FEATURE STORY: Long-time Illinois manufacturer avoided bankruptcy

See the full article at Medill Reports

It was an American success story, until the family divided.

Max Gerber immigrated to Chicago from Poland in the early 1900s. Though without a plumbing background, he took a leap and started a plumbing distribution business in 1929 called simply Max Gerber. In 1932 he opened his first factory in Kokomo, Ind. His company, now called Gerber Plumbing Fixtures LLC, was expanding quickly. A few years later he bought a company that he moved to Delphi, Ind., a third business in Woodridge, N.J., and a fourth in Alabama.

When Max Gerber died in 1953 at 56 years old, his family inherited an extraordinarily successful business. Harriett Lewis, Max’s daughter, ran the company until her death at age 84 in 2001. Ila Lewis, her daughter, then took over, relinquishing her role in 2008.

Lewis says the “beginning of the end” was in 1999. The family received a $75 million offer for the business but refused it. Some family members decided they wanted out of the business, so the company bought them out for $30 million. This buy-out required the company to borrow $15 million from its bank.

“When a company spends a lot of money it should be for the benefit of the company, but it put the company in tremendous debt,” Lewis said.

In 2002, Gerber was well known as a trusted distributer to industry professionals. It focused on two business segments: vitreous china, 65 percent of sales, and brass faucets, 35 percent. Lewis said that, around this time, sales were between $111 million and $114 million, but profit was “an ever-moving factor.”

“That number [profit] looks great until you look at the balance sheet, and then it really doesn’t matter,” she said.

Burdened by debt, Gerber had to close a factory in New Jersey and lay off more than 150. The family was struggling while Gerber’s investment banker searched for an equity injection or a buyer.

Stanley Dreyfuss, director of purchasing at SG Supply Co. in Calumet Park, has been a distributer for Gerber for over 25 years. “I knew that there were some financial problems,” he said recently. “I didn’t know the extent of them. The Lewis family, it was their livelihood, it was their history, so they were doing everything they could to keep things happening.”

In 2003, Globe Union Group Inc., an international manufacturer of plumbing products headquartered in suburban Woodridge, purchased nearly all of Gerber’s assets, paid off its debts and retained many of the employees, investing more than $30 million over the next four years.

The buyout came just two weeks before Gerber was going to file for bankruptcy protection.

The president of Globe Union, Michael Werner said, “They didn’t know they were in trouble until after they were in trouble.”

Dreyfuss commented, “I think what they realized is that whatever level of financial problems they had were things that the new owner could help them with: an infusion of cash and ideas; and I think in the long run, it was the best thing for them.”

Globe Union closed the Delphi, Ind. factory and the Alabama pottery, opened a new factory in Laredo, Texas and moved most production to China. The Kokomo, Ind. plant was converted to a distribution center, until mid-2009, when it was closed.

Mitchall Rasky, turnaround team leader with The Private Bank and Trust Co. in Chicago, said that even after the buyout he felt anxious about the company’s hesitation to close factories, and believed that Werner left the Kokomo factory open about 18 months longer than he should have in a desperate attempt to preserve as many jobs as possible.

Under Globe Union, Gerber developed a three-fold strategy. It globalized the manufacturing to reduce costs and improve quality. It introduced over 800 new products, including its gravity-fed Lynx and Viper toilets, “High Efficiency Toilets” like the Avalanche, and hundreds of “green” water-saving faucets and toilets. In an August 2009 issue of Consumer Reports, two Gerber toilets were rated as “best values among top performers.” And finally, Gerber focused on helping its customers sell more by setting up more distribution centers and simplifying the ordering process.

Globe Union’s revenue was approximately $125 million in 2002 before it decided to take on foundering Gerber. Werner banked on two strengths of Gerber: its professional brand reputation and its customer list.

In 2009, Gerber’s sales will be a little over $100 million, with Globe Union’s total revenue exceeding $750 million. Though Werner did not provide exact numbers, he said Gerber’s sales grew nearly 20 percent and multi-million dollar profits were posted between 2003 and 2009.

Russell Atchetee is the kitchen and bath business unit manager at Coburn’s Supply in Texas a firm that has ordered Gerber toilets for over 40 years. Atchetee said Gerber could easily sell its products in “big box” stores like Home Depot or Lowe’s, but it supported the wholesaler instead. “Having done business for so long,” he said, “they become part of the household and you always assume they’re gonna be there. Their emphasis is still on the professional.”

“Like all manufacturers,” Atchetee continued, “they’ve had some production issues over the years. I think initially when they were purchased by Globe Union, they had quality issues, but they did address them.”

Globe Union is dealing with the recession with resilience and surprisingly, success. Kevin McJoynt, director of marketing at Globe Union said, “A depression is a terrible thing to waste.”

Gerber products are typically considered second to lines like Kohler. In this recession, more customers are buying Gerber because it is sold more cheaply to wholesalers, according to Werner. Distributers of Gerber products make more money on their sale and customers buy a product highly rated by Consumer Reports but less costly than the top-line brands.

Werner says 2009 will be Gerber’s most profitable year.

Gerber now has manufacturing facilities in Laredo, Texas, Shenzhen, China and Weifang, China and distribution centers in Bridgeton, N.J., Woodridge, Ill, City of Industry, Calif, Montreal, Canada and Weifang, China.

“Our goal was to take a company with a great heritage and to resurrect it, revive it, and we’ve done that,” said Werner.

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