Oreck is one of the world's largest cleaning manufacturers but, like so many businesses in New Orleans, suffered the effects of Hurricane Katrina. Second generation Tom Oreck talks to Marc Smith about surviving a natural disaster
As family-owned Oreck Corporation enters into its 45th year, it is a little ironic that the vacuum cleaner manufacturer remains so closely linked with the clean up operation left by Hurricane Katrina, which claimed over 1,800 lives back in 2005.
While the firm gained widespread acclaim in the US media for the way it helped its staff in the immediate aftermath of Katrina, it has more recently been accused of deserting the very people it helped get back on their feet by moving the bulk of its operations out of New Orleans and into Tennessee, 600 miles away.
Naturally, second generation chairman Tom Oreck (pictured) does not agree with these criticisms and is keen to set the record straight. "What is true is that when we looked at how close we came to being put out of business from Katrina, we realised we were carrying more risk than we could afford," he tells Families in Business. "The storm surge was about half a dozen blocks from our manufacturing facility and although we had a lot of damage, if we had been a little bit closer it would have been destroyed and we would have been out of business."
The firm initially looked at securing a secondary plant away from the coast but the rising cost of insurance in the region, which more than doubled for just a third of the coverage, put paid to that idea. As Oreck notes, it meant the firm had virtually no coverage at all. Equally as important were the labour issues; with roughly half the working population not wishing or being able to return, the cost of hiring new staff proved to be exorbitant, and by no means certain, as the labour market became squeezed by pressure from the construction and casino industries.
"We realised that the Mississippi Gulf coast was not going to support our business any longer," recalls Oreck, "so we made the difficult decision to move the manufacturing plant to Tennessee and since then we have moved some of our other operations as well."
But this view was not shared by Richard Bennett, chairman of the regional development commission, who was quoted by The New York Times saying: "We bent over backwards to work with them [Oreck]. For them to pull up and leave is very dispiriting, to say the least, at the time when we need it most."
But far from being an easy decision, Oreck says it was one of the most difficult he has had to make. "Emotionally it was very difficult because we have deep roots and long ties with the [New Orleans] communities," he says. "Although we didn't want to do it, the fact is the responsibility we have is to our stakeholders, employees and customers , to make sure we had a company that could survive and sustain its business."
The spat is a far cry from the glowing headlines the firm garnered at the time – which included being named by TV station CNN as one of its "Heroes of Katrina" – as it became the first company to reopen a national HQ and manufacturing plant following the hurricane. Oreck helped those employees who were willing to move and took the time to give those who did not want to move training on how to write CVs, how to do interviews, and even placed people into new jobs before they were laid off from the job that they had with Oreck.
Today, over two years on, Oreck takes a more philosophical view of the proceedings. "When Katrina shut us and everybody else down, our commitment was to our people first and foremost," he says. "It was a staggering thing to deal with in terms of humanity, so we simply did what was right, which was to put them first."
Indeed, Oreck believes the disaster was a good test of the old adage about family firms being more caring about its employees and customers. "The most obvious lesson I learned is that family businesses have a very rare opportunity with their employees in a way that many non-family companies do not," he explains. "Our customers still say they love their Oreck vacuum cleaners, which is an amazing word to use about a device that picks up dirt. I think it comes from the fact that our employees are zealots, which in turn is because we are zealots about them."
There is no doubt in his mind, therefore, that both firm and employees passed the test with flying colours. "Our people had the business back up and operating within 10 days, which is astonishing," he says. "I don't know how they did much of what they did and I'm not sure I want to know how they did it."
And it wasn't just about employees, either. Oreck's daughter – a doctor specialising in emergency and internal medicine – stayed at the city's Charity Hospital during the hurricane until the last patient was evacuated. "We are all so proud of what was a heroic effort on her part," reveals Oreck.
A new beginning
Oreck stepped down from the role of company CEO in September 2007 – he now holds the position of chairman – and hired a non-family executive whom he describes as "a very fine and capable individual". Oreck himself now focuses on the longer term issues of brand and customer management.
Is that because there are a finite number of improvements you can make to a vacuum cleaner? "We still have a tremendous opportunity to expand our customer base in that area," he counters. However, it is clear that the firm has had to look outside its core product area for growth – it now makes air purifiers and cleaning products as well. "There's no question that our brands are bigger than our products, so there's tremendous opportunity to expand into other product categories," says Oreck. "I think we have a lot of room for growth."
Perhaps surprisingly, the market for vacuum cleaners has yet to experience a real market disruptor, and people still clean their homes in much the same way as they did when Oreck's father, David, founded the firm. As a result, Oreck focuses on the timeless practice of customer service. "Our growth is based on the fact that we are focused on exceeding expectations to the customer, that we deliver more than we promise," explains Oreck. "We are so focused on enhancing 'the Oreck experience' that our customers love the product, love the service, and are always delighted by how much more they get than what they expected."
The business is split between commercial (ie, hotels) and retail, which is by far the biggest part. A key part of the firm's business model is its preference for retail franchising, which Oreck believes is "an opportunity to expand the business in a very controlled way." He estimates that 40% of the firm's business comes from franchising – the other 60% comes from direct response.
And he doesn't see it as a poor relation to owning stores yourself. "The rules of the franchise are well-defined. We define how people have to present our brand, how customer service is done and how the product is presented," he explains. "You also have the advantage of a local partner who is watching his business at the local level."
The history of Oreck
The firm was founded by David Oreck in 1963 when he quit his job as a general sales manager in New York. At the time, he was working a lot with Whirlpool, who were unable to make a success of their upright vacuum cleaners. David believed that with a redesign of the machine, he could give it a new lease on life, so Whirlpool gave him exclusive rights to market them throughout the US and a free reign to redesign the machine. They even produced a prototype for him.
In New Orleans, a distributor he had dealt with was fighting for its life and wanted to know if he'd be interested in taking it over. Within 48 hours he'd bought the floundering business and in two years time, it went from last to first place.
When larger competitors dismissed the incredibly lightweight Oreck vacuum as being too light, David aggressively marketed it to hotels. By proving the vacuum successfully cleaned hotel rooms, and that hotel housekeepers preferred it to their own heavy models, he then marketed the incredibly lightweight vacuum to consumers as a "hotel vacuum for the home."
David used this message as he revolutionised direct marketing, by offering his new product directly to consumers through a series of mail offers and memorable radio commercials. Oreck now sells throughout North and South America, as well as in Europe and Asia.
Following in the footsteps of a classic entrepreneur, then, how does Tom Oreck define himself in business terms compared to his father? "I think I am a bit of a mongrel in that respect," he says candidly. "I have a great deal of the classic entrepreneur in me, but I think I have the training that also injects a more professional business technique and more of a team approach and mentality."
David is still involved everyday and is still the face seen on TV adverts and on the company website. Tom says this is both a blessing and a challenge. "On the one hand it is a blessing because I have his trust and access to his vast knowledge, but it is also a challenge because of the dynamics involved in my father, the founder, reporting to me," he says. Other family members involved in the firm include Tom's uncle, Marshall, who is executive VP and involved everyday, and his brother, Bruce, who is senior VP and general counsel, but only involved "to the extent that attorneys are."
Tom sees himself as a transitional figure whose job has been to transform "what was a one-man-band into a symphony orchestra". In other words he changed what was a one-product company and broadened the product offering under the brand. As he muses on the business challenges that lie ahead, he almost inevitably returns to the hurricane. "Katrina created a nine month disruption of our normal marketing and product innovation activities," he says, "so 2008 is all about moving very quickly to get on the front side of those two things."
As father of three young children under the ages of 10 (in addition to the heroic doctor), Tom says there is no formal succession plan in place. "We've got a bit of a gap this time as there's no one past my generation who is yet involved in the business, which is of course one of the reasons why we get professionals from outside." Nevertheless he remains hopeful that he'll be able to help them get involved in the business. "I'm counting on it because I look at my father who's still going strong and I'm hoping there's some sort of genetics thing going on," he says.
Away from the business, both Tom and David seem to be in some sort of competition to be the most active. David still rides his mint-condition motorcycles to work, flies his biplanes out of New Orleans Lakefront Airport and runs a few miles a day in Audubon Park – pretty impressive for an octogenarian. "Interestingly enough I am a pilot as well and have been for 35 years," says Tom. "I used to fly gliders, do aerobatics in small flip planes, fly jets and turbo-props – anything I could get my hands on."
Not content with mastering the skies, he has also tackled land and sea. "I used to be involved in the martial arts – I practised and taught aikido – and I was a scuba dive master," he says. However, with the growth of his family sporting prowess has had to take a back seat. "My hobbies now seem to be centered around my family," he laments.
Despite this, he is keen that the firm will remain in family hands for years to come. "I am hopeful that it will remain a family business regardless of how much direct family management is involved, because it is important to us," he says.
The family is now housed in a new 8,000-square-foot home in Nashville, Tennessee and there is really only one question left to ask: who does the housework in the Oreck household? "I have to be honest laughs Tom, "We have a cleaning lady who comes in three times a week, although she is delighted that she has an Oreck vacuum to use!"