Holson Burnes Group, Inc.

views updated

Holson Burnes Group, Inc.

582 Great Road
North Smithfield, Rhode Island 02896
U.S.A.
(401) 769-8000
Fax: (401) 769-0752

Public Company
Incorporated: 1989
Employees: 600
Sales: $130 million
Stock Exchanges: NASDAQ
SICs: 2499 Wood Products Nee

Holson Burnes Group, Inc., is the largest designer, manufacturer, and distributor of photo albums in the United States, and the second largest designer and distributor of photo frames. The company was created in 1989 by the merger of two companies, making it the only major U.S. supplier of both frames and albums to all major retail distribution channels. In the mid-1990s Holson Burnes was battling fierce international competition with new product introductions and by acquiring other companies.

The Holson Burnes Group, Inc., was created in 1989 to purchase the outstanding shares of stock of The Holson Company and Charles D. Burnes Co., Inc. Holson was a leading U.S. designer and manufacturer of photograph albums and Burnes a leading producer and supplier of photo frames. At the time, both companies were owned by Bain Capital, a venture capital investment group based in Boston, but they were operating separately. In 1988 the chief executives of the two companies investigated a merger or joint venture to build on each company’s strengths. Burnes had a strong presence in department and specialty stores with its picture frames, and Holson had a strong presence in mass-merchandise chains with its albums. By teaming up, each company would benefit from access to a new market and distribution channel. Both companies had good management, strong brand identities, and large and established customer bases.

In 1988 Charlie Gordon, the chairman of Burnes, and Thomas E. Hoffmeister, the recently appointed head of Holson, approached their parent company, Bain, about the possibility of a merger. Bain executives were enthusiastic, in part because the two executives were a good match: Hoffmeister had a financial and operating background and Gordon had spent most of his career in sales and marketing. “We went to Bain Capital and asked permission to merge,” Hoffmeister recalled in the August 24, 1992, Providence Business News, “and their reaction was ‘Hallelujah, we wouldn’t have forced it, but we always felt the companies belonged together, and if you guys are for it, we’ll do it.’” Thus, in 1989 Bain merged the two enterprises to create the unified Holson Burnes. Soon after the merger, Holson Burnes began introducing Burnes albums to department and specialty stores. Then, late in 1990, the company began selling Holson frames to mass merchants like Wal-Mart, Kmart, and Drug Emporium.

Burnes had been founded in 1917 by Charles D. Burnes. His company gradually accumulated the second-largest share ofits market in the United States by creating new products, including the clear acrylic photo cube, which could hold six photographs, and the collage frame, which consisted of a framed matte with multiple cut-outs for several photographs. Burnes established itself in the high-margin specialty store and department store segments with major accounts like J. C. Penney, Sears, Dillards, and May Department Stores. Holson was founded in 1942 by Abraham Holson, an immigrant bookbinder who invented the modern photo album, as well as the magnetic page and the pocket page album. During the 1970s and 1980s the company became a major supplier to discount giants like Wal-Mart, Kmart, Price Costco, Target, Eckerd Drug Stores, and Staples.

By the mid-1980s Holson and Burnes were each generating roughly $30 million annually and enjoying relatively healthy profits. Both companies were benefiting from steady, strong growth in the photo processing industry, which served as an important indicator for album and frame sales. Photo processing receipts in the United States began increasing in the early 1980s and grew during the mid-1980s at rates of roughly ten percent annually. Between the early 1980s and early 1990s, in fact, the industry grew at an average annual rate of nearly seven percent, leading similar gains in the frame and album business.

At the same time, however, low-cost imports were providing a strong challenge, particularly at Holson. Although Holson was still a family-owned company in the early 1980s and did not release sales and profit data, Holson family members made it clear that competition from abroad was hurting their business. They charged that manufacturers in Korea and Hong Kong were dumping cheap photo albums into the U.S. market at a loss as part of a long-term strategy to put American competitors out of business and take over their market share. In January 1985 Holson and three other U.S. album manufacturers filed suit against the dumpers with the Federal Trade Commission.

To win the suit, Holson had to prove that its production operations were efficient and up to date, and that it planned to continue modernizing its facilities over the long term. At the time, Holson was manufacturing 435 different styles of photo albums, and its manufacturing facilities were highly automated and efficient by industry standards. In October 1985 the U.S. companies won their suit, and the federal government imposed duties on incoming albums to ensure competition. Although the duties helped stop the dumping, two major U.S. album producers had already filed bankruptcy and a third had stopped operating, and even after the duties were in place, the imports remained lower in price than domestic products.

Partly because of the import problem, the Holson family sold out to Bain Capital in 1986; however, the Holson Company, which was still managed by family members, continued to have problems under the Bain umbrella. To return the organization’s competitive edge, Bain called in a series of consulting teams, including one from Price Waterhouse. Among the members of the Price Waterhouse team was Hoffmeister. Bain asked Hoffmeister to join Holson as head of the company in 1988 to effect a turnaround.

Hoffmeister shook up Holson’s management team, replacing key executives. He also refocused the company’s attention from camera and specialty store customers to larger retailers, who were demanding better service. “The story I like to tell is my first meeting with Sears,” Hoffmeister recalled in the August 24, 1992 Providence Business News.’ “The people at Sears looked at us and said, we want you to know that your company stinks.… And we kept Sears. In fact, we didn’t lose any major customers in that period, because we made commitments to them, we fixed it, and we didn’t commit to what we couldn’t do.”

Shortly before Hoffmeister assumed the helm at Holson, Bain purchased Burnes, which was owned by Hallmark at the time. Burnes was in relatively good financial shape, under the leadership of Chairman Charlie Gordon, who had been running Burnes for several years. During the next year, Gordon and Hoffmeister independently recognized the potential benefits of a cooperation between the two organizations. When Bain gave the go-ahead to a merger, they moved quickly to form Holson Burnes Group, Inc., and to begin cross-marketing their products. In 1990 Holson Burnes also acquired Terragrafics, a leading supplier of high-end picture frames to specialty and department stores that was generating about $15 million annually. This purchase rounded out Burnes’s strengths in the middle and upper-middle segments of the industry.

In 1990, the first full year that Holson and Burnes operated as a single entity, sales were $88 million. In 1991, the first full year that Holson Burnes and Terragrafics operated as a unit, sales jumped to $112. During the first few years Hoffmeister and fellow managers worked to streamline the company, eliminate overlap, cut production costs, and jettison poorly performing units. Largely as a result of reorganization expenses, Holson Burnes posted net losses in both 1990 and 1991. To help make up for the losses and to reduce the company’s debt load, Bain took the company public in 1992, raising about $30 million.

The company’s stock price shot up from about $15 to $19 after the offering, in part due to the 1992 introduction of the ‘Showbox’ photo viewer. Invented in Switzerland in 1987 and extremely popular in Europe, the Showbox was a photo frame that held 40 photographs, loaded very easily, and allowed a user to quickly shuffle through and view the photos without touching them. Although analysts expected the company to ship $13 million to $15 million worth of Showboxes for the year, Holson Burnes sold only $10 million worth of the Showboxes and posted a $12.35 million net loss. The company was left with excess inventory and forced to lay off some workers. By February 1993 Holson Burnes’s stock price had plunged to just $4 per share.

Hoffmeister left the company in 1993 and Gordon became chairman and chief executive officer. Over the next two years the company struggled to gain control of its inventory and finances. Although revenues remained around the $130 million mark, profits improved markedly, to $3.2 million and $6.8 million in 1993 and 1994. In March 1995 Holson Burnes announced an agreement to buy Heritage Springfield, a Massachusetts-based distributor of photo albums to mass merchants. A month later the company announced its intent to acquire M. W. Carr, a leading supplier of frames to specialty stores. The two companies were expected to bring about $28 million of additional annual revenue to Holson Burnes, establishing the company as the leading U.S. manufacturer and supplier of photo albums and the second-largest producer of photo frames.