Cyrk Inc.

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Cyrk Inc.

3 Pond Road
Gloucester, Massachusetts 01930–1886
U.S.A.
(508) 283-5800
Fax: (508) 281-8062

Public Company
Incorporated: 1976
Employees: 600
Sales: $250.9 million (1996)
Stock Exchanges: NASDAQ
SICs: 2389 Apparel and Accessories, Not Elsewhere Classified

Cyrk Inc. is the leading company in the American promotional products market. Headquartered in Gloucester, Massachusetts, the company provides apparel, accessories, and promotional products and services to corporations around the world. Cyrk’s most important customer during the early 1990s was Philip Morris, which Cyrk provided with products for the Marlboro Adventure Team promotion. Consumers traded “miles,” earned by purchasing cigarettes, for sports bags, jackets, caps, and other items. Besides its complete range of promotional products, the company is acknowledged within the promotional industry as the most successful provider of consumer loyalty programs, and is the only firm to offer fully-integrated and comprehensive marketing services. One of Cyrk’s most successful diversifications came when management initially decided to design and manufacture private label sports clothing for companies, such as Timberland and Reebok, and then thought it even more lucrative to manufacture its own line of clothing. With over 600 employees worldwide, the company has offices in Boston, New York, London, Hong Kong, Taiwan, and Seoul, South Korea, with more offices being contemplated. All this activity has resulted in a dramatic increase in net sales; from $135.8 million in 1995 to $250.9 million in 1996, a hefty jump of $115.1 million, or 85 percent. Yet even such an impressive success story has not prevented Cyrk from forging greater possibilities for the future. In the spring of 1997, Cyrk signed an agreement to merge with Simon Marketing, Inc., a privately-held global promotion agency based in Los Angeles, California.

Early History

Cyrk Inc. was founded in 1976 by Gregory P. Shlopek, a marine biology professor teaching at a small community college in Philadelphia, Pennsylvania. While reading the financial section of the paper one day, Shlopek was reportedly impressed with an article that described the print-screen industry as fairly recession-proof. Having had an interest in graphic design since he was a teenager, Shlopek decided to leave his position at the community college and try his hand at becoming an entrepreneur. Off he went to Cape Ann, Massachusetts, a resort area that his family had visited for years, and there he established a screen-printing firm. Shlopak decided to name his company Cyrk, which means circus in Polish. The name was short, like “Nike” or “Fila,” and it was clever enough, he thought, to attract large firms to a small silk-screen company.

Shlopek and his company had come along at the right time. In the mid-1970s, as the American way of dressing became more and more casual, not only teenagers but young adults and senior citizens began wearing T-shirts. T-shirts that identified one’s affiliation with a college, team, or even city grew in popularity. When people starting wearing T-shirts with bright graphics and names on them, such as T-shirts with multi-colored lettering, sales skyrocketed upward. Cyrk was soon selling T-shirts to small local businesses and gift shops in the Cape Ann resort area, and then to a wider scope of customers up and down the Massachusetts seaboard.

Growth and Diversification in the 1980s

For ten years, Shlopek worked diligently with a small number of employees in his silk-screen shop to provide customers with T-shirts. Sales increased rapidly at first, then leveled off to a comfortable but unspectacular period of growth. Yet Shlopek was quite satisfied with the earnings his company was making and saw no need to alter the strategy he started out with. Suddenly, during the late 1980s, however, a recession hit the retail industry, and sales of Cyrk T-shirts fell drastically. Not sure of what to do, Shlopek decided to hire new personnel that would help his company make the turnaround that was necessary.

When Shlopek hired Patrick D. Brady as chief operating officer, he had been working as director of the mergers and acquisitions group in the investment banking department of BNY Associates, Inc., a subsidiary of the Bank of New York Company, Inc. Brady, with his vast experience in the financial sector, quickly recognized that Cyrk had to diversify if the company was to survive. Accordingly, Brady convinced Shlopek to shift the focus of his company from producing T-shirts to promotional programming. Brady’s idea was that all retailers felt threatened by the growing competition in a very tough market, and companies would listen to a firm who provided them with a way to increase their visibility and also build customer loyalty. Soon Cyrk was putting a great deal of effort into designing and developing promotional programs for consumer products.

Brady’s argument was based on hard data. Marketing analysts had discovered that there was a major increase in the use of premiums, namely, products received in exchange of purchase, by companies throughout the United States to build brand loyalty. According to information compiled by Promo Magazine, a trade publication based in Connecticut, in just one year American companies had earmarked over $60 billion for consumer promotions, and nearly $20 billion of that amount was set aside for premium incentives.

Cyrk began working with Fila, Reebok, and Timberland, assisting them with promotional campaigns that included custom-designed sports apparel and accessories. The company’s first major promotional contract other than sports clothing and accessories, however, involved the design and development of a fully-integrated line of products for Mars Inc., such as a plastic dispensing machine for M&M’s candy, T-shirts, lunchboxes, and other items for Snickers, Twix, and Skittles brand lines. Cyrk was now doing much more than merely supplying the products for another company’s promotional campaign. Cyrk was handling every aspect of a promotional program, from the initial concept to the actual fulfillment. The company started its own concept and design team, including in-house designers whose specialty was in the fields of apparel, graphic, product, and accessories design and development. Along with the most modern facilities for screenprinting and embroidery located at their headquarters in Massachusetts, the company also implemented a fully integrated management and fulfillment service, created its own global distribution network, and began to offer a comprehensive range of integrated marketing services.

By the end of the 1980s, Cyrk had created a new type of business in the United States. To further their success, and to expand their horizons, Cyrk management decided to form a partnership with an Asian trading company, Li & Fung. The arrangement gave Cyrk access to Li & Fung’s manufacturing contacts throughout Asia, and significantly helped Cyrk to broaden its product line while lowering its costs at the same time.

Strategic Change and Development in the Early 1990s

Cyrk, of course, was not immune to the variations of the marketplace. When purchase orders for plastic dispensers began to decrease among retailers, Mars Inc. decided to reduce its business with Cyrk. Sales to Mars steadily declined from $24.1 million to $13 million in two years. Fortunately for Cyrk, Philip Morris picked up where Mars left off. Sales to Philip Morris catapulted from $10.5 million in 1992 to an astronomical $128.9 million in 1993.

The first promotional campaign Cyrk designed and developed for Philip Morris was the Marlboro Adventure Team promotion, where customers would trade in their “miles,” having earned them by purchasing so many cigarettes, and in turn receive such items as caps, T-shirts, sports bags, and jackets with the Marlboro logo on them. One of the most successful promotional campaigns in history, Cyrk’s role in the overall design and development of the program helped Philip Morris build an unparalleled type of brand loyalty to Marlboro cigarettes. By the end of 1994, Cyrk reported that 89 percent of its sales were accounted for by the Marlboro Adventure Team promotion.

When Philip Morris decided to switch the focus of its promotional campaign from the Adventure Team to the “Marlboro Country Store,” Cyrk was at the forefront of companies that provided the giant tobacco firm with both products and services. The Marlboro Country Store promotion suited up smokers in barn jackets, boots, and blankets, which Cyrk had designed to recreate the aura and feeling of the Old West and its wide open plains. Yet the new promotion was not nearly as large as the first one, and industry analysts on Wall Street began to wonder whether or not Cyrk would be able to maintain its growth rate. The company had gone public in 1993, and based on its growth record seemed to offer one of the most promising stocks on the exchange. Nevertheless, with such a heavy reliance on one single customer, Cyrk began to worry analysts, especially during a time when the cigarette industry was coming under attack by anti-smoking consumer groups across the country.

Company Perspectives:

“Cryk’s creative efforts are designed to serve as universal billboards for its clients’ marquee brands around the globe.... Cyrk is playing a major role in helping leading businesses worldwide build greater brand equity, reinforce customer confidence and expand into new markets of opportunity.”

Aware of its precarious position, Cyrk management initiated a strategy to develop a more diverse customer list. One of the first new clients included Fidelity Investments, the financial services firm specializing in mutual funds. Cyrk reached an agreement with Fidelity to design and develop a promotional campaign involving the sale of golf shirts, jackets, desk clocks, and various other products. Within a short time, Fidelity saw the assets within its mutual funds increase dramatically. Another major client contracted during this time was Gillette, manufacturer of shaving products for both men and women. Cyrk not only provided ties and warm-up suits as promotional items, but helped convince Gillette management that it would be in their best interest to sponsor the World Cup soccer match. Once again, Cyrk’s strategy helped another company to increase its profile and thereby its revenues. In addition to Fidelity Investments and Gillette, Cyrk reached agreements with growing companies such as Showbiz Pizza Time Inc. and the FirestoneBridgestone Tire Company.

The Mid-1990s and Beyond

By 1995, Cyrk had succeeded in its quest to build a new client list. The company’s heavy dependency on Philip Morris began to decline, and sales to that firm went from a high of 89 percent of total revenues in 1994 to 57 percent of total revenues by 1995. One of Cyrk’s most important new clients was the Pepsi-Cola Company. The company’s business with Pepsi, involving the “Pepsi Stuff” promotion, was based on the purchase orders placed by Pepsi over the period of time that the promotion was ongoing. Traditionally, Cyrk never reached any written agreement with a client that committed the company to reach a certain level of purchases. Rather the level of purchases depended on a variety of factors, including consumer redemption rates and the duration of the promotion. Thus Cyrk’s total sales volume was difficult to predict and varied significantly not only from year to year but from quarter to quarter.

All this changed, however, with the “Pepsi Stuff” promotion. For the first time in its history Cyrk signed a written agreement with a major company. Cyrk’s agreement with Pepsi regarding the “Pepsi Stuff” promotion involved an exclusive role for the firm to design, develop, and produce all the promotional merchandise (wristwatches, posters, beach towels, and other items) and clothing for the duration of the campaign. In addition, the signed contract included a statement that provided for the negotiation of gross margins at different volume levels. The initial “Pepsi Stuff” promotional campaign expired in October 1996, and Cyrk entered into another written agreement with Pepsi to provide similar promotion products and services during 1997. The influence of the Pepsi account on Cyrk’s business cannot be underestimated. While 1996 sales to Pepsi accounted for 38 percent of its net sales, Cyrk was able to further reduce its reliance on Philip Morris, who accounted for 30 percent of the company’s net sales.

In March of 1997, Cyrk acquired Tonkin, Inc., a privately-held company based in Woodinville, Washington, that specialized in custom promotional programs and licensed promotional products. Revenues for the company amounted to only $41 million during fiscal 1996, but Tonkin had worked with some of America’s largest companies, including Caterpillar, Peterbilt, Consolidated Freightways, Kenworth, Fluke, John Deere, Volvo, Emery Worldwide, Conway Transportation, Weyerhaeuser, Mercury, and Freightliner to provide them with new logos and trademarks. In fact, Cyrk purchased Tonkin because the latter had developed one of the most successful corporate logo programs in the United States.

Continuing with its strategic acquisition and expansion policy, Cyrk decided to merge with Simon Marketing, Inc. in May 1997. Simon Marketing, a privately-run global promotion agency operating out of Los Angeles, California, was one of the premier providers of marketing programs and promotional products to such clients as MacDonald’s, Chevron, and Block-buster Entertainment. It was Simon Marketing that helped MacDonald’s develop its Happy Meals and Monopoly promotions. Perhaps the most important aspect of the merger was that Cyrk would benefit from Simon Marketing’s international experience in Europe and Asia. Cyrk’s expertise with loyalty and brand-building promotions, and Simon’s experience in leveraging sports and entertainment properties, along with a highly successful history in youth market promotions, would provide clients with one of the most sophisticated line of promotion services and products within the industry.

Having broadened its client base, and having allied itself with two of the most successful companies in the promotional service and products industry, Cyrk would likely continue as a leader. And with clients such as Pepsi-Cola, Philip Morris, MasterCard, Timberland, Fila, Tommy Hilfiger, F.A.O. Schwarz, and M&M Mars, the future looked even better than the past.