Waxman Industries, Inc.

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Waxman Industries, Inc.

24460 Aurora Road
Bedford Heights, Ohio 44146
U.S.A.
(216) 439-1830
Fax: (216) 439-1262

Public Company
Incorporated: 1971
Employees: 1,805
Sales: $397.6 million
Stock Exchanges: New York
SICs: 5074 Plumbing and Hydronic Heating Supplies; 5063 Electrical Apparatus & Equipment; 5072 Hardware

Waxman Industries, Inc., a company based in suburban Cleveland, Ohio, has grown from a small family concern to one of the largest full-line suppliers of plumbing, electrical, and hardware products for the do-it-yourself market. Waxman and its subsidiaries market products in the United States and Canada through home improvement centers, warehouse home centers, mass merchandisers, hardware stores, lumber yards, wholesalers, and mail order catalogs. The company serves its customers from packaging and distribution facilities located throughout the United States, Canada, Taiwan, and mainland China.

The business was founded in 1934 by Stanley Waxman, a Russian immigrant who sold used sinks, bathtubs, and other plumbing equipment in inner-city Cleveland. By the time Stanley handed over the family business to sons Armondand Melvin in 1965, Waxman Industries had expanded into the do-it-yourself business. The company concentrated on assembly, packaging, and distribution, rather than manufacturing. The brothers made their first acquisition, Rex Supply, in January 1970, and took the company public in 1971. The Waxman family retained a controlling interest in their namesake company.

The 1970s were a decade of trial and error for the growing business. Two business strategies in particular jeopardized the company’s progress. First, the Waxmans attempted to expand into northern California’s intensely competitive building supplies market in 1974 by acquiring plumbing and electrical distributors. The two businesses had solid sales but meager profits, and soon began to detract from Waxman’s other operations. Then, in 1977, Waxman launched six retail HandiFix stores in Indianapolis. The stores, located primarily in strip malls, had to be closed in mid-1979.

At the same time, high interest rates during the inflationary 1970s battered the highly-leveraged company. Waxman’s earnings declined in five out of seven years during the decade, and in 1977 the company suffered a net loss of $ 1.2 million on sales of $23.7 million. To make matters worse, Handy City, one of Waxman’s primary customers, canceled its accounts in 1980. As a result, the company was forced to close a major Atlanta distribution center that year. Sales and earnings declined again in 1981, and the company reached the nadir of its downward spiral in 1982: net income plummeted 83 percent, from $301,000 in 1981 to $51,000.

Although the 1970s had challenged Waxman Industries, the company’s co-CEOs learned valuable lessons from their experiences. Armond, the company’s acquisitions chief, arrived at a specific set of criteria for new purchases. Candidates for acquisition would have to be profitable, have distribution capabilities, a reliable management team, and a customer or product base that correlated to Waxman’s customers and products. All acquisitions were financed with cash or debt, not stock. Melvin Waxman would manage the growing operations acquired by his brother during the 1980s.

Waxman Industries began to emerge from the doldrums of the 1970s in the early years of the following decade. In 1981, the company acquired Medal Distributing Co., of Sharon, Pennsylvania, and in 1982, the company expanded to the East Coast with the purchase of Singer Hardware & Supply Co. and its affiliate, Shalin Sales, Inc. Both businesses were located in New Jersey.

The company began a growth spurt in mid-decade, with acquisitions that propelled it to the forefront of the highly fragmented do-it-yourself-supply market. Waxman had endured the industry’s slow climb from a volume of $8 billion in 1972 to $40 billion by 1983. The expansion of this industry was fueled, in part, by the high cost of professional plumbers and electricians. Industry observers also noted that many people appreciated the sense of satisfaction they got from doing their own home repairs. Analysis of the do-it-yourself industry showed that, by 1984, 75 percent of all single-family homes had at least one do-it-yourselfer. Waxman got a leg up in this market by “assuming their customers were dopes and providing instructions with their goods that the least handy consumer could follow,” according to Forbes. These user-friendly products earned customer loyalty early.

Waxman established several brands of best-selling products in the early 1980s. The company’s Plumbcraft plumbing parts constituted the bulk of annual sales volume. Plumbcraft stock ranged from household chemicals to kitchen and bathroom accessories. Electrical products were sold primarily under the Electracraft name. Waxman introduced its Fancraft ceiling-fan accessories in 1983. Within a few years, ceiling fans went from being energy-related products to a useful and basic household appliance. Fancraft soon became one of the company’s primary lines. The company’s TelCraft line of telephone accessories was introduced at about the same time. It satisfied demands for connecting devices after the breakup of AT&T and the proliferation of phone manufacturers encouraged self-installation and maintenance of home telephones. Waxman brands were promoted with print advertisements, point-of purchase displays, and colorful packaging. The company also sponsored in-store how-to clinics to promote its products, which pleased retailers and consumers alike.

Waxman’s acquisitions in the 1980s increased sales volume, broadened the company’s customer base, and expanded its geographical reach. The company made its first major acquisition of the decade, Barnett Brass & Copper Inc. of Jacksonville, Florida, for $12.5 million in cash and credit in 1984. Barnett’s $28 million annual sales gave Waxman a foothold in markets served by major hardware cooperatives and supermarkets, as well as the mail-order market. Mail-order sales helped Waxman increase its geographical distribution without having to open distant warehouses, and Barnett doubled its mail-order offerings by supplementing its product line with Waxman supplies. Waxman augmented Barnett’s line of imported plumbing items with a packaging facility established in Taiwan in 1984. The overseas operations were part of the company’s efforts to be a low-cost supplier, and by 1989, 25 percent of Waxman’s products came from Taiwan.

Waxman’s acquisition program continued in 1985, with the $3.7-million cash purchase of LeRan Copper & Brass Inc., a Coldwater, Michigan supplier of copper tubing and fittings, brass valves and fittings, and other specialty products. LeRan contributed $25 million in annual sales to Waxman’s profits, and increased the parent’s customer base by almost 8,000 customers. The company’s successes of the first half of the decade permitted a 3-for-2 stock split in 1985.

Select-Line Industries joined the roster of companies the following year. This Cleveland company supplied plumbing and electrical products to do-it-yourself retailers, and had about $8 million in annual sales. Waxman also acquired Keystone Franklin, Inc., a manufacturer of Sears, Roebuck & Co.’s Craftsman label, for $4 million in 1986. Pennsylvania-based Keystone Franklin was founded in 1927 and had estimated sales of $22 million at the time of its purchase. About half of that subsidiary’s business was with Sears and other major retailers. The merger of Waxman and Keystone products expanded the latter company’s private label plumbing program with Sears by two-thirds, increasing the number of products it supplied to the mass merchandiser to 375 items.

Waxman’s profits more than doubled in each of the three years from 1983 to 1986, culminating in record earnings. Later that year, the Waxmans won approval of a plan that helped keep control of the company in the family through the creation of two classes of common stock with separate voting rights. The plan, effectively a 2-for-l stock split, helped the Waxman brothers maintain their 45 percent share of the company.

By 1987, Waxman Industries topped $100 million in annual sales with a diversified customer base of do-it-yourselfers and professionals. The sales were made through a variety of venues: warehouse home centers, mass merchandisers, lumberyards, and neighborhood hardware stores. No one customer group or retail situation accounted for more than seven percent of total sales, which sheltered the company from downturns in specific markets.

Debt remained the company’s only problem. In 1987, Waxman offered $25 million in long-term convertible bonds through Drexel-Burnham-Lambert and used the proceeds to retire $13.7 million in face value of 10-year senior subordinated notes sold in 1985. At the same time, Waxman made its first purchasing foray outside the United States with the acquisition of H. Belanger Plumbing Accessories, Ltd., of Montreal Quebec. The buy pushed Waxman’s long-term debt to $41 million from $22 million, bringing the ratio of long-term debt to equity to almost 2-to-l. Although some industry observers were wary of Waxman’s debt load, the co-CEOs characterized it as a necessary evil.

Waxman acquired Madison Equipment Co., of Cleveland, and the plumbing products and floor care business of the Stanley Works Co., of New Brittan, Connecticut, in 1988. That year, the parent made a 3-for-l stock split and secured a $100-million, three-year, unsecured revolving credit agreement with its banks to help fund yet another acquisition. That August, Waxman acquired U.S. Lock, a distributor of professional locksmiths’ supplies, including locksets, deadlocks, padlocks, door closers, exit devices, and key blanks. U.S. Lock marketed over 3,200 products under its namesake trademark, as well as over 7,700 products supplied by other security hardware manufacturers. This Edgewood, New York company had annual sales of about $20 million. Waxman wrapped up the decade with its largest-ever acquisition: the Ideal Group of Companies. Waxman took on more debt to purchase Canada’s third-largest distributor of plumbing and heating products, but the parent’s sales nearly doubled with the addition of Ideal’s $205-million annual volume.

Waxman’s acquisitions of the 1980s contributed to almost a decade of phenomenal growth for the company. From 1982 to 1989, sales grew from $36 million to $238.9 million, and profits increased from about $400,000 to $7.3 million over the same period. The growth was based partially on internal expansion, but stemmed primarily from savvy acquisitions. Wall Street recognized the difference between the 1970s and 1980s at Waxman, too: the company’s stock appreciated 2,846.4 percent over the decade, from $.28 per share on December 31, 1979 to $8.25 at the end of 1989. The company ranked 152nd on Financial World’s list of America’s 500 fastest-growing companies.

In the early 1990s, Waxman slowed its rate of growth through acquisitions to concentrate on internal growth and debt reduction. The company’s sole acquisition in the first two years of the decade extended its reach across the United States’ southern border. Waxman purchased Western American Manufacturing, a manufacturing and packaging operation in Tijuana, Mexico that was founded in 1966 to make WAMI brand pipe nipples (lengths of pipe with threads at both ends). Internal growth got a boost in 1991 when K-Mart chose Waxman to supply its packaged plumbing to 2,300 stores nationwide. The mass merchandiser was the United States’ largest plumbing retailer, and brought $10 million of new business to Waxman during the first year of the agreement. Sales in the early 1990s declined annually, due more to a deep recession in Canada than the economic slowdown in the United States. Waxman hoped to increase its growing mail order and telemarketing business as the two countries recovered from the economic downturn.

Waxman’s efforts at debt reduction started in 1991 with the sale of $50 million in bonds in a private placement with institutional investors. The bonds offered the outstanding stock of Barnett Brass & Copper as collateral. Debt restructuring continued the following year, when Waxman repurchased over $12 million in long-term debt, reducing the company’s debt levels by about five percent. The company also completed a public offering of 2.2 million shares of common stock, netting $9.8 million and enabling Waxman to retire even more debt. By the end of fiscal year 1992, Waxman had improved its debt-to-equity ratio from 6.2-to-l to 5.4-to-l.