screen look bigger, Jens said.

Better yet, it makes Philips sets stand out.

"Have you ever been in a display room for flat-screen TVs?" he asked. "What sets the products apart?"

-----

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Copyright (c) 2006, The Atlanta Journal-Constitution

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PHG, PHI,

Source: The Atlanta Journal and Constitution

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