Smith & Hawken, Ltd.

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Smith & Hawken, Ltd.

4 Hamilton Landing, Suite 100
Novato, California 94949-8256
U.S.A.
Telephone: (415) 506-3700
Toll Free: (800) 940-1170
Fax: (415) 506-3900
Web site: http://www.smithandhawken.com

Wholly Owned Subsidiary of The Scotts Company
Founded: 1979
Employees: 850
Sales: $145 million (2004 est.)
NAIC: 444220 Nursery and Garden Centers

A subsidiary of The Scotts Company, Smith & Hawken, Ltd. is a Novato, California-based company best known for its upscale gardening catalog. Over the course of 25 years, it has added retail outlets, a wholesale operation, and a web site where customers can shop and seek gardening advice. In addition to the specialty garden equipment that made the company famous, Smith & Hawken now offers plants, bulbs, housewares, work apparel, books, and furniture. The company operates 56 stores located in 21 states and the District of Columbia, as well as a number of store-within-a-store locations in high-end gardening centers. Under Scotts ownership, Smith & Hawken is taking steps to further position itself as a lifestyle brand.

Paul Hawken, a Child of the 1960s

Smith & Hawken was cofounded by Dave Smith and Paul G. Hawken, but it was the latter who was the driving force behind the foundation and early growth of the company. Born in 1946, Hawken was a young man during the 1960s when he became an entrepreneur by happenstance. Troubled by asthma, he found relief by changing the food he ate. He avoided the typical American diet in favor of natural foods, but found it overly difficult to shop. As he wrote in a 1987 article in Inc., pursuing his diet meant "spending 10 hours a week shopping at ethnic food stores, farm stands, Seventh-Day Adventist flour mills, and other distant vendors." Believing he was not the only one frustrated by the lack of natural foods in the marketplace, he decided in 1967 to start the first natural food store in Boston, one of the first in the entire country. With just $500 he established Erewhon Trading Company. ("Erewhon" is "nowhere" spelled backwards, the name of Samuel Butler's 1872 novel of social commentary.) The store started slowly, taking in about $300 a day, but Erewhon tapped into a trend and within a few years Hawken opened more stores and became a wholesaler to supply his own outlets as well as others. His network of farmer-suppliers spread across 37 states, and his impact was felt across the country.

When Hawken sold Erewhon in 1973, it was doing $25,000 a day in sales. He spent the next couple of years out of the country, living in England and Japan. When he returned to the United States and began looking for a job, he quickly discovered that despite having started a successful business, employers did not care for his resume, which lacked a college degree or any salaried positions. By default, Hawken would have to become self-employed. He set himself up as a consultant, and trading on his success with Erewhon, he landed consulting jobs with several companies and helped in completing three turnarounds. Hawken was also an organic gardener by now, along with his friend Dave Smith. One day, another friend, John Heavons, complained about the difficulties of finding in the United States a certain heavy digging device made in England, where gardening was a passion and many garden tools were available. To fill this need, Hawken and Smith started a specialty garden tool catalog in 1979.

By one account Smith & Hawken started out with $40,000 in capital, by another $100,000. In any event, it was a shoestring affair, especially because Hawken, the chief executive, as a matter of principle, refused to borrow additional funds or take a salary, determined to make do with his seed money. He was also an iconoclast in his approach to the mail-order business. He rejected the strategy of renting a large number of lists and sending off hundreds of thousands of initial catalogs to do a sampling. From there, the best performing lists would be chosen and a much larger mailing done. But Hawken eschewed the use of rented lists in the beginning, preferring instead to build Smith & Hawken's own list by buying one-inch ads, costing $90 a piece, placed mostly in gardening and horticulture magazines. Only people who requested a catalog received one, and from this response, and orders from people who happened upon a catalog and purchased from Smith & Hawken, the company began to build its own list.

Smith & Hawken also took a different approach in putting together a catalog. Hawken explained in his Inc. article his misgivings about the current state of catalogs: "The copy was designed to make me feel that my life would be bereft if I didn't buy an electronic mail detector for my rural mailbox . . . Nor did I appreciate the come-ons about discounts and the 'surprise gift' to be included with my order, or photography so overdone that the actual looked a little shabby . . . And then there were the 800 numbers that reached a contract phone-service clerk who knew absolutely nothing about the products I was ordering." Instead, Hawken and his partner developed the kind of catalog that they would buy from. It was a simple black-and-white affair, and rather than mail out 500,000 to mostly uninterested consumers, it sent just 487 catalogs to people who requested them. In an industry where a 2 or 3 percent response rate was considered a success, Smith & Hawken received 283 orders from its initial mailing, a success rate well over 50 percent. The company kept placing its tiny magazine ads, which "didn't amount to much in themselves," Hawken wrote in Inc., "but their persistence proved that we were still around and still doing business. People began to wonder, 'Well, what are these tools?' Slowly, ever so slowly, our list grew, and so did our revenues."

Fending Off the Competition in the 1980s

After it was in business for four years, Smith & Hawken was generating $1 million in annual sales. It had built its own list to 200,000 names, and only now did the company rent its first outside mailing list. Because the company had achieved some prominence, the mailing produced good results. By this time Smith & Hawken also had opened its first retail store in Mill Valley, California. The company's success in the gardening market did not go unnoticed, however. Brookstone Company, backed by the deep pockets of its corporate parent, Quaker Oats, took aim at Smith & Hawken. With 20 years of experience in the mail-order business selling tools, some of them garden-related, Brookstone, which had 400,000 mail-order customers compared with Smith & Hawken's 25,000, appeared to be a formidable challenger. But after testing out three different company names and mailing catalogs to one million customers, Brookstone failed to break through. According to Hawken, "Brookstone didn't have the permission of the marketplace. Zeal, experience, and tons of money were simply not a substitute." But Brookstone was not alone in its desire to take away Smith & Hawken's business. Several competitors arrived on the scene and over the course of a year and a half, gardeners were inundated by mailings from Smith & Hawken imitators. Smith & Hawken replied by dropping prices and tripling the number of catalogs it mailed. The strategy worked and within two years sales grew to $10 million and by 1987 Smith & Hawken was generating $30 million in annual sales.

All the while it was fending off upstart competition, Smith & Hawken recognized that gardening tools pitched to avid gardeners was a limited market, and the company took steps to expand into other areas without sacrificing its hard-earned identity. It added general gardening merchandise, bulbs, and furniture. Hawken himself designed the highly popular Monet garden bench. In 1988 the company began offering work clothes after a designer named Gib Mann, who had worked with outdoor manufacturers Sierra West and North Face, convinced Smith and Hawken that they should offer apparel. In the main catalog in 1988, the company tested the waters with a pair of gardening pants, which sold out. In the next catalog, the company added gardening shorts and a gardening smock. These items also sold out and Mann was brought in to become director of clothing. The company now offered a more extensive line of clothing, with the emphasis on practicality and only a secondary regard for fashion. Smith & Hawken offered cotton dresses and shorts, chambray shirts and jackets, fleece jackets, canvas shirts, denim jeans, Japanese farmer pants, clogs, canvas high-top boots, handkerchiefs, scarves, and Panama hats. The items were also moderately priced, with most costing under $50 and none more than $100.

Hawken used his success at Smith & Hawken as a platform to advance his ideas about socially responsible enterprises. He wrote a book, Growing a Business, published in 1987 and later turned into a public television series. He advocated environmentally sound business practices. In 1990 he launched an initiative that challenged the practices of the mail-order industry. Smith & Hawken catalogs would now rely on recycled paper and no longer would a new cover adorn a catalog that had not changed inside. Moreover, each catalog contained a postcard that consumers could use to have their names removed from the Smith & Hawken mailing list. Hawken's goal was to cut down on the amount of junk mail in America, and as a consequence reduce the number of trees used to make paper and slow the pace of landfills.

By the end of 1991 sales at Smith & Hawken were about $55 million. A second retail store had been opened in Palo Alto, and a warehouse store in Berkeley became the first outlet to offer the entire Smith & Hawken line. In addition, the company began building up its executive staff, bringing in veterans from LL Bean, Banana Republic, and Toys 'R Us to fill roles in operations, fulfillment, and marketing. At the start of 1992, Hawken relinquished the presidency to Mark Fasold, who also took on a newly created chief operating officer position. Hawken stayed on as CEO and chairman, but by March he decided to quit completely, saying he wanted to devote his time to public speaking and writing books to champion his views on business and the environment. With hindsight, it appeared that Hawken had been preparing for his departure for some time, and given his reputation for candor, most took him at his word, unlike many parting executives, when he said he was leaving for personal reasons.

Company Perspectives:

At Smith & Hawken, we believe in the beauty of the garden, whether five acres or one plant.

Although it appeared that Hawken left the company he cofounded well positioned for future growth, in truth Smith & Hawken was losing money, due to disappointing sales in clothing. In September 1992 Smith & Hawken discontinued its clothing catalog. The company was put on the block and in January 1993 direct marketer CML Group, best known for its NordicTrack fitness equipment subsidiary, bought the business for $15 million and incorporated it into one of its units, The Nature Company Group, which also sold nature-related books, compact discs, and gifts. The hope was for Smith & Hawken to achieve cost efficiencies by using the group's more advanced fulfillment and communications system. CML also wanted to grow sales through the retail side. Within the year Smith & Hawken opened two new stores in Los Gatos and San Diego, California.

Change in Ownership in the Late 1990s

By the end of 1997, Smith & Hawken was operating 25 retail stores and had established a presence on the East Coast, where the company had six outlets. During this period Smith & Hawken also branched into publishing, releasing a series of gardening books with Workman Publishing Co. Unfortunately for CML, the success of Smith & Hawken was the only bright spot in what had become a gloomy picture. NordicTrack had fallen out of favor in the home-exercise market, leading to the 1996 sale of assets: Britches of Georgetowne, a men's clothing retailer, and The Nature Company. CML lost more than $40 million in fiscal 1997 and in January 1998 announced that it had hired Lehman Brothers to help weigh strategic alternatives. In November CML sold the NordicTrack division, leaving only Smith & Hawken, which now had sales of $88 million, as its remaining property. Then in December 1998, CML filed for Chapter 11 bankruptcy protection, indicating that it planned to sell Smith & Hawken. The subsidiary was sold in February 1999 to Wellesley, Massachusetts-based DDJ Capital, along with the State of Wisconsin Investment Board.

With the change of ownership the executive ranks at Smith & Hawken were turned over. DDJ looked to cut back on the circulation of the company's catalog and to refine the merchandise mix. Clothing was cut back in order to better position the company's brand within the gardening market. Like CML, the new owners were also eager to expand Smith & Hawken's chain of retail stores. By early 2000 the company was operating more than 40 units. As the economy began to soften, however, business tailed off, leading to no new store openings and prompting a major overhaul in 2001. A new chief executive, Barry Gilbert, was hired to revive the fortunes of Smith & Hawken. He brought 25 years of experience to the task, having held executive and management positions at Warner Bros. Studio stores, May Department Stores, Federated Department Stores, and Sharper Image, where as the No. 2 executive he was instrumental in building up it profits and stock price.

Under Gilbert, Smith & Hawken enjoyed success on a number of fronts. It bolstered its online business, so that holiday sales in 2002 improved by 40 percent over the previous year. The company opened four stores in 2002 and another ten in 2003. In addition, in May 2002 Saks Inc. opened 20 in-store Smith & Hawken shops in 20 of its department stores. Also in 2002 Smith & Hawken took steps to begin licensing its name, hiring New York Licensing Agency COP Corp. to pursue opportunities. The first licensed Smith & Hawken product, in keeping with its heritage, was an environmentally friendly wood flooring and decking made from reconditioned teak. In 2003 the company entered into the wholesale business, arranging to sell its products to the 300-unit The Home & Garden ShowPlace chain.

After five years of ownership by DDJ, Smith & Hawken changed hands once again. The Scotts Company, the largest supplier of lawn care products in the world, known for such products as Miracle-Gro plant food, Scotts Turf Builder, and Ortho Bug-B-Gone, agreed to pay $72 million and assume $14 million in debt to acquire Smith & Hawken. To some observers the marriage of upscale Smith & Hawken to mass market Scotts Co. seemed incongruous, but to Scotts's management the deal provided the parent with an opportunity to move beyond "grow and kill" garden products, soften its image—especially important in wooing women who comprised three-quarters of all gardeners, and claim a significant share of the steadily growing $21 billion garden-lifestyle industry in the United States. At the same time, Scotts planned to take advantage of its mass market contacts to beginning selling Smith & Hawken merchandise at retailers such as Home Depot, Lowe's, and Wal-Mart—Scotts's three largest customers. With Gilbert staying on as CEO, the plan was to add more retail outlets, continue to build on the wholesale business, and grow revenues from the $145 million projected for 2004 to the $500 million level.