Sometimes you don't know the value of something until it's gone. Automakers measured the value of warranties by their absence. And as retail sales slow and job losses deepen, warranty professionals may appreciate hearing that recruiters are back at work.
Times are tough among the manufacturers and retailers that employ most of the world's warranty professionals. This week, many retailers are reporting declining holiday sales volumes, and many top manufacturers are looking for ways to reduce their headcount.
Last month, the major American automakers made their appeal to Washington, looking for loans to tide them over until sales recovered from a deep downturn. And while they didn't quite overtly tout their lengthened product warranties, they implied how valuable they were by highlighting how bad sales would be without them. And with sales down 20% for the full year even with warranties, one can only imagine what the world would look like if they hadn't received their bailouts.
Since the worldwide financial crash began in earnest on September 15, manufacturers and retailers of all kinds have been reducing staff. Some have even closed down completely. And many expect things to get even worst. But this is nothing but an old-fashioned panic perpetrated by some careless bankers, enabled by clueless regulators, and intensified by a sensationalist media. It's a collapse of confidence amplified by a leadership vacuum, but it's being packaged like it's a 500-year flood.
So let us begin the new year with a hopeful prediction: the fourth quarter of last year was the bottom of this depression/recession/financial crisis/credit crunch/panic. The first quarter of 2009 may not be very pleasant, but it won't get much worse. And by the middle of spring, we'll be talking about "a return to normalcy," to quote a famous malapropism of one of America's least-loved presidents, Warren G. Harding.
We have absolutely no solid evidence to back up this prediction, except to note that new leadership is on the way. But like a warranty manager who cuts his accruals simply because he believes his product quality is increasing, we'll say it anyway: It's been worse.
Economically, it doesn't seem as bad this time around as the gloom that overtook the computer and telecom companies following the dot-com bust. Everybody remembers Enron, as everyone will remember Bernie Madoff's hedge fund. But who remembers WorldCom taking out a $30 million loan and booking it as sales revenue? For that matter, one remembers a more pervasive sense that all hope was lost in 1982 and 1974, not to mention previous business cycles.
Geopolitically, it doesn't seem as bad as the sheer terror that followed the September 11 attacks. Eyes were burning that week when the U.S. stock markets reopened, as the fire continued to smolder for a hundred days until December. In New York City, at least, everyone was bracing themselves for an even more devastating second attack, buying as much Cipro, iodine pills and duct tape as possible. End of the world? Been there, done that.
Warren Buffett, Ron Burkle and several other billionaires are now stepping up and buying shares in some of the most troubled retailers and manufacturers, implicitly saying that the worst is behind us. Heck, even the federal government is becoming a major stockholder in the financial sector, though perhaps not as willingly. The point is, as bad as it is, it's been worse, and it may not get any worse.
Value Added Networking
For warranty professionals, in fact, the current climate may prove to be an excellent opportunity to increase their compensation by giving them an opportunity to demonstrate their value to their current or future employer. Shuffling paperwork is so last century. Unlocking the value of warranty data is this century. During this recovery, those who can use their warranty skills to help a company make money, keep customers, or save money will move up, while the mere paper shufflers will become redundant.
In much the same way, manufacturers and retailers who merely cut their prices won't find as much success as those who can demonstrate the value of their offerings. How will it make my life better? What new features make it a better buy than last year's model? Making it cheaper has little or no resonance with people who could just as easily not buy anything at all, to conserve their cash for the rainy days they're told are ahead.
It can't rain forever. And as bad as the news is lately, there are a few glimmers of hope. For instance, last week, we received an email from a recruiter at a prominent computer company, looking to fill a position for something called a "Product Reporting Analyst" that she said will require heavy experience in warranty data analytics.
There was nothing remarkable about that. Last year, we would receive about one such message a week, and we'd forward it to a few job candidates we'd also been in touch with. But here's the thing: we haven't received a single recruiter's message for several months.
Instead, we've increasingly been receiving "change of address" requests from subscribers with brand new Yahoo or Google email accounts, with résumés attached that detail their warranty experience with a former employer. So to see one of these rare birds during the depths of this long winter is nothing short of remarkable.
Before we get any further, here's a description of the position:
"The Product Reporting Analyst is responsible for tracking product quality of new and existing products by analyzing call and repair data. The PRA uses appropriate statistical tools and techniques to perform data analyses that range from ad hoc report requests to report generation efforts with data gathered from multiple sources. Given the end user requirements, the PRA determines data requirements and procedures best suited to yield the best presentation format.
"The PRA must also be skilled at documenting and presenting analytical results. The PRA anticipates and overcomes operational obstacles to completing analysis efforts. The PRA must be adept at working with the business to gather information/requirements at project inception and delivering results, conclusions, and recommendations at completion. Experience in repair/manufacturing environments is helpful.
"Essential Duties and Responsibilities:
- Participate in key prioritized metric and reporting initiatives
- Able to perform the following types of analysis at an expert level:
- Static Reports
- Can transform a business problem into a technical solution,
- Interfacing with management during projects and priority forums,
- Able to write queries or use commercial tools to produce reports/analytical results,
- Can draw conclusions from the analysis and present it in a relevant manner to the business users,
- Build and develop relationships with peers and others to exchange feedback on product/service issues, identify and/or solve problems, assess needs, and/or achieve business results,
- Communicate status of work to appropriate parties in order to keep them informed and involved,
- Identify and implement effective processes and procedures within one's area of accountability,
- Ensure priorities are handled effectively by modifying plans and actions in your own area of accountability,
- 3+ years experience in commercial data analysis environment,
- Experience with Analytics or Business Intelligence projects,
- Excellent communicator (written and verbal),
- Bachelor degree preferred in Computer Science or a related discipline with a focus on statistical analysis,
- Excellent interpersonal skills and the ability to think on their feet,
- Data warehousing knowledge - Understanding of DW modeling techniques (star schemas, summary tables),
- SQL skills (e.g., tuning SQL queries, enhance performance),
- Strong data analysis skills (e.g., identifying data sources and needs and data quality troubleshooting),
- Experience working with large data volumes."
Is this you or someone you know? If it is, please email us a cover letter with an attached résumé, and we'll forward it to the recruiter. Remove your name or use a gmail account to ensure anonymity, if necessary. And even if this isn't quite you, send us your résumé and we'll forward it to the next recruiter that makes an inquiry.
More Bad News
There's no denying that it's bad out there. A fresh employment report from ADP Employer Services estimates that U.S. employers reduced headcount by a higher-than-expected 693,000 people in December, up from a revised 476,000 jobs lost in November. On Friday, the U.S. government will deliver its own employment estimate, which is expected to be equally grim.
This morning, Dell Inc. delivered a devastating blow to the economy of the midwestern region of Ireland when it announced plans to shift its European manufacturing center from Limerick City to Lódz, Poland. The move is expected to cut the company's Limerick City payroll from 3,000 to 1,100, but will have additional ripple effects on its suppliers in the region. Some 15,000 people in a city of 100,000 are said to have jobs that in some way are linked to Dell.
At the height of the so-called "Celtic Tiger" boom, Dell's exports were said to account for 5% of Ireland's GDP. As recently as last week, friends and relatives of Dell workers in the Limerick region were hoping for a reprieve. Some predicted Michael Dell himself was on the way to Shannon Airport to deliver the news, while others said a consortium of local businessmen would step up to keep the facility running on an outsourced basis. Now the dark joke around town is: What's the difference between Iceland and Ireland? One letter and about six months.
Halfway around the globe, Lenovo Group Ltd. is also cutting back. Today in Hong Kong Lenovo's shares fell 25% after the company announced a net loss for the quarter ended Dec. 31 and revealed plans to trim 11% of its worldwide workforce, affecting 2,500 jobs. Lenovo also plans to merge China and Russia operations and to move a call center from Canada to North Carolina. Its shares ended the Jan. 8 trading session worth just 25 U.S. cents each.
Other high-tech manufacturers reducing headcount include Hewlett-Packard, Sony Electronics, Motorola, Sun Microsystems, EMC Corp., Xerox, and Roper Industries. In the appliance sector, Electrolux is laying off 3,000 and Whirlpool is laying off 5,000. Many are predicting no upturn in sales until 2010 at the earliest.
Just this week, Caterpillar Inc. said it will offer buyouts to as many as 25,000 workers and will cut the pay of its white collar workers in an effort to cut costs. Elsewhere in the automotive sector, Renault has announced plans to reduce headcount by 6,000 people. Chrysler LLC plans to reduce employment by 6,000 people. Volvo is letting 4,340 people go. Federal Mogul is laying off 4,000. PSA Peugeot-Citroën is laying off 3,550 people. BorgWarner is letting go 3,000 people. Ford is laying off 2,260 people. Nissan is reducing its workforce by 2,500 people, including 1,200 in the UK. Daimler will lay off 2,300.
Among manufacturers in other industries, Textron's Cessna unit is laying off 2,200. Stanley Works is letting go 2,000. Rolls-Royce is reducing headcount by 1,500 to 2,000 people. Steelcase is reducing its workforce by 600 to 900 people.
Retailers are now beginning to report their year-end same store sales volumes, and they aren't painting a pretty picture either. Wal-Mart said sales actually increased 1.7%, but analysts were hoping for more. BJ's Wholesale Club also saw sales rise in December, by 5.9%, and some specialty apparel shops also saw gains. But just about everyone else saw declines. Kohl's was down 1.4%. Target was down 4.1%. Macy's and Costco each said same-store sales were down 4.0%. Sears was down 7.3%. J.C. Penney was down 8.1%. Victoria's Secret was down 10%. Nordstrom fell 10.6%. Gap was down 14%. Saks was down 19.8%. Zale Corp. was down 22%. Neiman Marcus and Bergdorf Goodman fell an astonishing 31.2%.
Among just those retailers selling extended warranties, bankruptcy protection was sought by Circuit City Stores, Tweeter, and The Sharper Image. Circuit City continues to operate and to sell extended warranties backed by third parties, but the other two companies have shut their doors completely. In the UK, Woolworth's went into liquidation and all its shops have now shut their doors.
The Battle of Britain
The mood in London before Christmas was rather bleak, with an emergency reduction by the British government in its Value Added Tax rate combined with aggressive 50%-to-70% store-wide discounts failing to increase foot traffic by much. Suffering from what seems like very short memories, prognosticators are saying this is the worst it's ever been, and it's about to get worse. Indeed, just today the Bank of England cut its interest rate to 1.5%, its lowest level ever. Given that the bank was founded in 1694, that would make this downturn the financial equivalent of a 300-year flood.
And then the British supermarket and small appliance chain J Sainsbury plc had to ruin the perfectly bad mood by reporting its "best ever Christmas performance," this week, with sales of all products except fuel up by 4.5% in the fourth calendar quarter (the increase was only 3.9% when fuel sales are included, reflecting petrol's dramatic price decline since the summer peak).
"We have continued to develop the Sainsbury's offer and demonstrated our ability to respond to rapidly changing customer needs," said Sainsbury chief executive Justin King in a prepared statement positively bursting with optimism. "We once again improved customer service at Christmas. Product availability was strong and we had a great range of quality products and market-leading promotional offers."
So perhaps it's not the worst crisis ever? One can look at the companies mentioned above and spot a trend: retailers with reputations for delivering value did well while those known for delivering luxury did not. It's not about price; it's about value. Save 50%? I can stay home and save 100%. First, give me a reason to buy.
NEW Customer Service Companies Inc., a sponsor of this newsletter, is the extended warranty administrator that stands behind Best Buy, Wal-Mart, and numerous other major retailers. Ray Zukowski, NEW's senior vice president of customer experience, said the reduction in foot traffic may actually be helping those retailers, by giving them more time to explain their value proposition to shoppers.
Zukowski said 2008 was a relatively good year for NEW and added that 2009, while it's expected to be not as good as last year, is nevertheless expected to see some continued expansion.
"Fortunately, our growth has continued here throughout the years," he told Warranty Week. "Last year, 2008, we were able to add two brick-and-mortar facilities [with 360 seats in Russellville AR and 230 seats in Meridian MS], and we acquired a Montréal facility as well, which brought our call centers up to ten." In March, NEW's eleventh call center is expected to open in Altoona PA, with around 250 seats to fill.
Work At Home
NEW also now allows call center agents to work at home from rural locations, after receiving six weeks of training at a company facility. "Since March of last year, we've grown that from three locations to 12 locations," Zukowski said. Around 850 out of NEW's 5,000-strong call center agent workforce now work from home. Later this year, he said NEW plans to add at least four more work-at-home locations, having found that workers really seem to prefer this setup.
So why isn't NEW contracting? Didn't they get the memo proclaiming the start of the Next Great Depression?
Zukowski sees at least two big reasons why NEW's business continues to grow. First, in a way it's the customers who haven't gotten the memo, because of the traditional lag time between sales and claims. Many of the products and service plans that customers bought in 2006 and 2007 will still have coverage into 2009 and 2010, so NEW needs to be able to answer the phone when problems arise.
Plus, given the way products fail more often as they age, chances are good that NEW will be hearing more from customers in their third and fourth years of coverage than they did in the earlier years. So the increased sales volumes of 2007 and 2008 will likely mean increased call volumes in 2009 through 2011.
Second, Zukowski said he thinks the value proposition behind a service plan actually increases in uncertain times like these. "In bad times, consumers can't afford an unexpected repair bill," he said. "So they tend to gravitate to our product a little bit more to give them that peace of mind."
In addition, he said, because of the decline in foot traffic, retailers have a little more time to explain that value proposition to each customer. So not only does the downturn make extended warranties more appealing, but it also gives the seller more time to explain it.
"Especially with today's complex electronics, whether it's an appliance or a TV or an electric guitar with a game box, people do not want an unexpected repair bill. They want to know that their product is taken care of if they need it repaired or replaced," Zukowski said.
We've often joked that for NEW, customer service is their middle name. But in times like these, perhaps it helps explain why the company is still expanding. It's not so much about the odds of needing a repair as it is the availability of help at any time of day. It's the value of the relationship rather than the cost of the service contract.
Measured By Their Absence?
But even basic product warranties have a value. As an illustration, look no further than the U.S. automotive bailout. The executives told Congress that a bankruptcy reorganization would quickly turn into a liquidation, because nobody would buy a car without a warranty. The absence of a warranty would make it impossible for business to continue. In other words, they were saying the availability and validity of a warranty was essential to the sale.
Is that true for only passenger cars or for all manufactured products? Would anyone buy a computer from a bankrupt manufacturer, knowing that warranty claims would not be honored? Would it be the same for airplanes or air conditioners? In other words, can we only measure the value of a warranty by contemplating its absence?
Charles Naselli, president of Global Recruiters of Greenville, said he believes even some warranty professionals are underestimating the value of their vocation. He spent most of his career in the industrial engineering and manufacturing operations area, gaining extensive knowledge of the quality and warranty functions. But in September 2007, he jumped over to the employment recruiting business, founding an agency that specializes in placing top-level executives with the portfolio companies owned by private equity investors.
"I'm not passing myself off as anything like an expert on labor trends," he cautioned, but from his vantage point it looks like things are frozen like a glacier -- seemingly stationary to the casual observer but inching along for those who know where to look. Naselli said he sees companies "selectively upgrading their talent."
"A lot of companies are pulling back," he said. "They're either delaying their hiring decisions or canceling them completely. We hear a lot about hiring freezes and layoffs. But we also speak to companies every day that have needs. They may not have openings, but they have needs, if you can see the distinction. They may not have open positions posted, but there are performance issues and skill gaps that can no longer be tolerated in this difficult operating environment."
Before founding Global Recruiters of Greenville, Naselli was general manager of the installation services business at Guardian Building Products in Greenville SC. Prior to that, he was vice president of operations at Kohler Plumbing, where he amassed most of his warranty experience.
Unrealized Value of Warranty
Naselli compares the emergence of strategic warranty management to the development of strategic sourcing-both take what used to be a predominantly transactional overhead function and make it a contributor to operating income. However, while some companies are seeing a significant return on investment from the adoption of warranty best practices, most companies and many job candidates have not realized its value yet.
For instance, last year Naselli recruited a candidate who had impressive warranty accomplishments that were buried in the fine print of a résumé that looked just like every other quality professional's. "I scanned this guy's résumé and said 'Wait a minute. You're not a quality guy. You're a warranty guy!'" The candidate, he said, had been doing strategic warranty management, but wasn't marketing himself that way.
The problem is, there's still no keyword for warranty in the job search engines. That may be on the way, but it's not quite here yet. Then again, what Naselli is saying is that those who need it are looking for those who have it. And like a secret handshake or a secret code, you either know it or you don't.
The common theme seems to be value. During this downturn, retailers need to figure out how to sell the value of a service contract and an ongoing service relationship, rather than merely trading on the odds of a particular product's failure. Manufacturers need to better understand the value of a product warranty, both internally as a leading indicator and externally as a brand enhancement. And warranty professionals need to better communicate the value of what they do to their employers, both current and future.