CEO says ‘good thinking’ leads to products that solve problems
- October 30, 2018
Gregory H. Trepp leads one of the newest publicly traded companies in Virginia, but it is already a household name.
Trepp, 56, is president and CEO of Hamilton Beach Brands Holding Co. (HBBHC), which since 1910 has produced appliances such as mixers, blenders and coffee makers.
The Glen Allen-based company includes two business segments: Hamilton Beach Brands Inc., a designer, marketer and distributor of household and commercial appliances, and The Kitchen Collection LLC, a chain of specialty housewares stores.
“We are one of the top three players in small appliances. There’s nobody else that’s a pure-play small appliance business at our size,” Trepp says.
Before the September 2017 spinoff of HBBHC, Hamilton Beach Brands and Kitchen Collection were part of Cleveland-based NACCO Industries Inc., whose primary business today is coal mining.
“NACCO’s board of directors felt that it was in the best interest of the shareholders to separate into more focused businesses,” says Trepp, who had led both Hamilton Beach Brands and Kitchen Collection under NACCO.
HBBHC has about 1,600 employees companywide, 264 of whom work at its headquarters beside a lake at the Innsbrook Corporate Center.
On Oct. 30, HBBHC reported consolidated revenues of $196.9 million and consolidated net income of $8 million, or 59 cents per diluted share, for the third quarter of 2018. By comparison, the company had consolidated revenues of $181.7 million and net income of $4.3 million, 31 cents per diluted share, for the third quarter of 2017.
The holding company had revenue of $740.7 million last year. More than 80 percent of its sales came from the Hamilton Beach Brands business segment, which has offices and distribution centers in the U.S., Canada, Mexico, Brazil, Belgium and China. Its products are made by third-party manufacturers in China, which has become the world’s low-cost producer of small appliances.
Hamilton Beach Brands appliances are top sellers in many key retail and commercial sales channels. The business segment has a long-term goal of increasing annual revenue, which totaled $615.1 million last year, to a range of $750 million to $1 billion. Its growth plan includes six initiatives: “Only the Best” product expansion, global e-commerce, global commercial leadership, international market growth, category and channel expansion and strategic acquisitions.
Trepp is guiding HBBHC through a time of changing consumer habits, including an increasing shift to online shopping.
Online houseware purchases represent Hamilton Beach Brands’ fastest-growing segment, accounting for 25 percent of its U.S. sales last year. Trepp says one reason for the that growth is the company’s efforts to communicate with customers.
“It used to be in the very early days [of the internet] that you would put your product up online and get a number of sales,” he says. “Now, you are in a very heated battle with your competitors to make sure that, when a consumer goes in to look at a coffee maker, you are in full discussion with them.”
That focus has “allowed the Hamilton Beach brand to be the No. 1 selling small-appliance brand through the e-commerce channel through 2017,” he says.
The growing e-commerce trend, however, has reduced foot traffic at Kitchen Collection stores, which are located primarily at outlet malls. The retail chain recorded a net loss of $2.9 million in HBBHC’s second quarter as revenue declined to $22.8 million from $25.9 million in the same quarter the year before.
Kitchen Collection has culled underperforming stores while negotiating with landlords for shorter-term and more favorable leases. In the first six months of this year, the number of stores declined from 210 to 199. Trepp says that number eventually will decline to 100 to 150 stores.
“Kitchen Collection has certainly been through a tough few years. Sales have been declining,” he says. “What I feel really good about is that we have a really strong team at Kitchen Collection who has done a good job trying to adjust with the times. We downsized the stores to 199, and while doing that, very importantly, we’ve protected very strong gross margins. We’ve been around 40, 45 percent gross margins,” he says.
Excluding Kitchen Collection, HBBHC’s portfolio of brands includes Hamilton Beach, Proctor Silex, Weston and Hamilton Beach Professional plus licensed brands Wolf Gourmet and CHI. Last year, 87 products were introduced. Trepp says about three times that many products are in the development pipeline.
“One of our keys to our culture is called good thinking. If you are developing a new product, you talk to consumers, see what is important to them. What are their pain points and how do you solve their pain points?” he says.
Six employee teams — whose members represent areas such as marketing, engineering and design — are responsible for developing products in a variety of categories, such as cooking or beverage. Each Thursday, teams make their case for product ideas to a group of executives.
This review, which resembles a pitch competition, begins a three-stage process in which teams getting an initial green light continue working on their proposals.
At the third stage, “you’re approved to go. You have all the funding you need. Now all you have to do is development,” Trepp says. “The key is that those team leaders are driving that innovation … as opposed to it being one person because that is not a healthy long-term business strategy.”
Trepp joined Hamilton Beach in 1996. He had attended college in Richmond, earning a bachelor’s degree from the University of Richmond. He holds an MBA from the University of Connecticut.
Trepp and his wife, Ann-Marie, have four children, two sons and two daughters. The three oldest children are in college. The youngest child is in sixth grade.
The Trepps are supporters of the Anna Julia Cooper Episcopal School in Richmond, which provides full-tuition scholarships to fourth- through eighth-grade students with limited economic resources primarily from the city’s East End.
Virginia Business interviewed Trepp at his Richmond office on Sept. 5. The following is an edited transcript.
Virginia Business: What is your timeline to increase your [Hamilton Beach Brands business segment] revenue to a billion dollars?
Trepp: If we can get to the $750-million-to-a-billion-dollar range, to get a 9 to 10 percent profit for the Hamilton Beach business, it will get us to a much stronger leadership position in our industry. We implemented a number of strategic initiatives back in 2012. We’ve been adding a few [more] as time goes on. Those are really starting to help drive growth on a quarter-to-quarter and year-to-year basis. We haven’t set an exact timeframe, but we feel that we can get into that $750-million-to-a-billion-dollar range in the not-so-distant future. Then we’ll go from there.
VB: Let’s talk about your growth initiatives. One that caught my eye was the “Only the Best” strategy. Would you give us some explanation of that?
Trepp: You’ve probably heard of the term “good, better, best.” Hamilton Beach and Proctor Silex are brands that are plus-or-minus 100 years old. They are very well known, very well respected and have a very strong awareness in the “good or better” segment. That’s really been our heritage over time.
The high-end market, “the best,” is about a third of the dollars in small appliances in the U.S. It varies a little bit depending on the market you are in. That’s a scenario that we didn’t play in very much. Our goal was to [determine]: How can we build and invest in products and in brands that really play a stronger role in that part of the market? That led us in acquiring the Weston brand back in late 2014. It has very high-end products focused on field-to-table and farm-to-table: meat grinders, food preservation products — things like that.
We introduced the Hamilton Professional line. Again, high-end products. [Through licensing agreements], we also introduced Wolf Gourmet in 2014 and introduced the CHI brand of irons and steamers in the past 18 months. That portfolio of brands allowed us to grow very nicely.
VB: Are you looking to add more products like this to that area?
Trepp: Yes, for sure. You’ll see a lot more products coming out. We have a beautiful coffee maker coming out from the Wolf Gourmet brand, then a long list of products from all four of those brands coming out each year.
Brand-wise, we probably will add another one. We would see if something came up, but we feel the four we have will take us forward for the next few years. From a product standpoint, we will definitely be expanding product lines.
VB: Also, you talked about strategic acquisitions [in the growth initiatives]. In that area, are you talking about buying other companies, buying other products or buying brands?
Trepp: Most of our growth is going to come from [existing brands through] the initiatives we talked about. But we do hope and believe that one of the ways to get to our growth goal would be through a handful of acquisitions.
There are some companies that have a very successful strategy of acquiring companies nonstop. That’s not what we’re focused on. We do hope to find several [acquisitions] … probably not transformable ones, but ones that we can fill in opportunity areas for us. It could be a category that we don’t compete in very well. It could be a brand, a particularly strong brand.
VB: Would you be able to say what sort of areas you would be interested in? In terms of fill-ins and places where you want to be stronger?
Trepp: It’s always tough to say because you don’t know who’s for sale. One example I’d give you is where we wouldn’t do it. We are the No. 1 brand of kettles in the U.S. and in Canada. So, if there was a company that was particularly strong in kettles, it wouldn’t be really additive to us.
There are over 50 categories we compete in the retail business, and globally there is a number of categories in the commercial market that we have opportunities in. So, really, we just take it in and say: Where do we have a gap in our portfolio and where can we fill that in?
VB: What percentage of your sales are international currently? How do you plan to raise that? I think I saw something saying that you want to raise that to 35 to 45 percent.
Trepp: That right. That’s a longer-term goal right now. About 77 percent of our business is done in the U.S. That’s combined Hamilton Beach and Kitchen Collection, so a very U.S.- focused company. Conversely, if you look at the small appliance business around the world, over 70 percent are purchased outside of North America.
Clearly, if we want to grow and want to address consumers’ needs in small appliances, an important way to do that is to reach them outside of the U.S. We are a strong player in Canada already but have plenty of room to grow. We have a strong presence in Mexico and plenty of space to grow. [We have a] very strong position in Latin America, but we are just entering South America.
We also began selling directly into China several years ago and are looking at testing additional markets. So, I think our goal is, on the retail side, to expand in the Americas, continue to expand in China and then test a few more markets.
Commercial is already a very global business for us, one that is about 50-50, U.S. and international. We see a very strong upside in both U.S. and internationally, but clearly an opportunity to grow that business faster. Between the commercial and the retail business, it would give you between 35 and 40 percent [in international sales]. We have a long way to go, but we are investing in products and capabilities and people around the world to try to get growth going.
VB: Would you introduce new products that are specifically targeted to those [international] markets?
Trepp: When it comes to new products, we want to make sure everywhere we go, we understand what the consumer is looking for. We don’t want to just ship in things we think work. We want to talk to consumers. We are doing research in these markets.
A great example would be in Brazil. Consumers will, almost always after using an iron, empty the water out of it. That’s something that people don’t do much around here. So, we developed an iron that you can remove the water tank. That just makes it easier to fill and empty, as opposed to shaking the iron upside down over your sink or carrying it around. That’s a small detail, but something where, once we learned that pain point for consumers, we had a great solution. That’s an item that has gotten good reception so far.
VB: [Since 2012, have your growth initiatives] worked the way you expected it to?
Trepp: Not exactly. Back to being a good thinking-focused and learning organization, we’ve adjusted as things have worked and some have not. “Only the Best” is growing nicely. In the new markets, some are working really well, while some are really challenging.
We moved into Brazil right before they had their worst recession on record … That’s been one that has been more challenging than we thought, but our products are selling well, and we’re getting distribution. We are getting back to the long-term focus, and we are just going to keep on working on it. The economy has stabilized, not where it needs to be yet, but stabilized. We’re growing and doing okay.
VB: E-commerce is about 25 percent of your total sales right now, correct? Where do you expect that to go in, let’s say, the next five years?
Trepp: It’s tough to say, but we have seen some industries where it’s grown to 35 percent of the industry. Electronics is one of those examples.
Right now, in our market, the data isn’t perfect, but e-commerce is around 25 to 30 percent of the industry. We think it will go somewhere in the mid-30s. It could go higher, as high as 40 percent. It’s hard to tell exactly. Consumers are still clearly interested in buying products from brick-and-mortar stores.
You’ve got a lot of retailers who are doing both well. So, we think it will balance out between 30 and 40 percent. Certainly if it goes further than that we’ll adjust, if it goes backwards — which I don’t think it will do — we’ll adjust there also.
VB: Your operations are all over the world. Have tariffs [imposed by the U.S. on imports from China] affected your business?
Treppp: Yes, they have. [Before early September, tariffs affected] around 4 percent of our revenue.
[Additional tariffs imposed in late September affected another 7 to 8 percent of the business, making more than 10 percent that has been impacted.]
It affects the whole industry. We’re supportive of the opportunity to make things better in certain ways. If things don’t get resolved and things stay in place long term, we’ll have to adjust and figure out how to run our business that way.
VB: Another thing that’s in the news is the federal tax cuts approved by Congress last year. How will it affect the company now?
Trepp: That will be benefiting us. We will probably be around, we estimate, a 26 to 28 percent tax rate this year, which is around 10 to 12 points lower that it was last year. So, our shareholders will definitely see a benefit to that.