Business Week 
2 June 1997
Pages 67 and 70
By Richard A. Melcher in Lake Forest, Ill.  

A former marketing executive at Johnson & Johnson and Kimberly-Clark Corp., Larson may be enjoying himself, but his task is a serious one. He joined Brunswick as CEO in April, 1995, and added the chairman's title in October of that year. Since then, Larson has been overseeing a stem-to-stern remake of the sluggish 152-year-old company. In the mature bowling and boating units, he's cutting costs and pushing new products. To offset Brunswick's reliance on the marine business, which brought in 72% of 1996 sales and 75% of operating income, Larson has acquired a slew of recreational companies making everything from camping gear to bikes. Above all, he's fired up marketing in hopes of turning Brunswick into what director Bettye Martin Musham calls the Disney of outdoor activities.

So far, results look promising. In 1996, Brunswick's operating earnings rose 18%, to $304.8 million, on sales up 9%, to $3.2 billion. That has helped push Brunswick's stock up 45% in the past year, to an all-time high of 31 3/8. But the boating business is notoriously dependent on economic cycles, and Larson's strategy has yet to be tested by a weak economy. Meanwhile, all the diversification carries its own challenges, including new competitors. ''This country is littered with companies that have tried to mute cyclical businesses and ended up in trouble,'' says one investor.

Larson, a onetime nuclear submarine officer, moved fast. Within weeks of becoming chairman, he gathered 150 executives at headquarters and delivered a blunt message. ''He told us we were a good company, but not a great one,'' recalls one former exec. Larson pointed out that many of Brunswick's best innovations--from the Zebco covered fishing reel to automatic bowling-pin setters--were decades old. Soon after, he cleaned house, replacing six senior executives and naming five new board members with overseas and marketing skills.

GUTSY MOVES. Larson turned next to the boat and engine business. Using Brunswick's pristine balance sheet and annual operating cash flow of about $400 million, he opened the spigots, doubling capital spending between 1995 through this year. Much of that spending went to develop new boating products to appeal to a wider customer base.

To minimize the ups and downs of the boat business, Brunswick dropped its line of smaller fishing boats, which tended to be more cyclical. Instead, many of the 88 new boats introduced since Larson took over have been in the higher-margin cruiser and yacht segment where Brunswick already has about 40% of the market, one of the few sectors still growing. It's a gutsy expansion in an industry in which sales are down 39% from their 1988 peak. Irrelevant, says Larson. ''We were a manufacturing company in our focus, proud of our ability to surf the [boating] cycles,'' he says. ''Now, we're running a consumer-products business. Cyclicity doesn't have to come into it.'' Maybe. But new products that are generating sales now could hurt performance in a weaker market.

The newly aggressive Brunswick is stirring a mixture of awe and ire from rivals and dealers, for whom the company is both the dominant supplier of inboard engines and a competitor in boats. Some of those companies are taking action. Although the Federal Trade Commission recently dropped a four-year antitrust investigation into Brunswick's engine business, the company faces a suit from some 15 boatbuilders. They claim Brunswick has built a monopoly in the stern-drive engine business and is trying to build one in outboard engines and boats packaged with them. Larson vigorously denies the charges.

Despite that clout, Larson would like to lessen the dependence on the cyclical boat business. He hopes recreation will account for half of Brunswick's sales by 2000, up from just over a quarter now. Brunswick picked its acquisition targets after surveying boat customers to see what other outdoor activities they pursued. Since early 1996, Brunswick has spent $500 million to buy American Camper, Roadmaster, Flexible Flyer, ice chest maker Igloo Products, bikemaker Mongoose, and others.

ONE SUPPLIER. There's more to come. Larson has put together an A-list of about 25 sectors with top-selling sporting goods products that he can cross-market. But he's going at it carefully, ruling out team sports and seasonal products such as snowmobiles. What ties most of the businesses together, says Larson, is the ability to cross-market--selling fishing gear to boaters, or bundling biking and camping products together--and to sell it all through mass-market retailers.

This summer, Brunswick will unveil new stores-within-stores that bring together many of its products in one display at big retailers such as Wal-Mart and Kmart. Jim Potter, Kmart's sporting goods merchandising manager, is enthusiastic about dealing with a single supplier for several categories. Still, he cautions: ''It's unproven whether Brunswick can find a common string between fishing, camping, and coolers.'' Brunswick board member Jay W. Lorsch, a human relations professor at Harvard business school, a supporter of Larson, doesn't underestimate the risks. ''The question is do we have the management capability to execute as we get bigger.''

Even as it makes the attempt, Brunswick will face a host of new rivals. Bicycles, for example, is a notoriously tough, low-margin business. Brunswick's Roadmaster unit, which holds about 18% of the low-end bike market, faces industry power Huffy Corp. with 25%. ''Maintaining our No.1 position is very important to Huffy,'' says Chairman Richard L. Molen. He's serious: Just weeks after Brunswick bought Roadmaster, Huffy cut prices 15%, forcing Brunswick to slash its own prices.

Can Brunswick remake itself as a recreation powerhouse? The rising tide of the current economic boom is lifting a lot of boats, including Brunswick's. The question is whether Larson can avoid the sandbars after the tide turns.

The Business Week article includes a nice photo of Mr. Larson, a Sea Ray boat photo, a Flexible Flyer photo, and a American Camper photo.

The article has an insert titled, "An SOS from Outboard Marine", discussing the current difficulties at OMC. It also has a BC vs. OMC stock price graph.

Copyright 1997, by The McGraw-Hill Companies Inc. All rights reserved.




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