Safety 1st, Inc.

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Safety 1st, Inc.

210 Boylston Street
Chestnut Hill, Massachusetts 02167
U.S.A.
(617) 964-7744
Fax: (617) 928-3205

Public Company
Incorporated: 1984
Employees: 203
Sales: $104.97 million (1997)
Stock Exchanges: NASDAQ
Ticker Symbol: SAFT
SICs: 3089 Plastic Products, Not Elsewhere Classified

First known for its “Baby on Board” signs, Safety 1st, Inc. is an industry leader in the development, marketing, and distribution of childcare products. In the late 1990s it sold more than 300 safety, convenience, feeding, teething, and health and hygiene items in more than 60 countries. Among these products was a complete line of home security devices. Safety Ist’s business strategy has focused on developing strong brand recognition and loyalty. It has improved and repackaged products already marketed by other companies and developed new offerings of its own, always emphasizing the quality of the items sold under the Safety 1st label. Safety 1st has come to dominate the childcare products market in part because of its success in developing relationships with such large retailers as Wal-Mart, Kmart, and Toys “R” Us, which have chosen to carry the company’s products to the exclusion of most of its competitors.

Founding a Business: 1984

Safety 1st was founded in 1984 by Michael Lerner. The 30-year-old was running an executive search firm with his father when he encountered a couple who had recently returned from Europe with an unusual idea. The two had noticed drivers in Germany who had hung safety signs from their car windows in hopes of encouraging others to be cautious behind the wheel. The couple had sought to market similar signs in the United States but had so far been unsuccessful. Lerner purchased the rights to the concept and, with $30,000 of his own money, began to produce and package bright yellow “Baby on Board” signs. Lerner had not anticipated that he would spark a national phenomenon and was astounded by his success. He sold 10,000 of the signs in September 1984 and by the end of the following year was selling half a million of them each month.

As the “Baby on Board” craze waned, Lerner plotted his next move. “I suppose I could have just gone with the fad and taken the profits,” he told Inc. in December 1992. “But I wanted to be more than a flash in the pan.” After reading children’s magazines, he realized that child safety issues were a growing concern among parents. But stores only offered a handful of generic and drearily packaged child-proofing devices. Lerner recognized the potential in the untapped market of child safety products. He recruited Michael Bernstein, an experienced baby-products marketer, to assist him in leading Safety 1st beyond the novelty sign business. Using the profits netted from the “Baby on Board” venture, Lerner and Bernstein extended Safety Ist’s product line to 20 child safety items, such as outlet plugs and drawer and cabinet locks. The two did not focus on inventing new child safety products. Instead, their strategy was to improve upon existing products by adding innovative features and wrapping the products in colorful and eye-catching packages. Lerner also capitalized on the national distribution network he had established with his “Baby on Board” signs to make Safety Ist’s products widely available.

Safety Ist’s big break came in 1987, when Toys “R” Us, the nationwide chain of children’s merchandise stores, selected Safety 1st as its sole supplier of child safety products. Lerner recognized the importance of this opportunity and continued to improve the appearance of his merchandise. Commonplace child safety items were dressed up in four-color packages with images of the product in use. Consumers loved what they saw. Martin Fogelman, vice-president of Toys “R” Us, explained Lerner’s insight in the April 1, 1995 issue of Nation’s Business. “There were people in the safety business way before Michael. But he was the one who made the product appealing.”

Diversification in the Late 1980s

As Safety Ist’s brand name became synonymous with basic child safety products, the company sought to broaden its line to include larger items. Safety seats, balcony guards, and safety gates were some of the new offerings. Lerner and Bernstein’s next step was to continue Safety Ist’s growth by expanding beyond the narrow niche of child safety products and into the broader market of childcare convenience and activity items. In 1987 Safety 1st released an assortment of new products, such as baby monitors, bath seats, toddler cups, pacifiers, and teethers. The company did not alter its proven strategy of updating and refining drab items already found in stores. For example, Safety Ist’s baby bath seat came in a vibrant blue instead of the standard, functional white. Moreover, unlike other models ofbath seats, Safety Ist’s featured a swivel seat, which made a parent’s task easier. After it was released in 1990, the seat quickly became the best-selling version in the nation. A spokesperson for Safety Ist’s top competitor, Kiddie Products, Inc., summed up Lerner’s success for the October 25, 1993 issue of Forbes. “Today novelty sells. It’s gone from basics to fashion business.”

A key to Safety Ist’s increasing profitability at this time was its relationship with Wal-Mart, Kmart, and the Home Depot. When these three retail giants joined Toys “R” Us in carrying Safety Ist’s juvenile merchandise line, Lerner’s enterprise flourished. In a July 1993 press release, Lerner credited his company’s “strong performance” to “the strength of our distribution network, which included such mass merchants as Wal-Mart, Toys “R” Us, and K-Mart.” Sales to these three retailers soon accounted for 44 percent of the company’s revenues. Lerner noted in the same article that “our ability to provide a full line of products appeals to merchants that increasingly want to utilize fewer suppliers.” Safety Ist’s goods sold well in these retail behemoths. Toys “R” Us named the company its “Vendor of the Year” in 1990, and Wal-Mart followed suit a year later, awarding the company “Vendor of the Quarter.”

Growth and Development in the Early 1990s

Safety 1st grew at a meteoric rate. Sales jumped from $7.7million in 1989 to $43 million in 1993. By that year the company’s original product line of 20 items had burgeoned to 175, and it distributed its merchandise to 3,700 retailers. With plans to introduce another 50 new products in 1994, Safety 1st wanted to raise revenue and repay its accumulated debt. In an effort to do so, the company made its first public stock offering of two million shares in April 1993. The stock sale was a success, and Safety Ist’s expansion continued to exceed expectations. Product sales in 1993 increased more than 50 percent from the year before, while profits for the year nearly doubled to reach $4.2 million. Delighted with his young company’s success, Lerner pushed for more growth. He recruited new executives from much larger corporations in hopes of spurring his company to mature quickly. “That overqualified individual allows me to grow faster,” he told Nation’s Business in April 1995. “The company develops to the executive’s level.”

Nineteen ninety-four was a banner year for Safety 1st. Net sales for the year were up 63 percent and reached $70 million. In an April 1994 press release, Lerner attributed his company’s strong sales to the new product offerings, particularly larger “bulk” goods. The company introduced such items as the “Turn ’N Seal Diaper Pail,” “The Night Light Bed Rail,” and the “Step Stool and Scale.” An extremely profitable product that year was a baby monitor that went beyond merely broadcasting the baby’s cries. Safety Ist’s model automatically played a Brahms lullaby every time the baby made noise. At the close of 1994, the company’s product line topped 300 items.

Safety 1st scored an impressive triumph in March 1994, when it reached a licensing agreement with Walt Disney Co. to produce a new line of infant care products under the “Disney Babies” brand name. According to Safety Ist’s 1995 annual report, this was quite an achievement, as Disney was “one of the most coveted licenses in the juvenile industry.” At the same time, the company ventured in a different direction by expanding outside juvenile products altogether. Safety 1st launched a line of home security products, such as deadbolts and carbon monoxide monitors. Lerner hoped that recognition of the Safety 1st brand name would lead to the new line’s success in hardware store chains. Lerner’s efforts were rewarded with national recognition. Forbes ranked Safety 1st second in its annual “Emerging Growth Companies in the United States.”

Many analysts believed Safety Ist’s stunning success was achieved on the coattails of a growing juvenile products industry, which had seen its sales balloon to $3.5 billion in 1993. The April 17, 1994 edition of the Boston Globe correlated this industry-wide growth to the baby boom, or so-called boomlet, of the 1980s. At the same time that more babies were being born, the average mother’s age increased. In 1993 women over 30 accounted for almost 40 percent of all births. With their higher earnings, these women had more to spend on their children. In fact, birthrates in households earning more than $25,000 a year jumped 50 percent between 1985 and 1990.

Company Perspectives

Safety Ist’s mission has always been to provide innovative products to parents and to help create safer environments for children. We have continued this strategy in the area of home security. We will continue to build on our established reputation for innovative products, excellent service, and competitive pricing.

On many fronts 1995 appeared to be yet another year of progress for Safety 1st. Once again sales soared, reaching $103 million, and net income increased to $3 million. Safety 1st continued to emphasize expansion and introduced 100 new products accordingly. Lerner also positioned the company for international growth by initiating two acquisitions in 1995. Safety 1st announced its intentions to acquire EEZI, Ltd., as well as Orleans Juvenile Products, Inc. EEZI, a British developer and marketer of home safety products and juvenile accessories, offered Safety 1st the potential to expand its international customer base. Orleans, originally Safety Ist’s Canadian distributor, was one of the largest distributors of juvenile products in Canada. These transactions underscored Safety Ist’s “commitment to broadening [its] international presence,” Lerner said in a March 1996 press release. International sales rose 58 percent in 1995 and accounted for almost 15 percent of the company’s total sales.

Structural Difficulties in the Mid-1990s

While Safety 1st continued to expand in a variety of directions, organizational and structural problems emerged in 1995. Ironically these difficulties were created by Safety Ist’s dynamic growth and the unstinting demand for its wares. In April 1995 production problems forced the company to delay the release of some new items, causing Safety Ist’s share price to drop from $25 to $16.75. A woeful Lerner told the Boston Business Journal in April 1995, “We thought we would have products sooner than we did; we just failed to take into account time to debug production of new products.” A September 1995 Forbes article chalked up Safety Ist’s troubles to “a case of growing pains.” In December of that year, the company experienced an inventory shortfall that cost it $4.5 million. Safety Ist’s computer system had been unable to accurately keep track of its inventory, which caused the company to accept orders for products it could not ship. In response, the company’s share price dropped 21.4 percent in one day.

Lerner did not wait passively for the situation to improve. In 1996 Safety 1st began aggressively to address many of the growth-related, structural impediments it faced. The company continued to expand internationally, especially when it finalized its acquisition of EEZI and Orleans that year. (These wholly owned subsidiaries were renamed Safety 1st Europe and Safety 1st Canada, respectively.) But, as Lerner stated in the company’s 1997 annual report, the difficulties of 1995 helped him realize that Safety Ist’s product offerings “had exceeded a manageable level.” Moreover, the company had moved too far from its core competency of juvenile products. Safety 1st had been “carried away by its early success,” Forbes declared on November 3, 1997. “Many of the new items, like deadbolt locks and door peepholes, were not strictly child-related, and ran against stiff competition from hardware makers.” The continual expansion had complicated all its operational aspects and had led to substantial increases in expenses.

In response, Safety 1st sought to improve the infrastructure of its management team by hiring a slew of talented executives. To oversee revised fiscal policies, Lerner recruited Richard Wenz to the newly created position of president and chief operating officer. (Lerner remained chairman and chief executive officer). In addition, Lerner ensured that the company installed an enterprise-wide business management computer system to aid inventory control and fiscal management.

Safety 1st also reexamined its overall business strategy. In 1996 Lerner initiated a lengthy and costly product realignment to refine the company’s sales and marketing objectives. Every Safety 1st product was evaluated in terms of profitability, inventory turnover, and rate of customer return. Those that did not meet the standard were discontinued. Eventually the company reduced its product offerings by 350 items, a cut of nearly 54 percent. But the product realignment took a toll on net profitability in 1996. The total cost of the process, mostly in inventory write-offs from discontinued products, was estimated to be between $24 million and $26 million. Although sales for the year were up, the company’s net loss was over $44 million. Lerner explained in the November 3, 1997 issue of Forbes, “We’re focusing on our core strengths. I wish we had done this three or four years ago. We have learned a lot.” He added that after the crisis of 1995 and 1996, he considered more moderate growth of 15 percent a year to be ideal. Left with its 300 best-selling, highest-margin juvenile and home security products, the company hoped to return to profitability in 1997.

Successful Reemergence in the Late 1990s

Throughout 1997 Lerner and Safety 1st continued to apply their newfound principles of managed growth. Although the company recognized that new product development was a core strength, it remained committed to maintaining a more balanced approach. Greater emphasis was placed on preproduction market research and cost analysis prior to the development of a product line. Safety 1st also began to experiment with business strategies other than simply releasing more items. One such approach was to license the Safety 1st name to other companies, such as Delta Enterprise, which produced a line of baby strollers bearing Safety Ist’s logo. Shored up by this sort of venture, Safety Ist’s sales remained stable in 1997, even though its product lines had been dramatically reduced. Moreover, Safety 1st returned to profitability with a net income of $10.5 million. The company held a 50 percent share in the safety category and held more top-ranking category positions than did any other manufacturer in the juvenile industry.

Sales outside the United States flourished in 1997, demonstrating the company’s commitment to international expansion. During the year Safety 1st formed a global team to research and develop international markets in order to guarantee that any new products would meet world standards. Safety 1st maintained an extensive global distribution network in 60 countries worldwide.

After weathering the storms of overexpansion, Safety 1st reemerged as a force in the juvenile products industry. With its program of managed growth in place, Safety Ist’s outlook was positive. The company also intended to capitalize on anticipated beneficial demographics. The U.S. birthrate, after remaining stable to the turn of the century, was expected to escalate early in the 21st century to surpass the birthrate of the baby boom years of the 1950s and 1960s. Safety 1st, along with the juvenile products industry as a whole, predicted only steady growth.