Rebirth of a Sales Man

His turnaround strategy entails hiring a battalion of college graduates to hit the stores; sexing up the products with new TV spots and jazzed-up designs; and stripping out fatty working capital. Galli now demands 5% annual increases in factory productivity and unleashes dedicated sales teams that work the store floor and talk to the highest levels at Home Depot, Wal-Mart and Lowe's. He has told Wall Street that, if all goes as planned, operating margins will go from 11% to 15% in five years, internal sales growth will go from zero to as much as 10% and earnings per share will grow 15% a year.

A lot of folks doubt Galli can pull it off. Only 4 of 15 analysts covering Newell have a buy rating on the stock, and two have outright sells. "People who say this will be a quick turnaround are really overoptimistic," says Eric Bosshard of Midwest Research, who has been covering the company for ten years.

Initially, profits will suffer: Earnings per share will be off this year by 30% to $1.20. But cash flow from operations more than tripled in the first half of this year, to $360 million, mainly through the basics of lower inventories and slower payments to suppliers. For the first time in 30 years, Rubbermaid is changing the unadorned, utilitarian design of its water pitcher, adding a swoosh-like handle and a rubbery bottom-half to match a new line of kitchen gewgaws like butter dishes and pepper shakers.

"I don't feel like I have anything to prove," says Galli. But you get the feeling he does. Galli grew up in middle-class Pittsburgh, the son of a doting mother and a hard-nosed father with an eighth-grade education who still works most days at the junkyard he has owned for 50 years. Galli denies he carries a chip on his shoulder, but it has been there from the start. As a teenager, he dreamed of wrestling for Penn State, but the coach rejected him. So he joined the team at the University of North Carolina at Chapel Hill. He still relishes the memory of beating his Penn State opponent in the 142-pound class all three times they grappled. Each time, Galli would glare at the Penn State coach as he walked off the mat.

Upon graduating in 1980, Galli took a job as a sales rep for Black & Decker. He worked his North Carolina territory hard, driving to hardware stores in a van with an interior he personally equipped with a replica of a retail wall of power-tool accessories. Late on hot afternoons he would pull up and invite tired store managers to sit in the van and relax with a cold soda. Within a year his territory's sales were the fastest-growing in the U.S.

In 1991, when Galli was 33 and overseeing sales of power tools, he put together a plan to launch the DeWalt brand as Black & Decker's high-margin entry for skilled tradesmen and consumer do-it-yourselfers. With the blessing of his bosses, Galli rallied troops of college recruits, dubbed "swarm teams," who evangelized the DeWalt brand at store openings, union halls and Nascar races. From 1992 to 1999 DeWalt had astounding growth, going from $60 million in sales to more than $1 billion. By age 38 Galli was the second-highest-paid executive at Black & Decker, running the worldwide power tools and accessories business, which provided 64% of the company's $4.6 billion in sales.

But Galli wanted to succeed Nolan Archibald as chief executive sooner than Archibald was ready to step aside. Relations soured between the two, and Galli was fired in April 1999. He received an estimated $8 million in severance and agreed to forgo joining a competitor or customer; he also was forbidden to hire away employees and even those who took other jobs in the next three years.

His departure set off a mad month of courtship by recruiters. PepsiCo offered the top slot at Frito-Lay, with $7.5 billion in sales and $1.4 billion in operating profit. Meanwhile Galli was being wooed by Kleiner Perkins venture star John Doerr to join Amazon. Galli recalls his dad saying he'd be crazy to spurn Frito-Lay: "You're 41. They have a bunch of airplanes. You'll be set."

Galli signed with Pepsi on June 23, 1999. He toasted his new job over chilled vodka shots with Pepsi's former chief, Donald Kendall, and then-Chairman Roger Enrico. But when he got back to his hotel in Westchester County, N.Y. that night, Amazon recruiter Norbert Gottenberg, then of Spencer Stuart, was waiting in the lobby. The two stayed up until 3 in the morning hashing out a deal as Jeff Bezos flew overnight from Seattle for a breakfast meeting.

Hours later Galli called Pepsi and quit before he started. He was going for the Web gold--a $200,000 salary, a $7.9 million signing bonus with $2.9 million up front, and 4 million options exercisable at $58. A 10% annual return on Amazon stock would get him $1.2 billion by age 61. "I felt terrible about letting [Pepsi] down. It was a hard decision, but had I not done that, I would always have wondered what that life is like," Galli says now.

Within 48 hours he was in Aspen at one of John Doerr's executive summits, mingling with media darlings Steve Case of America Online and Kim Polese of Marimba. "I was feeling pretty damn exhilarated," Galli says. Reality soon set in. A month later, in July 1999, Galli flew to Reno, Nev. to check on a new distribution center, one of five that Amazon was spending $300 million building. Christmas was just five months away, but he found utter chaos: No plan was in place to organize jobs, no dates were set for when the lights would be up and working, and most of the equipment was still in crates. "It was eye-opening to say the least," he says.

Galli made his share of enemies at Amazon; he barred his software developers from buying $50,000 workstations without prior approval and ended a free-aspirin program, a harmless cut that nevertheless rubbed everyone the wrong way. Bezos became more involved at staff meetings that Galli had once led solo. And Amazon's prospects were fading, its stock off 40% 12 months after Galli joined. By March 2000 Galli told John Doerr it was time for him to leave and run his own company; he even turned down a $1 million offer to stay.

But Galli still believed zealously in the Web. The business-to-business firm VerticalNet, sporting a market value of $3.6 billion, gave Galli a $4 million signing bonus and 3 million options priced 16% below the stock price on the day of the grant.

The B2B hype faded soon after he arrived. Galli sold VerticalNet's largest asset, a broker of electronics components, to focus solely on software. Says he: "It no longer had scale for me. I didn't want to be in a startup environment." And a lot of VerticalNet employees didn't want Joe. People began sniping about his liberal leasing of a Gulfstream IV, occasionally flying alone, and of how he was never without his personal public-relations agent.

VerticalNet's stock dropped from $62 in June of last year to $5 by mid-December. Galli renegotiated his options package, but the end came before it mattered. On a trip to Germany, Galli got a call on his cell phone from a recruiter pitching the Newell job. The company, which dates back to a turn-of-the-century maker of brass curtain rods in upstate New York, had grown quickly in the 1980s and 1990s by acquiring manufacturers of office supplies and housewares. Now it was languishing.

Galli smiled as he listened: real brands, real factories, 48,000 employees and seven corporate jets. Its workaday wares don't lose money, either. A Rubbermaid closet organizer comes with a 55% gross margin. Galli quit VerticalNet in early January, giving up all options and $2 million of his bonus. A cartoon in the Philadelphia Business Journal a short time later portrayed Galli as a rat escaping a sinking ship in a Rubbermaid tub. (VerticalNet's stock is now down to 60 cents.) "I went through some things I don't ever want to do again," Galli says. "I'm a stronger and less naive manager than I ever would have been."

Even before Galli quit, he began boning up on Newell's business. He read 30 analyst reports going back two years. Two weeks before his final interview with the company's board, he put on his blue jeans and visited 50 stores, chatting up Wal-Mart employees and memorizing Newell's product displays. In the first week of 2001 he delivered a one-hour presentation to the board, without notes. Scott Cowen, president of Tulane University and a Newell Rubbermaid director since 1999, was awed. Says he: "This guy can be one of the legends of American business."

Suddenly Galli was back in the same consumer brand atmosphere he had breathed at Black & Decker. Galli blocked off his calendar for the first three months to travel the world and meet every manager he could. His predecessor, John McDonough, a diabetic whose leg had been amputated in 1999, spent nearly all of his time at executive headquarters in Beloit, Wis. Galli spent all of 36 hours there in his first 6 months.

Galli was stunned by the lassitude he saw. Almost every day he was getting calls from divisions breaking bad news that their wares were losing product reviews at Wal-Mart, Home Depot, Kmart and Target. In his first week he hit the housewares show in Chicago. In its heyday in the early 1990s Rubbermaid earned 30% of its sales from new products and dazzled the show with its elaborate displays. His tour of the Rubbermaid booth took five minutes--only three new products were on display.

One month into the job, at an executive conclave at Amelia Island, Fla., Galli held forth with a 90-minute strategy speech. Again, no notes. "You have to declare yourself as fast as you can to avoid ambiguity," he says. He shamed them with photos from 30 examples he found of "heinous" retail product displays. Instead of joining the crowd to play golf the next day, Galli flew to Toronto for a dinner speech to his Canadian sales team. "This is supposed to be a global company, and no one could remember the last time anyone from high command has been to Canada."

Managers eager to push faster growth suddenly saw their pet projects funded for the first time. The $1.9 billion pen division had only tiptoed into the $800 million children's market, dominated by Crayola with a 75% share. Galli green-lighted a $2 million ad campaign. "Joe told us, ÔYou guys have to think bigger, faster, more, more, more,'" says Paul Donahue, president of Newell's Sanford North American pen business.

Veteran employees were in a panic, calling around to see what the new boss wanted. Galli needed to bring in people he could trust, so in April he called Black & Decker's general counsel and got permission to recruit managers who had left since 1999. Within 48 hours he had signed nine of them.

It irked Galli that a Rubbermaid purchasing manager had a cozy friendship with a supplier of manufacturing tools for its factory in Wooster, Ohio. He wanted to know why Rubbermaid wasn't clobbering the supplier for lower prices and inviting bids from cheaper rivals in China. He fired the manager in April.

Some of those fired began hitting Internet chat rooms to blast Galli--calling him "Little Joe" and assailing his use of corporate jets and the $20 million he spent to sponsor a Nascar driver. An anonymous package was sent recently to Forbes with a warning that Galli is "the next Al Dunlap," and a two-page confidential letter purportedly from a 20-year company veteran pleading with Newell's former chairman, Daniel Ferguson, to stop Galli or he would "ruin the company."

Galli canceled the annual golf retreat at Lake Geneva, Wis. It had cost $1 million and occupied 200 top executives for a week. "Some don't like my style, but guess what? We're not running a country club here. We're going to win. We're going to be a company that makes our numbers," he says. He also ended the biweekly chapel service at the Graco baby-products division, though it was started by Graco's devout Christian founders in 1955.

At Rubbermaid a clean sweep is being made by new chief David Klatt, 37, a longtime Galli pal. Klatt did his own New Economy U-turn from Black & Decker to a one-year stint at wireless infrastructure firm AirClic. At Rubbermaid he has tripled spending on new-product development and is putting the brand on prime-time TV this fall for the first time in three years. The ad blitz will cost $15 million--more than was spent in the last ten years combined.

Klatt is pushing science and fashion in equal parts. Due next year: the first line of stain-resistant food containers, which eliminate that evil reddish tinge caused by the acids in tomato sauce. He gushes that after product reviews with Wal-Mart, Kmart and Target, the word is Rubbermaid will regain lost shelf space next year.

To make sure that happens, Galli has pledged to spend $40 million a year on what he calls the Phoenix program, a reprise of the "swarm teams" that pitched DeWalt power tools (and an idea he floated unsuccessfully at Amazon). In the summer Newell hired 450 wide-eyed recent college grads to sell the bejesus out of Newell's everyday goods. Each youngster got a $37,000 salary, use of a new car emblazoned with a logo and eight days' worth of free clothes.

In the past two months the Phoenix kids have stacked displays at the end of 5,000 aisles at mass merchants and descended on 30 Wal-Mart openings. At a Lowe's in West Virginia, one Phoenician put 20 five-gallon coolers near the contractor area and sold them all by the time he left in the afternoon. "Our stuff is more impulsive than power tools, so the more we get out by the registers, the more it will fly," says Richard Kern, a Black & Decker alum who manages the Lowe's account.

One conspicuous absence from Galli's playbook is a big Internet strategy. Says he: "We can have the most killer Web site in the world, but if we don't have reps building end caps in Home Depot and Wal-Mart, our sales aren't going to go up."

Joe Galli feels like he has come home again, walking stores and factories far from the digital fantasyland occupied by Jeff Bezos and John Doerr. He gets down on one knee to rifle through an 18-gallon Rubbermaid Brute container filled with spatulas, combs, hair scrunchies and markers. Pretty mundane and mature product lines, but he had dozens of ideas for putting them in more aisles at Wal-Marts everywhere. "Mature? Bullshit! This not a mature market," he insists. "There are only mature managers."