Lifetouch Inc.

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Lifetouch Inc.

11000 Viking Drive, Suite 400
Eden Prairie, Minnesota 55344
U.S.A.
Telephone: (952) 826-4000
Toll Free: (800) 588-9151
Fax: (952) 826-4557
Web site: http://www.lifetouch.com

Private Company
Incorporated: 1936 as National School Studios
Employees: 22,000
Sales: $1.7 billion (2006 est.)
NAIC: 541921 Photography Studios, Portrait; 511130 Book Publishers; 511140 Directory and Mailing-List Publishers; 512110 Motion Picture and Video Production

Employee-owned Lifetouch Inc. is one of the leading portrait photography companies in North America, operating in all 50 states, Canada, and Mexico and employing a workforce of nearly 22,000. The company’s primary business is the production of school, church, business, family, and sports portraits. Through its subsidiaries, Lifetouch provides school portraits and yearbooks, oversees studios in J.C. Penney and Target stores, and produces pictorial church directories. Other enterprises include event digital imaging (which combines photography, graphics, and text), CD business imaging, and video production. Lifetouch’s 2006 purchase of the school photography operations of Jostens, Inc., bolstered the company’s leading position. Paul Harmel heads the company, headquartered in Eden Prairie, Minnesota, as chairman and chief executive officer.

RURAL ORIGINS AND NATIONAL DEVELOPMENT

The story of what is now Lifetouch began with the vision of two photographers in 1936. As the United States struggled to emerge from the Great Depression, 25-year-old R. Bruce Reinecker and 20-year-old Eldon Rothgeb set about bringing “School Photography of Distinction” to students in one-room schoolhouses throughout rural Minnesota. Determined to channel their ambition, talent, and skills into achieving this dream, the two young men used $500 in start-up funds to rent a small office space, purchase a mahogany box camera, and establish their company, which they named National School Studios.

The company grew rapidly, photographing schoolchildren and whole classrooms and offering the black-and-white pictures for sale to the students’ parents. In 1939, the company began offering enlarged three- by five-inch photos. During World War II, cofounder Reinecker took a leave from his company responsibilities to serve in the U.S. military, and when he returned the company moved into new, larger facilities in Minneapolis. During this time, the company began offering hand-tinted and sepia-tone prints as well as a five- by seven-inch enlargement.

In 1955, full-color school portraits became available for the first time through National School Studios (NSS). In 1965, an NSS plant was opened in Derby, Connecticut. In 1968 the company began to offer the eight- by ten-inch enlargement as part of the packages available to customers, which resulted in the company nearly doubling its sales. Also this year, the company opened new offices in Bloomington, Minnesota.

Following the death of cofounder Eldon Rothgeb in 1972, the company he had cofounded pursued growth through acquisitions. Trends in the postwar baby boom years had proved to be highly favorable for the photography business and at this time the company sought to fill additional market niches. Significant acquisitions in the 1970s included those of Prestige Portraits in 1974 and Universal Publications, which became Lifetouch Publishing, in 1975. Along with the company’s growth at this time came the implementation, in 1976, of a new paper conservation program, which cut waste by 61 percent in the first year. Especially important to the company’s development, however, was Reinecker’s initiation in 1977 of the Employee Stock Ownership Plan (ESOP), which transferred 100 percent ownership of the company to its employees. Reinecker not only wanted to reward employees for working hard to build the company, but also to encourage employees to stay with the company and continue to work to maximize profits and find new ways to grow as rapid technological advancements in photography unfolded. He believed that allowing employees the freedom to be creative and the dignity that comes with a sense of purpose would be beneficial for all involved. The ESOP would allow the employees to reap greater financial rewards, providing them with the incentive to perform at the highest level possible while amassing funds for retirement.

A key component of the company’s success was its ongoing dedication to the design and construction of its own cameras. With a camera capable of automatically adjusting the focus and lighting while recording crucial data such as customer name, order information, and printing instructions, the company could control quality and cost. Even after the baby boom subsided and school enrollments began to decline, the company’s growth accelerated, with an emphasis on broader product offerings. Given its technical ability to make available a wide variety of price and product packages, the company continued to enjoy growing market share and increases in the size of the average order.

NAME CHANGE AND FURTHER GROWTH THROUGH ACQUISITIONS AND TECHNOLOGY

As customers increasingly placed emphasis on the emotional aspects of the products, the company decided to change its name. In 1984 National School Studios was renamed Lifetouch Inc., deemed appropriate for a photography company proud of its ability to “touch lives with pictures.”

The name change was one of the first major decisions made by a new leader, Richard P. Erickson, who had become chairman and CEO of the company in 1983. Erickson joined the company in Michigan in 1955 as a salesman/photographer who drove from town to town. In the early 1960s, he accepted the assignment to open a new territory in northwestern Ohio, which quickly became profitable under his leadership. After Rothgeb’s death in 1972, Reinecker needed someone with Rothgeb’s sales and marketing strengths to complement his own skills in administration and production. He chose Erickson as his heir-apparent for the position of CEO. In 1976 Erickson became executive vice-president, and in 1980 he stepped in as president of the company. Bruce Reinecker, the remaining company founder, died in 1987.

In 1983, with Erickson at the helm, the company acquired Kinderfoto International Inc., a retail photography business that specialized in preschool and family portraits. Kinderfoto, with $45 million in revenues at the time, operated 80 of its own independent studios in shopping malls along with 125 additional studios in major J.C. Penney stores across the country. Within about ten years of acquiring Kinder-foto, Erickson expanded the number of studios attached to J.C. Penney stores to 450 and more than doubled Kinderfoto’s revenues to more than $100 million. By 1994, then, Lifetouch had become the largest school photography business in the country; it also stood as the fourth largest retail photography operation, close behind the photography companies allied with Wal-Mart, Sears, and Kmart.

COMPANY PERSPECTIVES

The men and women of Lifetouch share the vision to be the leading employee-owned photographic company providing innovative products and services that capture the spirit of today and preserve the memories of tomorrow.

Adding to its school photo business, its studios inside J.C. Penney stores, and its yearbook publishing business, in 1994 Lifetouch decided to jump on the next bandwagon of retail photography opportunities with a move into the adult market and the growing area of glamour photography. A new “fashion photography” venture, Faces by Lifetouch Inc., was opened at the Mall of America in Minneapolis. Ted Koenecke, corporate vice-president, commented for a 1994 article in Corporate Report-Minnesota: “Faces is a new kind of endeavor for us. Right now, we get people all the way from birth—with JC Penney’s ‘Pixy Portraits’ and a division called Kinderfoto—to age 18. Faces by Life-touch is really our first direct entree into the retail photography market, and we chose to do that by going into the high-fashion look and going after the more upscale client.”

Lifetouch was not without competition in this area, however. Competitor Glamour Shots had a total of six studios located in the Twin Cities by this time, including one in the Mall of America. After studying its competitors in this niche, Lifetouch established some unique practices to make the experience more special for clients and to differentiate its services from those offered by other photography retailers. At Faces by Lifetouch, the makeovers and two-hour photo shoots were done in private rooms, with private viewings of the resulting images afterward. Beyond the sitting fees and the services of a “Personal Image Consultant,” black-and-white and hand-colored prints could be purchased in “sheets,” along with auxiliary products such as frames and makeup, marketed under the Faces trademark. The studio had the capacity of 40 sittings per day and was booked ten days in advance. Additional studio openings were planned.

Lifetouch also continued to pursue the acquisition of smaller, independently owned, and well-established photography firms. In the early 1990s Lifetouch acquired a 58-year-old firm in Baltimore, Maryland, which became Segall Majestic/Lifetouch, and Henry M. Blatner Photographers, Inc., which had been a family business established in York, Pennsylvania, in 1945. In addition, in 1995, Lifetouch acquired United Church Directories, which became Lifetouch Church Directories and Portraits Inc.

In July 1998, Lifetouch finalized the purchase of a major competitor in school photography, T.D. Brown, of Cranston, Rhode Island. In business since 1929, T.D. Brown’s ownership would change but its operations and leadership, which still included some descendants of founder Theron Dean Brown, would remain in place. The company employed about 100 people on a year-round basis but hired more than 400 additional people during the busy fall and spring seasons. T.D. Brown produced about 400,000 portraits for students from kindergarten through eleventh grade and about 50,000 photographs of students graduating from high schools and colleges each year. Its primary market had been New York and New England, with some of the college business from other areas.

KEY DATES

1936:: National School Studios is founded by Eldon Rothgeb and Bruce Reinecker.
1955:: The company introduces the first full-color school portraits.
1968:: Sales nearly double as a result of the company’s introduction of 8- x 10-inch enlargements.
1974:: The company acquires Prestige Portraits.
1976:: The company implements a new paper conservation program, cutting waste by 61 percent in the first year.
1977:: Bruce Reinecker initiates the Employee Stock Ownership Plan (ESOP), transferring ownership of the company to the employees.
1984:: The company’s name is changed to Lifetouch Inc.
1994:: A new fashion photography venture, Faces by Lifetouch Inc., is opened at the Mall of America in Minneapolis.
1995:: Lifetouch acquires United Church Directories, which becomes Lifetouch Church Directories and Portraits.
2006:: Company celebrates its 70th anniversary; company acquires school photography operations Jostens, Inc.

The new ownership would allow T.D. Brown the opportunity to expand all of its services throughout the country. Craig Brown, grandson of the founder and a former vice-president of the company, would be the Cranston plant manager and the territory manager for Lifetouch. According to Brown, Lifetouch had expressed interest in the smaller company for years and that interest was piqued by the development by T.D. Brown of its proprietary imaging technology and marketing, known as Seniors 2000. In 1993, T.D. Brown began investing in digital imaging photographic equipment and created an electronic tracking system to streamline the process for identifying individual photos among the thousands in production at any given time. The company also began using digital cameras, allowing images to be viewed on computer screens and considerably easing the process of making corrections and enhancements before printing the photographs. With this new technology, customers were able to preview their portraits and request changes via the Internet. T.D. Brown planned to implement this innovative program across its customer base.

Since 1997 Lifetouch had been a customer of Indigo N.V., headquartered in the Netherlands and a world leader in digital color printing. At the Graph Expo held in Chicago in September 2000, Indigo announced that Lifetouch headquarters in Eden Prairie had been chosen as the North American beta test site for Indigo Publisher 8000, the world’s highest-performance digital color printing press, according to the company.

ENTERING THE DIGITAL ERA

In the spring of 2001, Express Digital, with headquarters in the metropolitan area of Denver, Colorado, signed a long-term contract with Lifetouch to provide software, ongoing support, and custom development for its digital portrait studios. The agreement was struck as the culmination of a yearlong association between the two companies, whereby Express Digital had provided software and Internet solutions to Life-touch for a range of digital applications among its various divisions. With a major player such as Lifetouch implementing its technology into mainstream photography, Express Digital’s software solutions were on the way to becoming the industry standard.

Digital photography was gaining ground, and in the early 2000s Lifetouch began switching its cameras and all of its labs to digital formats. Consumers using digital photography were growing accustomed to a new level of control over the quality of their own pictures, and they would expect that of school photographers as well, the company speculated.

Moreover, although demand for school photos remained steady, some parents began to order fewer prints, choosing instead to reprint their own from a single print or have reprints made at a local photo shop. To adjust to these changing market conditions and new consumer demands, Lifetouch began to introduce retouching services (mostly to students in grades seven and up, for whom acne was sometimes a concern) as well as more varied and customized packages aimed at graduating seniors.

Lifetouch continued to carve out new niches in retail photography. In 2002, the year in which Paul Harmel was named chairman and CEO, the company officially entered the digital era with the launch of a new studio concept, FLASH! Digital Portraits. Lifetouch’s introduction of the new business also represented a move into more upscale retail territory beyond its established high-volume, low-margin core businesses. Several of the new studios in several states were opened for business by the start of 2004.

New equipment at Lifetouch Publishing enabled the company to further streamline its yearbook production process. In 2003, the yearbook publishing arm of the company had invested $12 million for expansion into the secondary yearbook market. By the time it purchased a new press in 2005, Lifetouch Publishing was distributing more than six million yearbooks annually in more than 21,000 U.S. schools. In the academic year 2005-06, more than 10,000 schools used online tools developed by Lifetouch to design and produce high-quality yearbooks. Lifetouch Interactive Memories, using Lifetouch’s own web-based yearbook production tools in conjunction with Utah-based StoryRock’s digital publishing tools, made available to students an interactive CD yearbook format to complement the traditional printed yearbook.

In June 2006, Lifetouch acquired the school photography operations of Jostens, Inc., a subsidiary of Visant Corporation, based in Armonk, New York. The acquisition included a production facility in Winnipeg, Manitoba, and field offices throughout the United States and Canada. The Jostens school photography business produced school class photos, graduation photos, and other school-related memorabilia.

The company also sought to support some charitable causes in the communities it served. For example, Lifetouch National School Studios replaced thousands of lost photo portraits, at no cost, for schoolchildren stricken by disaster. Lifetouch employees visited war-ravaged Kosovo to assist in rebuilding efforts and to provide photo IDs for refugees. In 2004 Life-touch began a partnership with the National Center for Missing & Exploited Children (NCMEC) and schools around the United States to unveil a rapid-response system and child safety program called SmileSafe Kids. The program allowed NCMEC and law enforcement, at the request of a parent or guardian, to distribute a missing child’s image as needed, 24 hours a day, seven days a week. Also provided to parent or guardian as part of the SmileSafe Kids program available in Lifetouch partnering schools were two free photo identification cards per student that included the most current Lifetouch school portrait, pertinent information on what to do if the child was reported missing, and a toll-free number to contact NCMEC. Jake Barker, president and COO of Lifetouch, commented in 2006: “Through our partnership with NCMEC and schools, SmileSafe Kids combines prevention with preparedness while offering peace of mind to families.”

On July 27, 2006, Lifetouch celebrated its 70th anniversary at its headquarters in Eden Prairie, Minnesota. With a history of documenting the lives of its customers for more than half of the 20th century and a dedication to implementing the emerging technologies necessary to continue that mission, the company’s prospects for retaining its place as a leader in retail portrait photography and related services for the 21st century seemed quite good.

Robynn Montgomery