The writing is on the wall for Waterford Wedgwood unless it can break the cycle of falling sales and find a new niche for itself, argues Kathy Sheridan
A profit warning. Shares at a historic low. A downgraded credit rating. Short-time working. Pessimistic analysts. Workers bracing themselves. Again.
It has not been a vintage year for Waterford Wedgwood. Even the financial headline writers have lost the will to use the word "sparkle" (as in "lost its . . .") at every turn.
Its annus horribilis has been compounded by events surrounding the other Waterford Crystal, the hapless Olympian showjumper. Key in the words "Waterford Crystal" on one British broadsheet website and the top nine articles refer, not to premium, hand-cut glassware, but to horse doping. Not a happy association for a luxury brand once described by a company executive as a "marketing miracle of its time" and which sees itself as the Rolls-Royce or Mercedes-Benz of the crystal market.
This week, Waterford Wedgwood workers were making their contribution to cost-cutting efforts by completing the last of seven weeks of involuntary, unpaid leave, taken at a rate of one week a month since September. Their first unpaid week coincided with revelations of eye-wateringly generous, pension top-ups for Waterford executives and directors. Then this week brought the news that a marginal, pre-Christmas sales recovery had collapsed.
Management talked vaguely about "further restructuring". Workers heard what one called a "deafening silence". Rumours fill the vacuum. Market watchers see the writing on the wall. No one is taking pleasure in it. Apart from the implications for jobs, a brand and an art form that brought such prestige and pride to this country in the bleak 1960s, 1970s and 1980s will not be lightly discarded.
Waterford has seen it all before, of course. A company that has managed to shed more than 2,000 Irish workers in 18 years has already been through the grinder a few times. In the 1980s, the writing was on the wall when a comfortable three-year labour agreement collided with a dramatic plunge in the dollar-pound exchange rate. The company survived in 1990 when a group masterminded by Sir Anthony O'Reilly (now the group chairman) involving Fitzwilton, Morgan Stanley and others injected £100 million in exchange for 800 redundancies (some of these workers had to be re-employed later due to skills shortages), pay-cuts and radical changes in work practices.
By way of broadening its market, the company introduced the mid-range Marquis crystal brand, made in eastern Europe, in 1991. Just four years later, however, management was clearly taken unawares when market research revealed what everyone else already knew: that traditional, fussy crystal was of no interest to the young, least of all to that great mainstay of the Waterford brand, the bridal couple.
The days when a bride chose a china pattern or suite of glassware to collect and display in glass cabinets and use only on the rarest of special occasions were gone. In the new era of working couples, informal dining and neurotically personalised style, the notion of setting tables with "matchy-matchy" co-ordinated china, flatware and glassware became as fusty and dusty as asparagus tongs.
Lightweight and practical glassware, with simple lines of a kind brilliantly advocated by Terence Conran, were the stylish, not to mention cheaper, choice. Heirlooms are lovely to own, but in a world where a new kitchen or paint-job also means a critical look at your tableware, the old rules are meaningless.
"As a value proposition, luxury goods are very sensitive to timing and ego," remarks Harvard Business School (HBS) professor, Nancy F. Koehn, in Working Knowledge, the HBS bulletin.
WATERFORD WAS FACED with what is known in the marketing universe as the "evergreen challenge". Change or die. How does a luxury brand keep its edge and attract new devotees without losing its core following? How do you maintain the hallmarks of heritage and prestige while producing a product that looks fresh and unexpected and is relevant to people's daily lives? It's a tricky business. Consumer research is not the answer in this particular market because the key to success is the ability to know what consumers will want before they know it themselves.
Waterford's answer to the evergreen challenge in 1997, was John Rocha, then and still regarded by the company as the saviour of Waterford Crystal.
The brand also extended itself to china, linens, writing instruments, holiday "heirlooms" and crystal jewellery. In the late 1990s, it took over Rosenthal and bought the US luxury cookware company, All-Clad (which it sold last year). In those few years leading up to the millennium, Waterford Wedgwood also cut 2,000 jobs and closed six plants.
It seemed to work. Corporate pre-tax profits soared by 35 per cent. Waterford Crystal sales rose 37 per cent in the US, partly due, apparently, to the efforts of the Duchess of York, who had been drafted in as a spokeswoman for the US operations. Shares were rattling along at about €1 to €1.15 and Sir Anthony O'Reilly said he was looking forward to "outstanding rewards for our shareholders".
This week, the shares hit a low of 3 cent.
September 11th, 2001 and the weakening dollar undoubtedly played a role. A few years ago, when the dollar and euro were at parity, a vase yielding $100 in the US was worth €100 to the bottom line at home. However, $100 translates to just €80, and a resulting disastrous dent in profits. This is a factor over which no company has control. On the other hand, some analysts believe that a strong dollar,between 1997 and 2001, helped to mask a decline in sales.
The salient factor is declining sales, year on year. "The six months from March to September 2004 were down 5 per cent and October was down 10 per cent," says Neil Clifford of Goodbody, "but then November and December were up 2 and 3 per cent respectively. I thought things had bottomed out at the beginning of January. But then they were down by 10 per cent in January and February and the early part of March . . . That looks like rapid decline. The company is doing everything it can in a really bad situation. The problem is that each time they move to tackle their cost structure, sales decline again. It is looking bleak."
No matter what marketing jargon is used, "declining sales" or "weak demand" means that people are not rushing to buy Waterford products.
It may be true that Waterford is holding on to its share of the market, but the high-end tableware sector itself is in decline, so it's a share of a diminishing market, one briefly illuminated by a rush for high-end millennium keepsakes.
Is it all part of the business cycle or is this an irretrievable sea change? John Foley, the chief executive of Waterford Crystal and of Waterford Wedgwood in the US, insists that what we are seeing is "a company in transition. The brand is incredibly resilient. But of course there are issues, particularly with the 24 to 35 age group, where it's not as relevant as we would like. But we have great plans for the US market, we have plans to support the business in a meaningful way in 2005," he says, sounding quite excited.
Unfortunately, he is unable to give any details about the plans. But they probably include taking fashion designers on board, as they did with Rocha, plus pumping an additional €20 million into "supporting the brand" over the next two years.
"There has been a lack of marketing support in the last four years," says a company spokesman. "Any money that was available was put to use in restructuring."
The fruit of Foley's labours remains to be seen.
"Handbags and shoes are what have driven the luxury goods market in the last financial year," says Brid White, an analyst with Merrion Capital in Dublin. "LVMH [ Louis Vuitton] is doing very well in leather goods and clothing. People now see luxury goods as something they put on their bodies. Crystal in general has not been a very happy place to be; Baccarat is also having a very hard time."
THE OTHER FACTOR, says White, is the growth of the value-conscious retailer. "That caught on just after the millennium. Chains like Target, a mid-market retailer in the US, are huge now and offer quality at value prices. You're looking at nice glasses for $20 to $25. The reality is that there has been a whole move towards value.
"You see Ryanair and what has happened to Aer Lingus. People want more and to pay less. It used to be that you would get your dishes for a wedding gift and they would still be there at your funeral. Now it's about going to Avoca and replacing it after three years. So this is not just about the dollar. It is a sea change, going back 10 years, and it seems to be here to stay. Waterford needs to find a niche in which it can fit. You can't argue with the history of the last two or three years; that suggests that it is not in the right place."
Listening to analysts such as White and Clifford, and to people in the trade, there is no doubt that the brand remains strong, a belief backed up by research carried out for the company in the US. It is the products that are in difficulty. Apart from a growing distaste for crystal golf figurines and corporate paperweights, there is a growing movement against the Rocha style.
"The Rocha look is probably getting a bit old," says one market analyst. "Everybody has it now, there's no cachet in owning Rocha glass."
Another analyst sees trouble ahead for brands that become too openly identified with fashion designers. "Yes, people are more inclined to pay for it because of its association with the hot designer, but that gives your brand a different problem. It may then be seen as a Rocha rather than a Waterford. It becomes a Rocha product, and what you are perceived to be is an outsourced manufacturer for those products. What if someone like Rocha decides he'd like a bigger share? Brand alliances are a double-edged sword."
As for the product, Jill Cox, an authority on Irish glass and owner of Beaufield Mews antiques (where she stocks replacements for gaps in Waterford suites) in Stillorgan, Co Dublin, echoes the recurring theme when she describes the Rocha glasses as "very impractical with long, long stems that are so easily knocked over and chip so easily".
Peter Dunne, a director of Mitchell & Son, the wine merchants, believes the day of the heavy, thick, long-stemmed wine glass is gone in any event. Both Cox and Dunne make the point that since we've become a nation of wine drinkers, we like to see what's in the glass, which rules out thick or heavily-cut glass.
Mitchells has put its faith in Riedel, an Austrian brand, whose paper-thin glasses are now "the chic-est of the chic", in the words of one style arbiter. According to Dunne, 100 Irish wine-drinkers will soon pay €100 apiece to see Georg Riedel explain why you should drink different grape varieties from differently shaped bowls. Already in stock is the stem-less wine glass, suitable for houses where dogs are careless with their tails and people are weary of trying to balance them on the hearth rug.
"The way glassware is going," says Dunne, "rather than asking a clothes designer to help, Waterford Crystal should be getting on to the four Irish masters of wine [ there are about 400 worldwide] and really go for the wine angle when designing their glassware."
Meanwhile, glass experts are appealing for a return to the art of glass and to talented contemporary glass artists such as Deirdre Rogers and Paul Devlin. Phyllis McNamara, of Cobwebs antiques in Galway, where she stocks William Yoeward crystal, believes that we are on the brink of a revolution, of a kind last seen at the end of the 19th century, when revulsion at mass-produced Victorian jewellery triggered a revival of the craft movement.
In recent weeks, Waterford Wedgwood displayed some defiance by wrapping up a deal for Royal Doulton. But the market was not impressed. One analyst referred to the latest acquisition as something that looked like "a good attempt to make something happen . . .", but that it was "probably the last throw of the dice".
John Foley would beg to differ. "We have started at the basics again. Research shows that the brand is held in great esteem in the US . . . I see this as a journey. When a shopper goes out and the choice is between Coach leather or a piece of Tiffany, I'd like Waterford to be in there . . . The proof of the pudding will be that it will happen."