Drop in Travel Affects Dinnerware Sales; Rebound Expected in 2002

August 1, 2002
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Pfaltzgraff’s new Mystic dinnerware line, introduced at the Spring 2002 Tabletop Show in New York, features a soft, contemporary look designed to appeal to a broader consumer base. Photo courtesy of The Pfaltzgraff Co., York, Pa.
Although consumer confidence and retail spending have remained relatively high throughout the economic downturn, these factors were not enough to offset the sharp decline in travel and leisure spending that occurred immediately following the September 11 terrorist attacks. The economy had already been slowing earlier in the year, but many dinnerware manufacturers reported that fourth quarter losses were the most damaging.

According to Brown-Forman Corp., sales in its Consumer Durables segment, which includes Lenox Inc., were down 3% and gross profit declined 7% for fiscal 2002. (The company’s fiscal year ends in April.) After rising 2% during the first quarter (ending July 31, 2001), boosted by strong gains for Lenox collectible and giftware products sold directly to consumers, sales in this segment dropped by 13% in the second quarter (ending October 31), resulting in a 54% drop in operating income. The company said that while a slight improvement could be seen in business toward the end of the fiscal year, it was not enough to offset a sharp drop in orders from department stores following September 11.

Libbey Inc. also cited September 11 as the primary reason for the downturn in its foodservice business, which includes Syracuse China and World Tableware. After experiencing only modest declines in sales in the first half of the year, the travel and leisure component of the company’s foodservice business “went into a downward spiral” in the third and fourth quarters due to reduced travel activity and tight inventory control by the company’s distributors. Overall sales were down 5% for the year, while operating income dropped by 24%.

Oneida reported a 12% drop in total revenues for 2001 after experiencing an 11% increase in sales in the first half of the year. “For the final six weeks of the quarter following the attacks, our Foodservice unit experienced a lessening in orders from the airline, restaurant and hotel industries, while the slowdown in retail store traffic affected our Consumer unit’s results,” said Peter J. Kallet, Oneida chairman and CEO.

In addition to the weak economic environment, market trends also had a negative impact on some U.S. manufacturing businesses. In November, Lenox announced that it would discontinue production at its Lenox Crystal factory in Mt. Pleasant, Pa., where it manufactured crystal stemware (glasses) and gift items under the Lenox and Gorham brands. According to Jerry Ciszewski, president of manufacturing for Lenox, the plant had been successful at reducing costs and becoming more competitive in the global crystal stemware manufacturing environment, but “the demand for fine crystal stemware has steadily declined as the marketplace evolves to the more casual consumer lifestyle.” The plant, which had employed 158 workers, closed on January 31, 2002.

Companies outside the U.S. also had a difficult year. In Germany, the slump in demand for porcelain and glassware that began in 2000 remained in effect for 2001. As a result, Germany-based manufacturer Villeroy & Boch reported an overall 3.3% drop in 2001 revenues in its Tableware Division, despite increased sales to foreign markets, particularly France and European countries outside the EU. And Waterford Wedgwood, the Ireland-based manufacturer of fine china, giftware, stemware and fine ceramics, said that it experienced a 6.7% decrease in sales due to a slowdown in global demand in the second half of the year. “The slowdown in the U.S. economy, exacerbated by department store de-stocking and the impact of the fourth quarter, rippled through most markets,” said Sir Anthony O’Reilly, chairman of Waterford Wedgwood.

Companies Focus on New Products, Enhanced Productivity

To offset the effects of a weak global economy, many dinnerware manufacturers realigned their businesses through cost-cutting initiatives, new product introductions and, in some cases, investments in new technology for more efficient manufacturing practices.

Despite its lower sales figures, Villeroy & Boch’s Tableware Division was able to increase its operating income by over 13% to 15 million euros (~$13.3 million) in 2001 by modernizing and streamlining its production operations, improving its procurement methods and launching several successful new product lines, including its new Metropolitan Collection. The division has also focused on increasing the amount of its foreign business so that it can be less dependent on trends in the weak German market. In 2001, foreign sales accounted for 68% of the company's Tableware Division sales, up from 66% in 2000, and the company said that this percentage will continue to increase.

For Waterford Wedgwood, protecting profitability meant undertaking a worldwide restructuring program. The company closed its crystal plant in Stourbridge, England, and consolidated some of its other crystal and ceramic operations in the UK, Ireland and Germany. It also implemented shorter work schedules in many of its factories and curtailed purchases from outsourced suppliers. In addition to implementing cost-saving strategies, however, the company also focused on boosting sales through new product initiatives, such as the Jasper Conran collection, introduced last year, and the Vera Wang collection, which was launched in the U.S. in April 2002.

For some companies, reducing manufacturing costs has meant increasing the number of outsourced products. In April 2002, after closing its Lenox Crystal factory in Mt. Pleasant, Pa., earlier in the year, Lenox announced that it would also close its Lenox China giftware factory in Oxford, N.C., by April 2003 in an effort to further consolidate its operations. Production of bone china hollowware will be moved to the company’s Kinston, N.C., plant, and the ivory china giftware currently being produced at the Oxford facility will be sourced overseas. Libbey, too, has begun sourcing products from other countries. The company reported that 2001 sales totaled over $100 million in glass, metalware and ceramic dinnerware purchased from vendors outside the U.S., and that it intends to continue this trend.

While many companies curtailed their investments in 2001, some took advantage of slower production schedules to install new technology and increase their operating efficiencies. Libbey, for example, invested more in state-of-the-art production equipment than in any year in the company’s history—a record $35.2 million. The company installed new fast-fire kiln technology at Syracuse China, which resulted in increased production speeds, lower operating costs and a faster new product development cycle. The company said that the investment “was a significant step forward in making Syracuse China a world-class competitor in ceramic dinnerware.” The company also developed and installed state-of-the-art stemware production equipment during 2001 that enables improved stemware features, including elegant and taller stems, more upscale designs, increased production speeds and a reduction in machine changeover time. Other new production equipment was purchased for the company’s glass tableware operations that will reportedly provide similar benefits.

Outlook is Optimistic for 2002

By the first quarter of 2002, many dinnerware companies were reporting higher sales compared to the same period in 2001. Inventories were significantly lower, and retail sales remained strong. Additionally, increases in travel had begun boosting sales to the foodservice sector—a trend that is expected to continue in the second half of the year. While companies remained cautious, many said that they anticipate a “strong sales and earnings rebound” for 2002.

Editor's Note

The foregoing information was compiled from publicly available information in annual reports and news releases, as well as from interviews with companies listed in the 2002 Whitewares Giants.

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