Grow Biz International, Inc.

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Grow Biz International, Inc.

4200 Dahlberg Drive
Minneapolis, Minnesota 55422-4837
U.S.A.
(612) 520-8500
Fax: (612) 520-8410
Web site: http://www.growbiz.com

Public Company
Incorporated: 1988 as Play It Again Sports Franchise Corp.
Employees: 237
Sales: $100.2 million (1995)
Stock Exchanges: NASDAQ
SICs: 6794 Patent Owners and Lessors

Grow Biz International, Inc. pioneered what the company called the “ultra-high-value” retailing niche. High quality used products are sold alongside new goods in a traditional retail store format. The rapidly growing company began with Play It Again Sports, which was ranked among the largest sporting-goods chains in the United States in 1996. Its other four franchised businesses—all of which buy, sell, trade, and consign used and new merchandise—are: Once Upon A Child, Computer Renaissance, Music Go Round, and Disc Go Round.

Martha Morris was inspired to develop the Play It Again Sports concept in 1983 when she had trouble reselling a nearly new $200 backpack. She borrowed $15,000 from a friend’s parents, and the two women started a used sporting equipment store in a vacated tombstone shop near a Minneapolis cemetery. Morris bought out her friend within a few months. Boosted by local television coverage she sold about $120,000 of used equipment during her first year of business. Initially she sold everything on consignment, but she later began buying used equipment outright and selling new goods, such as sales representative samples, last year’s models, and retailers’ out-of-season equipment.

Morris Meets Dahlberg and Olson, 1988

Financial success and customer feedback told Morris the idea could work elsewhere, so in mid-1988 she went to a franchise development consulting firm for help. K. Jeffrey Dahlberg and Ronald G. Olson, the owners of Franchise Business Systems, Inc. (FBS), had their doubts at first about the potential for a used sporting goods chain. In a 1994 Fortune magazine article Olson said, “Her store looked like a garage sale with hours.” But, the numbers showed them she was also pulling in a lot of business, so FBS took her on as a client.

Dick Youngblood wrote in March 1992, “Her instinct’s were bull’s-eye accurate. Despite limited capital, the business grew in 18 months to 19 franchise operations in six states, taking 1989 revenues to more than $800,000 including sales at the two stores Morris owned then, plus the franchise and royalty fees. Sales of the franchised stores alone totaled $1.3 million.” Dahlberg and Olson used their combined expertise to polish the entrepreneurial nugget into a gemstone.

Dahlberg acquired his franchising know-how in his family-run hearing-aid business. He began developing the Miracle Ear Centers network when he was named president of Dahlberg, Inc. in 1983. But the combination of uneven earnings and franchise start-up costs of $10-15 million caused friction with his father and a power struggle with a group of California investment firms that held 20 percent of the company stock. In 1986, only a few months after being named CEO of Dahlberg, Inc., he left the company.

A friend introduced Dahlberg to Olson, who had 20 years of retail experience, both with companies such as Dayton Hudson Corporation and on his own. They formed FBS in 1986 as a franchise development, marketing, and investment firm. Among the franchise systems they helped build were a 250-store eye care chain and a 100-store dry cleaning chain. Olson was left to run the day-to-day business of the consulting firm, when Dahlberg reconciled with his father and returned to lead the hearing-aid business in 1988.

1990: Play It Again Sports

In 1990, Dahlberg and Olson bought the franchising operation of Play It Again Sports for more than $1 million plus five years of royalty payments. Dahlberg became chairman and Olson served as president and CEO of the company. The next year, Morris decided to sell them her three retail stores as well, but she signed on as a consultant. By the end of 1991,134 Play It Again Sports franchise stores were open in 41 states and Canada.

In January 1992, Dahlberg and Olson purchased Sports Traders, Inc., an independent wholesaler owned by Jim Van Buskirk, an early owner of Play It Again Sports. Van Buskirk acquired a 50 percent interest in the first Morris store in 1986, but the next year he left to develop his own Play It Again Sports stores. The wholesale business he started supplied both of his and Morris’s stores with new goods to supplement the selection of used sporting equipment purchased from the public. As part of the purchase agreement, Van Buskirk’s Play It Again Sports stores continued to operate separately from the growing franchise system.

Play It Again Sports franchises were being sold at a rapid pace. Dahlberg and Olson were able to draw from a pool of middle managers displaced by corporate downsizing. The men believed the Play It Again Sports concept could be translated into other retail areas and began acquiring successfully established businesses in the used goods market. In November 1992, Dahlberg and Olson purchased franchising and royalty rights from Once Upon A Child, Inc., a Columbus, Ohio-based, 22-store chain selling children’s clothing, furniture, and toys.

Dahlberg resigned as president and CEO of Dahlberg, Inc. at the end of 1992 in order to devote himself full time to the expanding Play It Again Sports business. Dahlberg, Inc.—sales and earnings boosted by the franchise system Dahlberg built—was sold to Bausch & Lomb in 1993 for $138 million.

Name Changed to Grow Biz, 1993

In February 1993, Olson and Dahlberg opened the first corporate-owned Once Upon A Child store. All of their 16 Twin Cities franchises were sold before mid-year. Also in 1993, the company purchased assets of Hi Tech Consignments, a musical instrument and audio equipment retailer (renamed Music Go Round) and Computer Renaissance, Inc., a retailer of close-out and used computers. In recognition of the changes, Play It Again Sports Franchise Corp. was renamed Grow Biz International, Inc.

In August 1993, an initial public offering (IPO) was announced: 1.6 million common shares at $10 per share. The Grow Biz stock price jumped to $15 per share during the first trading day. The company raised about $16.7 million from the IPO. Revenues for 1993 increased 89 percent over the previous year to $51.8 million. By the end of the year 490 stores were open in the U.S. and Canada; eight of those stores were owned by the corporation. An additional 282 franchises had been awarded for future opening.

Gillian Judge wrote in 1993, “The company’s recent rapid growth hasn’t been without repercussions, and some of the newest franchisees of Once Upon A Child shops grumble that the system has some kinks to work out before it runs as well as Play It Again Sports.” In order to bolster franchise support Grow Biz began to decentralize operations. During 1994 the company began individualizing concept support and leadership.

Grow Biz’s 1994 revenues grew to $83.6 million; net income was $1.4 million, a 300 percent increase over the previous year. The first Canadian Once Upon A Child store was among the record 243 Grow Biz stores opened in 1994. And the company added a fifth business concept that year—compact disc stores. Grow Biz purchased assets, franchising, and royalty rights of CDX Audio Development, Inc., of Green Bay, Wisconsin, which operated 43 CD Exchange stores.

In 1994 the company topped both Fortune and Inc. magazines’ lists of the fastest-growing American public companies. According to Fortune, Grow Biz had experienced an annual growth rate of 285 percent in terms of total revenues over the past five years. In an Investor’s Business Daily article by Claire Mencke, Olson pointed out that initially the company’s rapid growth was unexpected. “But it happened that we brought together a lot of trends: value pricing starting with the used product, the trend in recycling, and the availability of a lot of strip-shopping center real estate.”

Despite the acclaim, 1994 also had its bleaker moments. Grow Biz stock price fell by 15.7 percent in October when lower-than-expected third quarter earnings were announced. According to an October 22, 1994, Star Tribune article, the earnings’ setback was caused by a reduction in the projected number of store openings for the year, due to a tight strip-mall real estate market, and losses related to foreign investments.

The company had begun to franchise Play It Again Sports stores internationally in 1991. In 1993, Grow Biz entered into joint venture agreements to franchise stores in Europe and Mexico. But toward year-end 1994, Grow Biz withdrew from the Mexican market, closing both of its corporate-owned stores. The company also suffered losses in its corporate-owned German venture, but the franchised stores there continued to operate.

Company Perspectives:

Grow Biz International, Inc. develops and franchises value oriented concepts for stores that buy, sell, trade and consign used and new merchandise. Each concept emphasizes consumer value by offering quality used merchandise at substantial savings from the price of new merchandise and by purchasing customers’ used goods that have been outgrown or are no longer used. New merchandise is offered to supplement the selection of used goods. The Company franchises its retail concepts nationwide and supports the system with a comprehensive package of centralized services.

In a 1995 article, Lee Schafer noted that the Play It Again Sports franchises were moneymakers for their owners: a situation that was atypical of the franchise environment at the time. But Schafer pointed out that analysts had some reservations about the other concepts. The computer stores faced uncertainty related to rapidly changing technology, the strength of franchisees among the kids clothes and toys concept was being questioned, and the disc businesses faced stiff competition from new disc sellers. Olson disputed this, and said in the same article that Grow Biz was “concentrating on becoming operationally strong” in all five concept areas.

Grow Biz provided franchisees support and assistance in the following areas: advertising and marketing; centralized buying and warehouse services; point-of-sale computerized information systems; management training; store opening assistance; and periodic field support visits. The franchisees were generally required to comply with guidelines regarding store design, the use of television advertising focusing on the buy/sell concept, and standardized merchandize purchasing processes. An initial franchise fee cost $20,000. Franchisees also paid an annual royalty of three to five percent of gross revenues.

Grow Biz more than doubled the size of its distribution facilities in 1995 and consolidated operations at its headquarters. Revenues for 1995 topped $100 million, while net income climbed 47 percent to $2.0 million. Royalty revenue jumped 51 percent to $11.6 million. By year-end 1995, a total of 1,311 franchises had been awarded: 965 stores were open including 57 stores in Canada, eight in Europe, and one in Australia.

Early in 1995, all the Grow Biz concepts except Music Go Round were ranked first in their categories in Entrepreneur Magazine’s Annual Franchise 500. Music Go Round, the smallest of the five Grow Biz concepts with 11 U.S. stores in operation, generated $4 million in revenues in 1995. Customers ranged from parents seeking a place to buy or sell musical instruments for their children to professional musicians upgrading their equipment.

Among Computer Renaissance’s best customers were first-time computer buyers and sellers and small business owners. The company also purchased used computers from corporations upgrading their systems and from liquidators. Only about 20 percent of store inventory was new. Unlike the other Grow Biz concepts which typically purchased used goods ready for resale, the corporation refurbished used computers and provided franchise operations with technical assistance. Revenues for the 64 U.S. and Canadian stores in operation in 1995 were $23 million.

Compact disc industry sales grew by 33.6 percent in 1994, according to company figures. With Disc Go Round, Grow Biz was positioning itself to capitalize on the strength of the relatively new industry plus the growing CD-Rom market. Disc Go Round 1995 revenues were $17 million; all 99 stores in operation were in the U.S. and Canada. The typical franchisee and customer were younger than those of the other Grow Biz concepts.

Once Upon A Child stores targeted parents with children under 12 years of age. “Gently-used” items—sold for ⅓ to ½ of the new retail price—made up about 80 percent of the Once Upon A Child product mix in 1995; the 164 stores open that year generated $37 million in sales. In contrast, Play It Again Sports had 674 stores in operation in 1995 and generated $255 million in revenues.

Future Possibilities

Grow Biz opened its 1,000th retail store in 1996 and was again included on Inc. ’s fastest-growing companies list. Stagnant buying power had helped drive the early success of Grow Biz: consumers, especially families with children, were looking for ways to stretch their dollar. But, according to Susan Reda writing for Store magazine, economists disagreed about the long-term economic outlook for average Americans.

Grow Biz concepts vied for business with retail stores selling new goods, on one end of the spectrum, to resale, thrift, consignment shops, garage, and rummage sales, on the other. Olson said in the 1996 article by Reda that Grow Biz “raised the bar in terms of consumers’ expectations” of used goods. He went on to say, “There’s no longer a stigma attached to buying used items.”

Grow Biz’s success could propel more franchisers to develop competing national used product chains, but the company is banking on its growing name recognition to help it continue to draw consumers to buy and sell merchandise and potential franchisees to choose their concepts over other options.