After the Spring Festival 2018, some staff at LEXY, China’s largest contract manufacturer of vacuum cleaners, were notified of post adjustment due to business realignment. Yet behind this slight adaption lies the largest merger of the vacuum cleaner sector and its possible restructuring.

20180703232903 41153 - SharkNinja--Billion Dollar acquisition and change of  Vacuum Cleaner industries

This redressal involved two domestic listed companies, a private equity magnate and a leading vacuum expert from USA, alongside an acquisition at a hearsay price of up to RMB 10 billion.

 

The leading actor of this story is SharkNinjia Opererating LLC or SharkNinjia for short, a USA-based vacuum innovator with 20% local market share or more. Its contract manufacturing, merely in LEXY, has scaled up to nearly RMB 1 billion, accounting for 20% of LEXY sales as indicated in 2016 annual reports.

SharkNinja, formerly Euro Pro Operating LLC, is a prestigious centennial family enterprise. Its current products come into two broad categories:

Shark-branded vacuums and steam mops

20180703232939 32429 - SharkNinja--Billion Dollar acquisition and change of  Vacuum Cleaner industries

and Ninji-branded kitchen appliances

 

The year of 2014 saw Shark and Ninja product sales reach USD 1.6 billion.

Yet for over a hundred years, Euro Pro featured sewing machine rather than vacuums. How did Euro Pro make it to transform from a sewing machine producer into a vacuum giant, a runner that raise its market share to over 20% from 1% within just ten years?

111 1 - SharkNinja--Billion Dollar acquisition and change of  Vacuum Cleaner industries

It succeeds for several reasons:

First, market chances.

Prior to Dyson’s entry, the North American market was rife with vacuums priced below USD 100 from such brands as Eureka, Bissell and Hoover. Upon its presence, the ceiling price was lifted beyond USD 400, when a huge gap emerged between mid-and-low-end models and upscale ones priced from USD 100 to USD 400. 

SharkNinja CEO Mark Rosenzweig and President Mark Barrocas awoke to this opportunity and made up their minds to launch vacuums priced at USD 150 or so, a price range then termed as “wasteland” at which no vacuum was sold out.

 

Second, product upgrading.

SharkNinja also optimized products marketed, enabling light weight and ease of use. Consider that, vertical-type vacuums, possibly weighing 10 kg as shown below, dominated the US market of the day, upsetting housewives who often had to lift up the product to clean their detached houses room by room.

222 - SharkNinja--Billion Dollar acquisition and change of  Vacuum Cleaner industries

Third, top quality.

Euro Pro remains committed to “Quality First” from the outset when it was not a magnate. For all I know, EP test is quite rigorous, demanding far more than the industry requires, which gives rise to Euro Pro’s conflicts with its contract makers. Consider, as a case in point, Euro Pro and its contract manufacturer Elec-Tech International Co., Ltd. (hereinafter referred to as ETI) filed law suits against each other in 2013.

ETI 300x241 - SharkNinja--Billion Dollar acquisition and change of  Vacuum Cleaner industries

I had contacted with Euro Pro procurement officers at 2007-2008 expos, when they were prospecting for steam mop partners. I heard later Euro Pro joined hands with Zhongshan Xiotin, but still at last, cooperation terminated due to quality issue.

It has been recently rumored that Ningbo-based Furja, contract maker of SharkNinja, undertook a recall action in response to quality problem of a certain batch of goods. What’s worse, this partner had to meet claims of tens of thousands yuan, and saw its order to be suspended for several months.

Forth, persistence on feedback collection and iteration.

Unlike its rivals that put more emphasis on distributors and channel relations, Euro Pro seeks to solicit consumers’ feedbacks and ideas through various approaches and sustain improvement. I’ve been told by some friend that before Shark vacuums officially hit the market, consumers will be offered hundreds of samples, to facilitate feedback gathering and succeeding product modification. Product modification may result in production delay, and even airlift of the entire batch to overseas distributors, which implies additional costs of one or several million yuan.

 

Fifth, heavy advertising spending.

With products launched and presence made on supermarket shelves, a big question comes up: how to make consumers know and choose Shark vacuums when dozens of brands, models and specifications are available on Walmart shelves. Euro Pro handles it by heavily investing in TV commercials in ways to tell them Shark products are best fits.

The year of 2013 saw Euro Pro invest USD 130 million in TV ads, making it the largest TV advertiser in US home appliances sector.

 

Mark Rosenzweig, the third generation of the family and shareholder and CEO of Euro Pro, has been engaged in family product promotion through TV shopping channels since 2007, amid his great efforts in management innovations. Below are some screenshots of ads involving Mark Rosenzweig.

 

Mark Rosenzweig, too active on the screen, even saw his fans build IMDb pages for him.

 

http://www.imdb.com/name/nm2302556/otherworks

Through high input in TV advertising, incessant product innovation and top-quality products, Shark grows into a vacuum leader in seven years, with market occupancy rising from 1% in 2008 to 20% in 2014, and overall sales hitting USD 1.6 billion.

Despite that Shark and Ninja enjoyed ever-growing popularity and stronger market presence, Euro Pro was little known to the public. Euro Pro employees even had to label “Shark Ninja brand creator” on company profile to attract attention. To unify brand and company names, Euro Pro officially announced its name change to SharkNinja Operating LLC. on July 22, 2015.

SharkNinja currently has such major contract makers as LEXY, Tek and Ningbo Furja. What’s the reason for its retreat from LEXY then?

You may take a look at following news reports:

In August 2017, CDH Investments announced investment in SharkNinja at a hearsay acquisition cost of RMB 10 billion.

CDH Sharkninja 300x137 - SharkNinja--Billion Dollar acquisition and change of  Vacuum Cleaner industries

Let’s look at a report released on February 8 by Joyoung, a giant running small home appliances business in China.

Joyoung SharkNinja 300x85 - SharkNinja--Billion Dollar acquisition and change of  Vacuum Cleaner industries

Given CDH’s purchase of SharkNinja and Joyoung’s announcement of shares, the thing comes down to Joyoung’s strong move into the vacuum sector by riding the momentum of CDH’s purchase of SharkNinja. Joyoung, the listed company known for its soybean milk makers, partners with SharkNinja to march into the vacuum market, presenting tough news to old vacuum runners like LEXY, TEK, Midea and Puppy.

You may say Midea’s purchase of Eureka brand of Electrolux made no difference on the vacuum industry, but it is different this time: Joyoung has likely been the game changer via acquisition of SharkNinja, a leading brand in North America and possibly the largest-scale vacuum business runner based on order quantity.

It’s at least predictable the vacuum market will witness tougher competition in 2018.

1111 - SharkNinja--Billion Dollar acquisition and change of  Vacuum Cleaner industries                                                       (Latest photo of Mark Rosenzweig)