Brookstone, Inc.

views updated

Brookstone, Inc.

17 Riverside Street
Nashua, New Hampshire 03062
U.S.A.
(603) 880-9500
Fax: (603) 577-8005
Web site: http://www.streetlink.com/bkst

Public Company
Incorporated: 1973
Employees: 2,000
Sales: $196.3 million (1996)
Stock Exchanges: NASDAQ
SICs: 5399 Miscellaneous Merchandise Stores; 5961 Catalog & Mail-Order Houses

Brookstone, Inc. is a retailer of diverse and interesting specialty products, many of which are exclusive to the company. It operates approximately 150 retail stores throughout the United States, while also selling its products through the rapidly expanding mail-order channel. Brookstone offers two different catalogs: an updated version of its original “Hard-To-Find Tools” collection, much of which is not available in the retail stores, as well as the “Brookstone Collection” catalog, which offers the merchandise found in its stores to customers out of range. Brookstone’s catalogs generate 15 percent of the company’s annual income; the remaining majority is derived from in-store sales.

The Early Years

In the early 1970s, a small advertisement appeared in the classified section of Popular Mechanics magazine, offering subscribers the chance to purchase a catalog containing hard-to-find tools. The catalog was targeted at woodworkers, do-it-yourself hobbyists, and collectors, and it contained high-quality items that were both functional and fun. The emergence of this catalog into the public domain marked Brookstone, Inc.’s foundation as a catalog marketer that would soon become known for its unique and useful items.

Circulation of Brookstone’s catalog gradually increased throughout the next couple of years. During that time, customers near the company’s New Hampshire-based headquarters began stopping in to the distribution center to acquire products on the spot, rather than waiting for shipment to their homes. It became quite clear that the demand for a retail store existed. Therefore, in 1973 Brookstone answered this demand by opening its first store in New Hampshire, near the company’s mailorder distribution center.

Throughout the rest of the decade, Brookstone opened a few more retail stores in the New England area, but concentrated most of its efforts on catalog sales, which accounted for 80 percent of the company’s yearly revenue. Of the few stores that were opened, most were managed by Brookstone employees who were more proficient in selling material out of the catalog than in working effectively on the sales floor. Furthermore, much of the merchandise found in Brookstone’s catalogs did not lend itself well to the store environment, in that it did not effectively capture any more customers than those who already received the catalog and just happened to live nearby.

Retail Expansion into the 1980s and 1990s

Entering the 1980s, Brookstone decided that, for its stores to become more profitable, they would have to begin offering other types of merchandise not available in the catalog. Broadening from the hard-to-find tools designation, the company’s stores began featuring all sorts of interesting and ingenious products, most of which were exclusive to Brookstone. New products appeared in the areas of leisure, games, massage, travel, and audio. As the widened range of product offerings gained popularity, Brookstone started opening more stores and the difference in sales figures between the catalog and the stores began to even out.

The company was still in a critical stage, however, in that it needed to boost revenues to cover its expansion expenses. In 1986, Brookstone was purchased by company insiders with the hope that taking on full financial responsibility would facilitate greater involvement in making the company more lucrative. Unfortunately, the company’s stores still were not generating enough profits to warrant the money being put into their expansion, and thus Brookstone had trouble dealing with the debt incurred from the leveraged buyout. Although overall sales figures were increasing each year, actual income plummeted and the company began losing substantial amounts of money. For example, in 1987 the company posted record sales of $93 million, while its actual income was -$9.7 million.

The negative earnings trend continued until 1990, when CEO Merwin Kaminstein began to renegotiate a deal with Brookstone’s creditors that would help put the company back on a profitable path. He also researched the company’s sales and started eliminating merchandise that was not selling well. The following year, Brookstone’s stores underwent a major remodeling project, which focused on gaining more female customers and on cutting long-term costs. The stores’ dark mahogany decors were replaced with a lighter veneer in an attempt to eliminate the “men’s clubhouse” feeling within each location. Furthermore, adjustable shelving units were used in a manner that allowed for future change and flexibility, while also offering increased display space and a less crowded atmosphere for shoppers.

These efforts helped Brookstone survive the worst U.S. retail sales year in three decades, and for the first time in years the company achieved a positive income of $4.9 million from $104.6 million in 1991 sales. But Brookstone did not rest on that achievement, knowing that it still had to handle debt from the years of losses. In early 1992, the company drastically cut back its computer programming staff to save money, after deciding to upgrade the computer system used for retail sales. The system used at the time had been designed to handle the mail-order segment of the business, but was not equipped for the steadily increasing needs of the retail scene. The new system used existing software programs, which rendered Brookstone’s programmers unnecessary.

Use of the new system helped the company save approximately $1 million annually and further separated the mail-order and retail businesses. The new computer system was an important addition for Brookstone, which needed a means of keeping up with a frenzied three-month period of booming sales surrounding each Christmas. Typically, the company was known to ride out a lull in sales for nine months out of each year and then achieve almost the entire year’s earnings when bombarded with holiday shoppers.

The Mid-1990s and Beyond

In 1992, Brookstone began testing a new sales avenue when it opened five sales kiosks during the holiday season in shopping malls where Brookstone stores were already located. The kiosks were free-standing sales “booths” that featured a limited selection of Brookstone merchandise. Designed to capture shoppers as they walked by in the mall, these kiosks opened on November 1 and operated until the day after Christmas. After five were tested in Brookstone’s stronger markets and were found to be successful additions, the company increased the number in operation each year thereafter.

By 1993, the company’s sales had jumped to $143.7 million and management was enjoying the largest profits in history. That March, Brookstone entered the public arena again, selling shares of its stock for $10.50 each. After only four months, that figure had increased dramatically and shares were trading on NASDAQ as high as $12.63. Brookstone’s recovery seemed to be sticking.

Ironically, the successful recovery that Brookstone achieved was due mainly to its retail segment, which originally had been the source of its problems. But by 1993, the company was operating approximately 100 stores across the United States, which were generating a huge 85 percent of the annual revenue. Its only remaining problem arose when it decided to circulate a new version of its catalog. In addition to the hard-to-find tools catalog, Brookstone started sending a catalog containing its retail items to areas of the country that were not served by a nearby store. Because of this addition, the company began to experience a need for access to retail merchandise for the catalog segment (and vice versa), but the two computer tracking and distribution systems were almost completely incompatible.

In 1994, Brookstone constructed a 200,000-square-foot distribution center in Mexico, Missouri, which was designed to handle all merchandise for both divisions of the company: retail stores and mail-orders. The company also switched all distribution to the United Parcel Service (UPS), which eliminated confusion that had arisen with the previous use of multiple carriers and methods. The across-the-board switch to UPS was also a benefit for mail-order customers, who began receiving orders faster and at no additional cost. Second-day air became standard delivery. Brookstone realized this was an important customer service tool, because most of its merchandise was classified as “non-essential” and was sold to people buying on impulse who wanted the product right away.

Company Perspectives:

Brookstone is a nationwide specialty retailer recognized by its customers as a leader selling functional products, distinctive in quality and design. These products will make our customers’ lives easier, better, more enjoyable, more comfortable or more fun. Brookstone stores focus on dramatic storewide themes, product demonstrations and compelling displays to encourage customer interaction with the product. Brookstone markets to upper-moderate and better income customers who appreciate quality, value and design that fulfill their personal and gift-giving needs.

Another addition to Brookstone’s customer service procedure came when it was announced that if an item was ever out of stock in a store location, the company would ship it directly to the customer from the distribution center at no cost. The reasoning behind such measures appeared in the 1994 annual report, when Brookstone’s management stated: “We realize it is ultimately the customer who employs us. We are dedicated to ensuring complete customer satisfaction.” Brookstone further strengthened their management team with the 1994 addition of Michael F. Anthony as president and chief operating officer, while Kaminstein remained as chairman and CEO.

Brookstone, Inc. entered the end of the century well positioned for continued future success. The company was operating approximately 150 stores in 32 different states and in Washington, D.C., as well as more than 100 sales kiosks each November and December. Catalog sales were solid as well, although accounting for only 15 percent of the company’s total revenues. Having grown from a catalog advertised as “for sale” in small print in the back of another magazine, Brookstone had become a multimillion dollar enterprise made up of two separate businesses with a common theme: unique and interesting products that are both functional and fun for the customer. Operating on that basis, Brookstone seemed to be poised for unlimited future growth.