Carson, Inc.

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Carson, Inc.

64 Ross Road
Savannah, Georgia 31405
U.S.A.
Telephone: (912) 651-3400
Fax: (912) 651-3471
Web site: http://www.carsonproductsco.com

Public Company
Founded: 1951 as Carson Products
Employees: 988
Sales: $150.7 million (1998)
Stock Exchanges: New York Johannesburg
Ticker Symbol: CIC
NAIC: 32562 Toilet Preparation Manufacturing; 325998 All Other Miscellaneous Chemical Product and Preparation Manufacturing

Carson, Inc. is a manufacturer of hair and skin care products specifically designed for persons of color. The company’s products, which include hair relaxers and texturizers, hair color, depilatory products, and hair care maintenance products, are marketed under brand names such as Dark & Lovely, Magic Shave, Gentle Treatment, and Ultra Sheen. They are sold through mass market retailers, beauty salons, and barber shops in more than 60 countries around the world.

Forty Years of Family Ownership

Carson, Inc. was founded by a well-educated and businesssavvy southern gentleman named Abram Minis. Minis, a native of Savannah, Georgia, graduated from the Harvard Business School in 1928 and returned to his hometown to become an investment counselor. His timing was not especially good; just one year into his career, the stock market collapsed, and the country was pitched headlong into the Great Depression. Minis weathered the Depression years, however, and gained a reputation as one of the best businessmen in the area. In 1951 he bought a tiny manufacturing company in Savannah that employed only five workers and produced one product. Renaming the company “Carson Products,” Minis gradually built up the operation’s manufacturing capabilities, added employees, and developed almost 50 new hair care products, all targeted at an African American market.

Under Minis’s leadership, Carson invested heavily in research and development and became an innovator in the area of ethnic hair care products. In the early 1970s, the company became the first to introduce a line of hair color formulated specifically for black women. In 1978 it again broke new ground when it developed a hair relaxer that contained no lye. Unlike its harsher, Iye-based forerunners, Carson’s gentler relaxer formula reduced the chances of skin injury and hair loss.

Carson remained in the Minis family’s ownership for more than 40 years. By the mid-1990s, however, the Minises were ready to get out of the hair care business. In 1994 they began accepting bids for the family business. Although a number of large companies were interested in Carson, one of its own board members managed to orchestrate a buyout.

1995: Buyout and New Leadership

Carson’s new owner, Dr. Leroy Keith, was not known for his business experience. Although he had once owned some Pizza Hut franchises in South Carolina, most of his professional energies had been devoted to his position as president of Atlanta’s Morehouse College. What led Keith from the ivory towers of academia into the world of business was, quite simply, Carson’s potential. In the mid-1990s, the company had an 82 percent share of the ethnic hair color market, a 20 percent share of the nonprofessional hair relaxer market, and name recognition among 97 percent of African American women. An additional selling point for Keith was the overall growth potential of the ethnic hair care market. In 1995, U.S. sales of ethnic hair care products generated $1.2 billion—and were estimated to grow by five percent annually.

To buy the company, Keith obtained the backing of a Connecticut-based investment group, which helped raise $17 million in capital. The remainder of the $95 million purchase was funded through a combination of traditional bank debt, private institution funding, and promissory notes issued to the Minis family. In August of 1995, Keith finalized the Carson buyout, becoming the company’s first African American chairman and CEO. Keith immediately strengthened Carson’s management team by recruiting industry veteran Joyce Roche. Roche, who had spent 19 years working for Avon, most recently as the company’s vice-president of global marketing, became the company’s new president.

Believing it was critical to expand the scope of Carson’s market, Keith made planning for growth his first priority. Working collaboratively with 41 of his new employees, he crafted a five-point strategy that included increasing the company’s share of existing markets; broadening its global presence; creating new product categories; developing a salon-exclusive product line; and acquiring production facilities and other product brands.

1996–97: Growing Pains

Before embarking on these ambitious growth plans, Carson needed to generate capital and get out from under some of the debt incurred in the leveraged buyout. Toward that end, the company’s South African subsidiary, Carson Holdings Limited, sold 25 percent of its shares on the Johannesburg stock exchange in July of 1996. Three months later, Carson made its initial public offering in the United States. Together, the two offerings resulted in proceeds of slightly more than $48 million, much of which was used to pay off debt.

With a stronger balance sheet, Keith wasted no time in acting upon Carson’s strategy for expansion. He quickly moved to deepen the company’s presence in overseas markets by launching a major Caribbean marketing campaign. He also purchased two manufacturing facilities—one in South Africa and one in Ghana—to manufacture Carson’s flagship Dark & Lovely product lines, along with smaller, region-specific lines. The company also laid the groundwork to begin producing its own cosmetics. In June of 1996, Carson invested $3 million in AM Cosmetics, Inc., a New York-based maker of cosmetic products. AM was retained to manufacture a new Dark & Lovely ethnic makeup line.

At the beginning of 1997, the company initiated an aggressive acquisition campaign, scooping up five new product lines within six months. Three of the acquisitions were made by Carson’s South African subsidiary: the Nu-Me cosmetics and skin care brand, the Restore Plus hair care line, and a line of toiletries marketed under the trade name Seasilk. The two U.S. acquisitions were a line of hair styling products sold under the “Let’s Jam” name and a line of nail care products sold under the brand name “Cutex.” Cutex, which was a major player in the U.S. nail care market, was chosen to provide Carson an entry into the mass market.

While the company focused its efforts on expansion, the market for its ethnic hair care products was beginning to soften. Eventually, Carson fell prey to the downturn, announcing in April of 1997 that its domestic sales had fallen ten to 15 percent from those of the previous year. Citing an overall slowdown in the U.S. ethnic hair care market as the culprit, Carson warned that it was going to fall short of its sales and earnings expectations. Investor response was swift and unforgiving. The day after the company made the announcement, its stock, which had climbed to $17 a share, plummeted to $7.87.

Carson had to move quickly to minimize the damage and repair relations with investors and analysts. As a start, Keith recruited a seasoned industry pro, Robert Pierce, to become the company’s chief financial officer. Pierce formerly had been the CFO for Maybelline Inc., and his industry knowledge and skills were well-respected, so Keith hoped his presence would reassure the investment community.

While working to smooth ruffled feathers and get sales and earnings back on track, Keith continued to steer Carson on a path of growth and diversification. In August 1997, the company launched its new Dark & Lovely line of cosmetics. The product line—which included lipsticks, eyeshadows, blushes, nail polish, powders, and foundations—was sold through drug stores and large department stores such as Wal-Mart and Kmart. Carson followed up the launch with a series of promotions and product line expansions designed to boost sales.

1998: Gains and Losses

The market for ethnic personal care products continued to show signs of softening throughout 1997 and into 1998, and Carson’s earnings suffered accordingly. By the middle of 1998, it became apparent that the company needed something more than its current management team could provide. In June, Keith stepped down from his position as Carson’s CEO and recruited Gregory Andrews to pilot the company. Andrews, who had 20 years’ experience in the personal care products industry, was an executive at Colgate-Palmolive at the time. Keith explained his decision in a September 1998 interview with Black Enterprise: “With our aggressive acquisition strategy, we need to share the responsibilities of day-to-day operations so I can focus more on international expansion. With Gregory’s background, this job was tailor made for him.”

Company Perspectives:

Carson has an enormous amount of heritage as a company specifically focused on African American consumers. Our world-class products have been satisfying the expectations of African American consumers for over a century. Our brands are household names among people of African descent worldwide.

Less than a month after Andrews took over as CEO, Carson completed its most significant acquisition to date. The company purchased Johnson Products Co., Inc., a major manufacturer of personal care products for the ethnic market. The acquisition gave Carson a number of additional product lines—including Johnson’s Gentle Treatment relaxer, Ultra Sheen, and Posner, one of the oldest brands in ethnic cosmetics. Immediately, Carson became the leader in five U.S. ethnic hair care categories: adult relaxer kits, hair dress/conditioners, hair color, shaving products, and comb-out/oil sheens. As part of the Johnson purchase, Carson also acquired Dermablend, Inc. Dermablend, a wholly owned subsidiary of Johnson, produced a line of corrective cosmetics that had a 40 to 50 percent ethnic consumer base.

Carson consolidated Johnson’s sales force and much of its administrative staff into its existing staff. Simultaneously, the company took measures to streamline and reduce inefficiencies in its overall operation. One such measure was the sale of its Cutex business. Citing a desire to focus more fully on the ethnic hair care market, Carson sold its Cutex line in early December, after owning it less than two years. In a second streamlining effort, Joyce Roche, who had been the company’s president since 1995, resigned from her position. Greg Andrews became Carson’s president as well as its CEO. “We’re trying to get our expenses in line, and, as you know, we had a really top-heavy management group,” Andrews explained in a September 1998 interview with the Atlanta Journal and Constitution. “This is as much as anything us making moves to get our costs in line with the levels of sales in the corporation.”

1999: Beginnings of a Turnaround

Carson’s 1999 got off to a rocky and unforeseen start. In February, Gregory Andrews died suddenly while on a business trip in South Africa. The 47-year-old Andrews had served only eight months as the company’s CEO. Stunned, Carson’s board appointed Malcolm Yesner as acting CEO. Yesner, who had served previously as president of the company’s international operations and as CEO of its South African subsidiary, subsequently became president and CEO on a permanent basis.

Despite the brevity of his tenure, Andrews had made some real strides toward turning Carson around. As 1999 progressed, the company began to see the fruits of his efforts. Carson had a profitable first quarter—its first in more than a year. The company also announced plans to launch a new line of hair coloring products, marketed under the name “Dark & Lovely Diva.” The announcement heralded the first product introduction since the 1997 launch of the Dark & Lovely cosmetics line.

The company continued its turnaround into the second and third quarters of 1999. “Carson is clearly making progress,” Yesner said in an October 25, 1999 press release. “Our efforts to increase sales, improve margins, and revitalize our core brands are yielding results. We are highly enthusiastic regarding the outlook for the company.” Investors, however, did not appear to share Yesner’s optimism. The company’s stock, which had fallen to $2 per share in late 1998, continued to hover in the $3 range through the third quarter of 1999.

Looking Ahead

As 1999 wound down, Carson was optimistic that it could continue making gains in its sales and earnings. The company planned to remain tightly focused on the ethnic hair market and to continue trimming expenses—including a $2.5 million reduction in annualized employee expenses.

Carson was planning several new products and promotions expected to build on the success of its two most profitable product lines, Dark & Lovely and Johnson Products. A new Dark & Lovely relaxer kit was planned for introduction in 2000. The company was also in the process of building an e-commerce website that would serve investors, retailers, and end-users of Carson products. It anticipated having the site operational by the beginning of the year 2000.

Finally, Carson planned to continue expanding rapidly in overseas markets, deepening its presence in Africa, South America, and Europe. With an estimated ten million people of color in Europe, 80 million in South America, and 230 million in Africa, the potential for growth in these markets was virtually unlimited. As of October 1999, exports accounted for only ten percent of the company’s sales, but this percentage was likely to grow in the future.

Principal Subsidiaries

Carson Products Company; Carson Management Company; Johnson Products Co., Inc.; Carson Holdings Limited (South Africa); Carson Products Do Brasil; Carson UK Ltd.; Dermablend, Inc.; Carson Products (Proprietary) Limited (South Africa); Carson Products West Africa Limited (Ghana); Carson Products East Africa Limited.

Principal Competitors

Alberto-Culver Company; Revlon, Inc.; Soft Sheen Products Inc.

Key Dates:

1951:: Abram Minis buys Savannah-based manufacturing company and renames it Carson Products.
1995:: Leroy Keith spearheads buyout of Carson.
1996:: Carson makes initial public offerings on Johannesburg and New York stock exchanges.
1997:: Carson acquires several product lines, including Cutex.
1998:: Gregory Andrews becomes Carson’s CEO; Keith stays on as chairman of the board; Carson acquires Johnson Products Co., Inc. and sells Cutex.
1999:: Gregory Andrews dies while on business trip to South Africa; Malcolm Yesner is appointed CEO and president.