Following 18 months of shrinking sales and profits, Sharper Image Corp. founder Richard Thalheimer, the merchandising visionary who made high-end gadgetry accessible to the masses, was replaced as chairman/CEO on Sept. 25. He retains a seat on the board of directors, however.
Turnaround specialist Jerry W. Levin, who has been on the board of the San Francisco-based cataloger/retailer since July, was tapped as chairman and interim CEO. In a release, the company said it “will begin immediately an executive search to find a CEO with strong leadership skills, merchandising experience, and a history of business success.” Levin is perhaps best known for replacing “Chainsaw Al” Dunlop at Sunbeam (now American Household) in 1998. His company, JW Levin Partners, has been signed by Sharper Image for a one-year period “to help address [its] operating issues,” according to the statement.
Although the statement said only that Thalheimer “is leaving,” Knightspoint Group, a shareholder group that owns 12.8% of the company, wanted to replace Thalheimer and the rest of the board of directors back in March. (See “Dull Performance Shakes Up Sharper Image.”) Rather than face a proxy fight for control of the company, Sharper Image in May agreed to place three Knightspoint members, including Levin, on the board.
Sharper Image’s sales fell 12% last year, to $668.9 million from $760.0 million in fiscal 2004. Direct-to-consumer sales tumbled 21%, to $194.7 million. And the company posted a net loss of $15.2 million for the year, compared with net income of $14.7 million the previous year.
Knightspoint wants to cut and redirect marketing spending, defer store expansion, eliminate significant quantities of slow-moving and obsolete inventory, adjust executive compensation, and overhaul the product development process. Levin could not be reached for comment at press time, but Sharper Image spokesperson Michael Gross says that Levin will be charged with “putting Sharper Image on a track to profitable growth and restoring shareholder value.”
Sharper Image’s troubles “are a result of not being able to replace the sales of a huge hit,” says Stuart Rose, managing director at Wellesley, MA-based investment bank Tully & Holland, “The Sharper Image is a ‘fashion company,’” Rose says, in that it needs to continually churn out new hit products on a seasonal basis. “But it relied too much on one product — the Ionic Breeze air purifier. This is what happens when fashion companies rely too much on one product and can’t follow up with new hits and smooth out the curve. You see it all the time in apparel stores, like the Gap.”
In light of the company’s response to ongoing sales declines, Rose says he wouldn’t be surprised if the company closes “money-losing stores and is sold in the next year. The ups and downs of a fashion company might fit better in a private context. Some private equity group might bring it private and then restructure it away from the prying eyes of the public market.”
Craig Battle, managing director of Princeton, NJ-based investment bank Tucker Alexander, says he can imagine several scenarios: “First, you can have someone come in, right the ship, and tell us what’s wrong and what the prospects are for moving forward. If he says you have systemic problems that require a major overhaul, they may decide to market the company. But it’s more likely that this guy will stabilize things and hand it off to the new guy. Even if they did decide to sell it, they wouldn’t do it right away. It’s more than likely that they will ultimately hire a guy with operating and turnaround experience who can build a business. If the interim guy identifies fairly traditional issues that can be handled with skillful leadership, that would dictate one kind of hire. If there are systemic, complex issues, that would dictate another kind of hire. And if it’s a mess, they’d sell it.”