What Sharper Image Is Doing Right

To the casual observer, high-tech gifts and gadgets marketer The Sharper Image has barely changed its own image since its inception in the late 1970s. Page through any of the company’s recent catalogs and you’ll still find plenty of high-end high-tech. (A wireless color video surveillance system for $439.95, anyone?)

‘After years of seeming to be on the brink, it has developed into a solid company’

But you’ll also find a lot more, dare we say, “practical” items at fairly moderate prices in the Sharper Image catalog these days, such as carpet steam cleaners ($129.95), travel mirrors ($39.95), and umbrellas ($24.95). Such products may not seem to have the same sizzle of the previous niche, but apparently, they sell.

The $421.1 million cataloger/retailer did $96.2 million in catalog sales and $60.2 million in Internet sales in fiscal 2000. Since 1996, The Sharper Image’s total sales have more than doubled from $204 million. Moreover, after posting a $4.3 million loss in fiscal 1996, The Sharper Image has boosted its bottom line every year since, posting net earnings of $17.4 million for fiscal 2000.

“After many years of seeming to be always on the brink,” observes John Lenser, president/CEO of San Rafael, CA-based marketing and list services firm Lenser, “it has developed into a very solid company.”

The Sharper Image’s almost imperceptible makeover has been more than a decade in the making. The San Francisco-based marketer learned its lesson the last time the economy tanked. After riding the wave of the ostentatious ’80s, The Sharper Image stumbled in the economic downturn of the early ’90s, teetering dangerously close to bankruptcy, according to several sources.

That’s about when the company began its efforts to attract a wider range of customers. But given that it was the flashy high-tech products geared to yuppie men that put the company on the map, how did The Sharper Image manage to implement the changes without diluting its punch?

  • It lowered its price points… Prior to the ’90s, The Sharper Image had a reputation for such extravagant products as a $10,000 two-man submarine — items “that were fun, but really not necessary,” says president/chief operating officer Tracy Wan. Today the company’s biggest sellers are an Ionic air purifier ($329.95) and a car cell phone kit and the Razor scooter (both $129.95). Many products are priced for less than $100.

    “We’re known for selling gifts for someone who has everything,” says Wan, who has been with the company for 13 years. “We still want that, but we also wanted to bring our prices down and for our merchandise to have more practicality. We want our customers to think ‘I could use something like that.’”

  • …which in turn boosted average order sizes. Despite the lower price points, The Sharper Image’s average order size has increased 34.4% since the mid-’90s, from $122 in ’95 to $164 last year. Wan attributes the increase to customers buying several items per order, whereas in the past they’d buy only one more expensive product.

  • It added female-friendly merchandise to its mix. Up until the mid-’90s, The Sharper Image targeted primarily men with a lot of money to burn. Fewer than one-third of its customers were women. But today the company attracts an even number of male and female customers.

    “Sharper Image has moved toward selling more functional-type products and less gadgety-type products to attract more women,” says Kristine Koerber, an analyst for San Francisco-based investment banking firm WR Hambrecht + Co. For instance, products such as portable wireless audio/video baby monitors, hair dryers, and manicure sets appeal to female customers.

    The more functional and more moderately priced products also appeal to a somewhat younger customer. Previously, the typical Sharper Image customer was 35-55 years old; today, he or she may be as young as 30.

  • It introduced more proprietary and private-label products. About 65% of the products now sold by The Sharper Image are proprietary or private-label, compared to a small minority of products in the early ’90s. The company designs and manufactures nearly half of these products, providing it with exclusivity and greater flexibility. For instance, after the company heard customer feedback via some of its regional store managers, it was able to make a change in the location of a speaker on its cell phone within days, Wan says. “That would ordinarily take a year with a vendor.”

The rest of the proprietary products are private-label “exclusives” that are manufactured by other companies for The Sharper Image, with The Sharper Image’s label on them. Without sharing specific figures, Wan says that the proprietary and private-label merchandise has enabled the marketer to increase its margins.

Multichannel mastery

The Sharper Image, which Richard Thalheimer founded as a catalog in 1977, has since expanded to include a nearly 100-store retail division, which accounts for more than two-thirds of its revenue, and an Internet unit (see “Learning a New Language,” below right).

Despite the size of the retail division and the rapid-fire growth of the online business (from $5 million in 1998 to last year’s $60.2 million), The Sharper Image remains committed to the catalog channel. “Our catalog remains our principal advertising vehicle,” says Thalheimer, who remains chairman of the company. “This year we plan to continue to increase catalog circulation and other direct marketing activities [such as direct-response TV] to attract new customers.”

After mailing 47.6 million catalogs in 1999, The Sharper Image mailed 62.3 million books last year, a 31% increase, and plans to mail 10%-15% more books this year. The company’s database now boasts 12 million names; its 24-month buyer file has grown 20% a year for the past two years.

The company has good reason to embrace the catalog channel. March catalog sales growth outpaced that of even the Internet division. Catalog revenue jumped 45%, to $6.3 million, while online sales climbed 20%, to $3.4 million. On the other hand, retail sales rose only 6%, to $13.3 million for the month, and comparable-store sales decreased 1%.

But more than a cataloger, a retailer, or even a multichannel marketer, The Sharper Image considers itself a merchandiser first. “Our strength is selling product, and we use three channels to do so,” says Wan.

The economy factor

For all its recent success, The Sharper Image — like so many other consumer marketers — will likely hit some bumps this year. “It’s up against difficult comparisons [to previous years’ results] and a difficult economy,” says WR Hambrecht’s Koerber, who recently lowered her “buy” stock rating for The Sharper Image to “neutral.” Also, “I don’t see any hot new products coming along like the Razor scooter craze of last year,” Koerber says.

But Wan is convinced that the economic slowdown won’t hurt the company too badly. “Any retailer is going to be concerned, but we’re in a better position to withstand any downturn in spending,” she says. “People still want to take care of themselves, and we’ve got several products — such as a $50 hair dryer — that are affordable.”

Unlike the Sharper Image of yesteryear, frivolity is not part of the company’s revamped image. “We try to make life more comfortable, easy, and stylish,” Wan says, “with a relevance to today’s lifestyles. And the best way to do that is to showcase what people perceive to be excellent deals.”

Learning a New Language

With its U.S. business steady, The Sharper Image is heading overseas via the Internet. This spring, it launched three European Websites — for the U.K. (in English), Germany (in German), and the rest of Europe (in English). European orders are fulfilled by Rotterdam, Netherlands-based Vitesse Warehousing & Distribution.

In the States, in May the company launched a Spanish-language version of its U.S. site. “We have a strong Hispanic base among our best customers,” founder/chairman Richard Thalheimer says, noting that in South Florida, Spanish-language radio ads are a “key part of our advertising.”
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