The once-iconic brand Sharper Image has in recent years become about as passé as the razor scooter it rode the decade in on. After peaking at $760 million for its fiscal year ending in January 2005, sales at the high-tech gifts and gadgets marketer have been in a free-fall.
The dismal financials prompted the company’s board to boot founder/chairman/CEO Richard Thalheimer in September 2006. As the merchant’s sales and profits sank further throughout the next year, many industry watchers had one question about Sharper Image: Who’s going to clean up this mess?
That would be Steven A. Lightman. The former president of multititle apparel mailer Crosstown Traders, Lightman was named president/CEO of San Francisco-based Sharper Image Corp. in April 2007.
Although he has played a key role in turning around several catalogs, Lightman spent most of his career with downmarket apparel merchant Arizona Mail Order. And selling lower-end clothing to mature women is about as far away as you can get from marketing upscale “toys for big boys.”
So who is Steve Lightman, how did he get this job, and what is he planning to do with Sharper Image?
A BRIEF HISTORY OF LIGHTMAN
Lightman, who started his direct marketing career at Arizona Mail Order in 1982, became president of the company when it was acquired by general merchant Fingerhut Cos. in 1998.
He oversaw the January 1999 purchase of apparel catalogs Bedford Fair and Willow Ridge from a bankruptcy sale, and Fingerhut’s acquisition of Lew Magram and Brownstone Studio in March 2000.
Lightman was named executive vice president of Fingerhut in November 2000; he helped guide the cataloger out of financial straits caused by problems in its credit business.
In October 2002, Lightman and former Fingerhut president Michael Sherman worked with JP Morgan Partners, a division of JP Morgan Chase & Co., to help it buy the Arizona Mail Order catalogs and food gifts title Figi’s from Federated Department Stores, which owned Fingerhut at the time.
This created Crosstown Traders, which was acquired by Charming Shoppes in 2005. Lightman was president of Crosstown from its inception until he left in January 2007.
A chance dinner meeting brought Lightman to Sharper Image. “I left Charming Shoppes and was going to take a year off and play golf,” Lightman says. “I was at a dinner and sat next to Jerry Levin,” the retail turnaround specialist and Sharper Image board member who had replaced Thalheimer as chairman and interim CEO.
“Jerry said he didn’t understand the direct-to-consumer business — his is a retail background,” Lightman notes. “One thing led to another, and the company excited me. I started meeting with board members and they made me an offer.”
Does Lightman know what he’s up against?
He says he had no illusions about the state of Sharper Image when he accepted the position. “Previously, the company was run by a different set of disciplines,” Lightman says. “When I got the company, it was broken.”
How bad is it? At $60.0 million, Sharper Image’s loss for fiscal 2006 was nearly four times that of its 2005 loss of $16.1 million. For its third quarter ended Oct. 31, 2007, total sales sank 35%, to $69.5 million, compared with $106.2 million in the third quarter of 2006. The net loss was $22.7 million, nearly the same as the net loss of $22.1 million in 2006.
For the nine-month period ended Oct. 31, total sales decreased 32%, to $217.4 million, compared to $320.2 million for the period in 2006. The company reported a net loss of $60.2 million, compared to a net loss of $49.4 million in the prior fiscal year’s nine-month period.
How’s Lightman going to fix it? He started by looking at merchandising and marketing. “What’s the value proposition to customers?” he says. “I have experience in a dire straits environment. The most important thing you have to remember in a turnaround business is that the only thing you can count on is surprises, and you can’t overreact.”
You need to look at what you have “and go through the fundamentals of multichannel marketing,” he says. Keep in mind that the customer is at the top of the pyramid. “Then make a clear, consistent message around the customer, and deliver a high quality product.”
Hiring new management was another priority. “We didn’t really have a management team,” and middle management was “starved for leadership,” Lightman says. The process took nearly seven months.
Who are the key personnel on the Sharper Image management team? Rebecca Roedell, chief financial officer; Drew Reich, executive vice president, merchandising; Joyce Maruniak, senior vice president, operations; Gary Chant, senior vice president, human resources; Jim Sander, chief legal officer; John Spotts, vice president, licensing division; John Yotnakparian, senior vice president, retail; and Mark Brodeur, vice president, visual presentation.
“The challenges in front of us are bonding as an executive committee and making sure our company visions and strategies are executed and implemented,” he says. And those visions and strategies need to be articulated throughout the entire association so “pickers in the distribution center know the vision of the company, as do sales associates in stores and associates in our telemarketing centers. They really represent Sharper Image. They’re the ones who deliver the value proposition.”
Another initiative was to cut marketing dollars way back. “It was a temporary decision until we got our act together to bring better quality,” Lightman says, adding that the company mailed 10% more catalogs in 2007.
The Website and catalog “look 100% better,” Lightman says. “With our catalogs, we’re using sharper headlines, creating more of a sense of urgency. There is more institutional copy in the catalogs that also talks about the stores and Website.”
The redesigned site has a new feel; it’s also easier to get to and use. “We’re tying the multichannel message to all our channels,” he says.
|WHAT ABOUT THE PRODUCT?|
Perhaps the biggest change so far is overhauling the merchandising process. “We shut down our product development department,” Lightman explains. “The reality is, most of it didn’t work for us.”
The vendors work with hundreds of people, he notes, “so let’s leverage our vendor relationships and ask them, What are the top 10 or 12 items we should be selling? And then create a version available only at Sharper Image.”
For example, a retail relationship with Panasonic specifies that various Panasonic products will be sold only at Sharper Image the first six months. “We have that relationship with several vendors,” Lightman says.
The company in the past year created a licensing division that will license The Sharper Image brand to manufacturers and retailers across a broad range of product categories, including electronics, bed and bath, toys, and apparel. It will also provide licensing opportunities on other intellectual property, including patents and trademarks. At press time, Sharper Image had 10 such agreements with licensees.
But can Sharper Image really succeed without Richard Thalheimer’s touch?
Thalheimer, who founded the company in 1977, was long hailed as a master merchant and product visionary who for years managed to follow up one hit with another.
Lightman says that as brilliant as Thalheimer was at building the company, the business model he used is antiquated for today’s marketplace. “Richard believed in an item-based business,” he says. “Find one hot product and bet the farm on this item.” Privately held businesses may still be able to get away with that, he notes. “But publicly traded companies owe shareholders more than betting the farm on one product.”
Not that Sharper Image has given up on seeking the latest and greatest gadgets, however. “We do have a ‘Next big idea’ committee that looks for one unique item each month to market,” Lightman says.
He admits that there will be a learning curve on product development and finding that next big idea, “but that’s about meeting with scientists and inventors and getting out and talking to people with wacky ideas. The difference now is we’re not allowing our core merchandising group to get sidetracked.”
Thalheimer was a great entrepreneur and sold a phenomenal brand, Lightman says. “He was a good merchandiser at an item level, but he never had category strategy or price point strategy, so the model didn’t have any definition around it.”
Craig Battle, managing director of Princeton, NJ-based investment bank Tucker Alexander, agrees: “Sharper Image lived off heroic products, sort of one-hit wonders.” And they were driven by a “very egotistical entrepreneur more focused on publicity than the fundamentals. Steve will bring in the right kind of people and find a formula that is more sustainable than the one in the past.”
What’s the timetable for a turnaround? It will probably take a few years for Sharper Image to return to a track of profitable growth and restore shareholder value, Lightman admits. “I want to stabilize in year two and, hopefully, in year three start generating positive cash flow. I think those are reasonable expectations. The holiday season is so critical to see if strategies we’ve put in place are successful.”
But Lightman believes that the company is in good hands, and he’s not just talking about his own. “We have a sophisticated board, very smart and well-seasoned business people who have all gone through things like this before,” he says. “They all understand the condition of the company and what it’s going to take to fix it.” Before, he notes, “we didn’t really communicate across the channels. Now we’re making sure we’re consistent across all channels.”
And then there’s the name. “The Sharper Image brand in and of itself is so huge,” Lightman says. “It’s a $2 billion brand in a $500 million body.”
It’s safe to say that Lightman believes he can and will turn Sharper Image around. But what do industry insiders think?
Chris Shannon, managing director for New York-based investment bank Berkery, Noyes & Co., thinks the struggling company might be mired in irretrievable territory and that Lightman “has his work cut out for him.”
But Tucker Alexander’s Battle thinks Lightman will be able to pull it off. “Steve is a pro. This guy is a real experienced catalog executive. He’s very pragmatic, a hard-charging nuts-and-bolts type of executive.”
Not that righting the Sharper Image ship is going to be easy, Battle adds: “It’s not a quick fix. But I think Steve’s chances are good.”