Leo Cadelo has been in the floor care industry for over 20 years, rising through the sales ranks at Eureka and ascending to the company presidency in 1997. Under his direction Eureka has assumed a far more aggressive new product development and innovation posture within the industry, entering new categories such as extraction and steam cleaning. In the summer of 2001 Cadelo announced his retirement. In the following interview with HOMEWORLD BUSINESS® Executive Editor, Cadelo shares his insights from his floor care industry experience and projects the future of the industry. HomeWorld Business: How would you characterize the health of the floor care industry today in terms of its relevance to the consumer; the strength of the category relative to other housewares segments; and the ability of retailers and manufacturers to continue supporting the category in light of price erosion? Leo Cadelo: The floor care industry is and has been holding up extremely well. I do not see that changing.This industry will continue to grow based on the furious competition that forces innovation in order to maintain profitability. Our business of the past years has been built on three pillars: expense control, innovation, and marketing. This formula, injected in 1997, was in place through the good economy and worked very well. It also positioned us very well as the economic slowdown began in 2000. Through the whole period Eureka has thrived and we are once again experiencing an excellent year in 2001 despite all the economic problems. HWB: How has the floor care industry changed over the time you have spent involved in it? How do you expect the industry to change over the next decade? LC: The industry has changed in many ways. There are less players and chances are there could be further thinning out in the amount of manufacturers. Advertising has become a way of life and it takes large dollars to gain visibility now a-days. This in itself is a change since not so many years ago advertising budgets were less than half what they are now. Finally, the new product introductions are fast and furious meaning the product life cycle is much shorter. This, of course, focuses you to be on top of your business daily since misreading the life cycle of a product can be disastrous in the current environment. Evidence of this phenomenon is very obvious today in our industry. HWB: What have been the most significant developments in this industry over the last 10 years? What do you expect will be the most significant developments going forward? LC: The development over the last 10 years that has affected the industry the most, I feel, is the consolidation of retailers. This is significant in how you plan your product cycles and logistics as well as the fact that fewer retailers, of course, change the dynamics of the industry. Further, floor care has finally become just that, we have gone past traditional classifications such as uprights and canisters and a flood of new areas have developed. Lightweight cleaning, steam, extraction, bare floor cleaning, filtration, etc. It has been a good healthy period for the floor care industry. HWB: What are the primary challenges that face floor care manufacturers today? How do you expect that to change a decade from now? LC: The main challenge facing manufacturers based on what we see is maintaining reasonable and consistent profitability in light of all the price discounting that has gone on and will go on in the future. All other challenges become secondary to achieving the right formula to maintain profitability since chasing market share without reasonable profits is a fool’s game. I expect further shake-out in the industry over the coming years based on the slim margins manufacturers are currently working on. HWB: Over the past several years a growing portion of manufacturing has been moving to Mexico and appears increasingly to be moving to China. How important will Chinese manufacturing become in the industry over the next several years? Will the industry continue to be able to support domestic manufacturers or will most floor care companies become sourcing/marketing companies? LC: In the U.S. we are in a brand business. In order to maintain and grow your brand you must advertise and focus the consumer on your message and brand. While the costs of overseas manufacturing are lower, innovation and marketing will also play a large role in the future. There will obviously be some shift in manufacturing but the fundamentals of the marketing game in the U.S. will remain consistent. Chasing low labor costs throughout the world is not the long range answer for strong companies. There has to be a balance and I feel our focus at Eureka has given us an edge over the competition in the past few years. HWB: What were the biggest challenges facing Eureka when you assumed its presidency? How did you address those challenges and how would you assess the results? LC: We were slow moving, the costs were high and the investments were in the wrong areas. These were three of many areas we felt were key. We attacked these issues using a team concept and very quickly brought costs under control. Our cost philosophy became that we always watch costs as if we are always in a recession economy. At the same time we accelerated our pace in innovation and marketing and redirected our investments to these two areas treating anything else as a cost to be reduced and eliminated. At the same time we began an asset reduction program that put pressure on our asset base to be productive or we disposed of them. The results have been outstanding. Currently we feel that no one sells more vacuum cleaners and sticks than Eureka in the world, this gives us a cost and manufacturing base that has allowed us to grow our profits every year and even this year 2001, our profits are excellent measured against our own high standard, not the numbers reported by other manufacturers in the industry which we feel would be too low a bar for us to utilize. HWB: What are the biggest challenges facing Eureka in the next several years? LC: When you are #1 in unit sales you must now increase your per unit average dollar. Once you have accomplished this you will reach new profitability heights. Mix improvement is key even in this time of eroding prices. This has to be achieved by investing heavily in innovation and we intend to do that as we have in the past few years. Also, new categories need to be developed and exploded, as an example, steam which we currently dominate, as well as others we are working on. We must maintain and reduce our costs by 5% to 10% a year for the next few years in order to maintain our strong financial position. HWB: Of what accomplishments are you most proud? LC: I’m most proud of our move into the #1 unit producer in the world and achieving this with growing profitability strongly every year through my tenure. I am also proud of the team we have developed and which will be in place once I am gone. Our employees took an aggressive posture in achieving our direction which was, to say the least, a difficult task and did so in a period of weeks and months. In most organizations it would have been years. I am very proud to be associated with the Eureka team and I am proud that they allowed me to work with them to achieve as never before. HWB: What will miss most about the floor care industry and Eureka? What will you miss least? LC: You will note as you go back over the past five years that Eureka has not sought publicity or bragged on our achievements either through the media or otherwise. This was a unique posture in an industry where I felt there was too much bragging, self-serving publicity and in general, too much conversation. Our direction was simple, we must be the best in all aspects, unit volume, profits, cost containment and many other measures and our reward was us knowing our impact in the business and what the accomplishments were, the health of our company and the satisfaction of our employees. This will continue to be Eureka’s direction and I will miss being with the team that is positioned to become even more dominant.