Vorwerk & Co.

Mühlenweg 17-37
D-42270 Wuppertal
Germany
(49) 202 564 0
Fax: (49)2025641301
Web site: http://www.vorwerk.de

Private Company
Incorporated: 1883 as Teppichfabrik Vorwerk & Co.
Employees: 14,827
Sales: DM 2.44 billion (1997)
SICs: 5722 Household Appliance Stores; 5023 Homefurnishings; 5719 Miscellaneous Home Furnishing Stores; 6341 Insurance & Diversified Financial Companies; 3635 Household Vacuum Cleaners; 3631 Household Cooking Equipment; 2273 Carpets & Rugs

For more than 100 years, Vorwerk & Co. has been a fixture in German and international homes. Vorwerk & Co. designs, manufacturers, and sells household appliances, and fitted kitchens, chiefly through a direct sales network. Vorwerk also distributes its own and third-party kitchen and bathroom equipment through its Brugman subsidiary. The company also designs, produces, and sells carpeting to commercial and industrial customers, as well as under contract to third-party carpet suppliers. In addition to its interiors businesses, Vorwerk operates an Industrial Services branch, grouping its banking and insurance wing and other financial services, security and other business premises services, and data processing services, including software sales and design.

Direct sales remains Vorwerk’s primary revenue source. The company’s direct sales organization, which dates back to the 1930s, has made Vorwerk the German market leader in certain home appliance segments, and especially in the vacuum cleaner segment. In some categories, such as carpet cleaners, Vorwerk has captured more than 90 percent of the German market. Where many companies have abandoned the door-to-door approach, Vorwerk continues to step up its commitment to this sales channel, not only in its native Germany, but on the international front as well. The company has been able to adopt the sales technique to fit the specifics of different cultures. Vorwerk’s direct sales force, known as “advisors” within the company and numbering more than 20,000 worldwide in 1998, have shown especially promising results in the Far East and Pacific Rim regions. In all, Vorwerk claims a success rate of more than one sale per three home visits. Vorwerk advisors, while not directly employed by the company, nonetheless are given the opportunity to advance into management positions.

While vacuum cleaners have become synonymous with Vorwerk’s German clients since the 1930s, Vorwerk has developed two more direct sales products, adapting its distribution concept to meet each category. Since 1985, the company has vaunted the performance of its Thermomix cooking system, an all-in-one unit meant to replace many if not most kitchen appliances. Sales of the Thermomix appliance are accomplished through the so-called Sales Party, in which the Vorwerk advisor consults with the party’s host or hostess on the menu for the evening, then prepares the meal in front of the guests. Vorwerk claims an 85 percent sales success rate using the Party Sales approach.

Vorwerk also provides a line of fitted kitchens, a modular concept which can be adapted to meet the space requirements of its customers. Vorwerk’s fitted kitchens are also distributed via the door-to-door approach. The kitchens, which are self-standing units with their own rear wall, can be re-designed to meet a customer’s changing needs, and, should the customer move, the fitted kitchen can be taken along and adapted to the customer’s new kitchen space. In the late 1990s, Vorwerk’s fitted kitchen sales remained limited to Germany. With its Netherlands-based Brugman subsidiary, acquired in 1991, Vorwerk has expanded its kitchen sales, under the Brugman brand name, into the Netherlands as well.

Vorwerk’s carpeting subsidiary, representing the company’s founding product, concentrates sales on the commercial and industrial markets, placing its products in such facilities as hotels and office buildings. Vorwerk also designs and produces carpeting under contract to third-party distributors. Carpeting remains a relatively small percentage of Vorwerk’s sales, at less than 10 percent of total sales in 1997. On the rise is the company’s Industrial services, which groups Vorwerk’s banking and insurance subsidiary, akf bank GmbH & Co., and other services, including software development and distribution, and security and other business premises services.

Vorwerk remains a privately owned, family-controlled company. The Scheid family has provided company leadership since 1904. However, in the late 1990s, Vorwerk appears to be edging towards a more open financial structure. Vorwerk is also making moves to increase its international presence, building up markets throughout Europe, with an emphasis on the Eastern European countries, as well as its Far Eastern sales. Germany remains the company’s primary revenue source, with more than 58 percent of corporate sales.

19th-century Carpeting Specialist

Vorwerk & Co. was founded by brothers Carl and Adolf Vorwerk in 1883 as Teppichfabrik Vorwerk & Co. The company’s focus, as its name implied, was the production of carpeting for the domestic German market. While Vorwerk & Co. would soon expand its product line, carpeting remained a key company product throughout the 20th century.

Vorwerk’s 20th-century growth began with the Scheid family’s participation in the company, which was structured as a limited partnership. In 1904, August Mittelsten Scheid took over Vorwerk & Co.’s leadership, the first of four generations of Scheid family leadership in the new century. Under Scheid, Vorwerk & Co. began to expand its operations. In 1908, the company-run machine shop used for supplying its carpet production activities was converted to a full-fledged production facility for the manufacturing of machinery.

Vorwerk’s focus on carpeting, coupled with its increasing production capacity, combined to launch the company into a new direction, one that came to define the company for much of its domestic clientele for more than 70 years. In 1929, the company invented its Kobold vacuum cleaning system. In German folklore, a kobold was an imp—often mischievous—said to inhabit people’s homes. The Kobold vacuum cleaner quickly found acceptance in the German home, as Vorwerk & Co. now provided not only carpeting, but a means to clean carpets as well.

In order to sell its vacuum cleaners, Vorwerk & Co. adopted the then popular direct sales approach. Sending its sales force door-to-door, the company reasoned, enabled the customer to witness Vorwerk’s products’ qualities in their own homes. Seeing the results on their own floors and carpets gave customers confidence in Vorwerk products. Indeed, Vorwerk’s sales approach inspired its domestic customers to make Vorwerk the country’s top supplier of vacuum cleaners—a position the company continued to hold through the end of the 20th century. Where others abandoned the direct sales approach, Vorwerk & Co. continued to maintain and reinforce its sales formula to a German market highly receptive to this type of sales method.

By the 1930s, Vorwerk & Co. had begun to diversify its domestic appliance line, adding production of refrigerators in 1937. The following year, Vorwerk & Co. went international, opening its first foreign subsidiary in Italy. That country, supplied by Vorwerk Folletto, as the subsidiary was called, remained Vorwerk & Co.’s largest foreign market throughout the rest of the century.

Postwar Growth

If Vorwerk & Co. had been able to continue its home appliance and carpeting production during the Nazi rise to power in Germany, the German invasion of Poland and the subsequent start of World War II forced Vorwerk & Co. to convert its production to supply the Nazi war effort. By 1943, as the Allies turned the tide of the war, and as raw materials and manpower became increasingly rare in a Germany heading toward defeat, Vorwerk & Co. was forced to cut its own operations, shutting down its direct sales force and ending production of its vacuum cleaners. In the same year, August Scheid retired, replaced by sons Erich and Werner Mittelsten Scheid.

The German defeat enabled Vorwerk & Co. to resume production of its Kobold vacuum cleaners in 1945. With the younger Scheid generation at the company’s lead, Vorwerk & Co’s direct sales force once again took to the country’s doorsteps. The postwar reconstruction and the German “economic miracle” provided Vorwerk with a receptive market for its vacuum cleaners and other appliances. In 1959, the company launched a new line of electric-powered carpet brushes, dubbed the Europas.

Where Vorwerk’s sales had remained largely domestic, the company now expanded into new directions as the concept of the European market began to take on reality in the late 1950s and 1960s. In 1961, Vorwerk & Co. set up a new subsidiary for its foreign operations, under the name Auslandsholding Vorwerk & Co. This subsidiary was renamed as Vorwerk International in 1971. The following year, the company expanded its carpeting production, moving to new quarters in Gehrden.

Company Perspectives:

We at Vorwerk are guided by the following principles: Commitment to our customers and to performance; Success based on people; Thoughts and actions with a long-term view; Change as a basic element of business; Uniqueness through quality and innovation.

The sustained economic boom that marked the 1960s not only in Germany but throughout Europe and the United States helped encourage a trend towards building massive corporate conglomerates. Vorwerk & Co. too was inspired by this trend, as the company began to seek markets beyond its traditional manufacturing base. After launching a financial services unit in 1968, Vorwerk & Co. reorganized the company, separating its manufacturing operations into three distinct subsidiaries: Elek-trowerke (electric), Teppichwerke (carpeting), and Mobelstoffwerke (upholstery materials).

The arrival of a new generation of the Scheid family, in the person of Jórg Mittelsten Scheid, who led the company through the end of the century, marked the start of a more vigorous diversification period. To financial services, Vorwerk & Co. added a new data processing arm, the subsidiary ZEDA Informations verarbeitung. While both its banking service and data processing brought the company beyond its traditional appliance and carpet orientation, Vorwerk’s next expansion seemed more organic. In 1974, the company created its Hygienic Service Gebáudereiniging und Umweltplfege GmbH subsidiary, renamed as Hectas in 1997. As the name implied, the new subsidiary complemented the company’s industrial carpeting installations with building cleaning and maintenance services.

On the appliance side, Vorwerk & Co. marked the 1970s with the launch of two new product categories: a new line of vacuum cleaners and carpet cleaners, and the company’s fitted kitchen concept. Sold through the direct sales channel, the fitted kitchen provided a complete, modular kitchen unit that could be adapted to customers’ homes. The Vorwerk direct sales ’’advisor” helped the customer plan the kitchen, which was then manufactured in a new Vorwerk production facility established for this product line. A more or less independent structure, with its own back wall, the fitted kitchen could be refitted according to clients’ changing needs, and even follow the customer, should the client move to a new home.

Vorwerk’s fitted kitchen concept caught on in the domestic German market. By the 1990s, the company would sell more than 8,500 fitted kitchens per year, while continuing to limit these sales to the domestic market. Rather than export the fitted kitchen, however, Vorwerk began looking for another channel for entering the foreign market for kitchens. In 1991, the company purchased Brugman Keukens, a Netherlands-based kitchens manufacturer with a chain of retail kitchen specialist stores. Vorwerk & Co. adapted the Brugman concept and imported it to the German market.

The 1980s also saw the introduction of a major new product for Vorwerk & Co. In 1985, the company founded its Vorwerk & Co. Thermomix GmbH for the manufacturing and distribution of the Thermomix home cooking appliance. A multipurpose, all-in-one appliance, the Thermomix was designed to replace many of the common tools and appliances used in the modern kitchen. For the new product, Vorwerk & Co. also introduced a new sales method. While continuing its direct sales approach, marketing and distribution of the Thermomix took on the “party sales” approach that had proven effective for Mary Kay Cosmetics and others. The party sales method was effective for Vorwerk as well: the company was able to claim a sales per demonstration success rate of 85 percent.

In the 1990s, Vorwerk & Co. in response began preparing to step up its international activity to the long economic crisis in Europe, and especially the recessionary period provoked by the difficulties of the German reunification. The company’s sales expanded into Germany’s Eastern European neighbors, as well as through other Western European markets. Vorwerk & Co. also targeted the Far East for product growth, bringing its door-to-door sales approach to the countries of that region. In keeping with its international growth objectives, Vorwerk & Co. restructured its operations in 1997, regrouping its subsidiaries into four distinct divisions: Direct Sales; Specialist Retail; Carpeting; and Industrial Services.

Perhaps the most important transformation Vorwerk planned to implement, however, was the change in its corporate management and ownership structure. In 1998, the company moved closer towards its announced goal of replacing its traditional family-owned structure with a more modern family-run business group.

Principal Subsidiaries

Vorwerk & Co. Interholding GmbH; Vorwerk Asia Pte Ltd. (Singapore); Vorwerk Austria Ges.m.b.H.; Vorwerk Folletto (Italy); Vorwerk Contempera S.r.l. (Italy); Vorwerk CS (Czech); Vorwerk Elektrowerke GmbH & Co.; Vorwerk Deutschland Stiftung & Co.; Vorwerk & Co. Thermomix GmbH; Vorwerk España (Spain); Vorwerk France; VISOFI S.A. (France); Vorwerk Semco S.A. (France); Vorwerk Nippon K.K. (Japan); Vorwerk Polska sp.z.o.o. (Poland); Vorwerk Portugal Electrodomésticos Lda.; Vorwerk Shanghai Home Care Systems Co., Ltd. (China); Vorwerk Tornado AG; Vorwerk U.K. Ltd.; Vorwerk USA Company, L.P.; akf bank GmbH & Co.; akf leasing Gmbh & Co.; Hectas Gebáudedienste Stiftung & Co. (95%); Hectas Gebáudereinigung Stiftung & Co.; Hectas Sicherheitsdienste GmbH; Hectas Gebäudemanagement GmbH & Co.; Vorwerk & Co. Teppichwerke GmbH & Co.; Brugman C.V.; Brugman GmbH & Co.