License to Steal
What's in a name? According to the folks who bring you Vidal Sassoon hair dryers, about $84 million a year
Let's talk egos for a minute. Specifically, yours.
One of the truly wonderful things about starting your own company is that you get to name it whatever you want. Most people take the direct approach: Fred's Barbershop, McDonald's. Or they name it after something they're particularly fond of, like an apple, or what they aspire to be: International So-and-So.
But no matter what route they choose, very few people are willing to change their company's name or the name of its products once they are under way. The name may be dumb, silly, or unknown by all but the founder's family, but it's theirs.
It's a matter of ego.
And that brings us to Helen of Troy Corp., a company in El Paso that you probably have never heard of. After more than 10 years in business, the company did something that you probably wouldn't. It changed the name of virtually everything it sells. Fame, fortune -- and only a tiny identity crisis -- followed.
The son of a beauty-industry wholesaler, Gerry Rubin, now 44, started Helen of Troy after visiting an industry trade show in the late 1960s. People there said wigs, which had been hot for a while, would likely keep selling. That was enough to convince Rubin to open a wig shop in El Paso, his hometown. Soon he had six stores.
But wigs gave way to the "natural look" of the 1970s, and as sales fell, Rubin began selling hair dryers and styling tools to salons. By 1978, the retail shops were gone, and Helen of Troy, in the words of company president Aaron Shenkman, was left with "a nice little $6-million business [net margins were about 4%]. We were," says Shenkman, "making a living.'
But making a living is one thing, and growing is something else. The problem for Helen of Troy -- which by then owned 25% of the national market for professional hairstyling tools -- was that there was no room to grow. The market was flat, competitors strong, and new products hard to come by.
"Obviously," says Rubin, "retail was the place for us, if we wanted to grow.'
The problem was, Rubin wasn't the first to see the attractions of the mass market. By 1980, companies such as GE and Gillette dominated the hairstyling aisles. Gaining a place on the shelf meant spending a minimum of $25 million a year on advertising, and Rubin didn't have anywhere near that kind of money. Helen of Troy's net worth was $1 million.
Rubin was caught in a classic catch-22. He couldn't break into the market without money, and he couldn't get money until he broke into the market.
Rubin spent a long time thinking about this, and the more he thought, the less he liked his choices.
Choice number one: he could stay in the professional end of the business and have a nice "little" $6-million company forever. That was certainly safe -- but dull. The only excitement would come from the explosions that periodically rock Helen of Troy's headquarters when the junkyard across the street forgets to empty cars' gas tanks before it compacts them.
Choice number two: he could enter the retail market by making private-label hair dryers. While making products for someone else meant he could expand sales with little risk, it also meant little profit. "In essence, we'd be importers," says Rubin. "That's a business where you compete for pennies."
Or choice number three: Rubin could scrape together as much money as possible -- the company would go public a year later and raise $1 million -- and gamble on gaining a toehold of his own in the retail market.
But this option was even riskier than it first appeared. Assuming he could break in -- and retailers made it clear they were not exactly pacing the aisles waiting for another hair dryer to sell -- a move into the mass market would jeopardize Rubin's core business. Hairdressers sell image. And what kind of image would they have if clients saw that the Helen of Troy dryers and curling wands being used on their hair were available at the local K mart? If Rubin entered the mass market -- where success was a long shot at best -- there was an excellent chance that hairdressers would take their business elsewhere. The upshot? Helen of Troy could end up with nothing. No retail business, since the big boys were likely to fend it off. And no professional business, since miffed salon owners might shop elsewhere.
The more Rubin considered his choices, the more unhappy he became. He seemed completely boxed in. Then his father passed along a trade-magazine article that convinced Rubin that he did indeed have a fourth choice. He could, in essence, change his company's name.
What Rubin Sr. had read was this: Vidal Sassoon, a London barber who had become known as hairdresser to the jet set, had decided to license his name. Sassoon had already put it on a line of shampoos and was setting up a company to endorse other items.
When Gerry Rubin heard this it was as if God had decided to speak directly to his company.
"This was the way to break through," Rubin recalls. "We wouldn't have to spend millions creating a name; Sassoon had one. We wouldn't be offering retailers another me-too hair dryer, we'd be going in with a designer line. And we'd be able to protect our professional line as well. We'd use the Vidal Sassoon name for the mass market, and reserve Helen of Troy for the shops.'
He had found truth.
There were, however, two problems. By becoming a licensee, Rubin would be known -- if he were known at all -- as a man who sold Vidal Sassoon products. Helen of Troy, a company he had spent 11 years building, would be dominated by a product that carried somebody else's name. And the change would happen almost immediately. Projections (which proved true) showed that first-year sales of Vidal Sassoon products would be greater than Helen of Troy's entire professional line.
"Would I have preferred the growth to come from products with our name? Yes," says Rubin. "But that just wasn't going to happen. We couldn't develop our name at retail. We didn't have the money. We needed a well-known name."
Sassoon's certainly was that, and one that would allow Rubin to expand. That brought Rubin to his second problem. Vidal Sassoon owned the name. Helen of Troy didn't.
So off Rubin and Shenkman flew to Los Angeles, where Sassoon was auditioning companies, trying to decide which should send him checks. Among the suitors were Clairol and Gillette. Faced with the overwhelming size of their rivals, Rubin and Shenkman did the only thing possible. They talked about the quality of their products, and stressed that by going with their small company, Sassoon could be sure that his products would get a lot of attention.
All this was fine, but ultimately it was money that carried the day. Helen of Troy offered the best deal: $100,000 upon signing, plus 10% of sales, compared with the standard 6% royalty.
"Sure, it was a lot of money," says Shenkman, "but what choice did we have? We needed the name.'
They got it. And it got them shelf space. "Sassoon is a very recognizable name. If there is one person who is the embodiment of hair care in the United States, he's it," says a buyer for one major retail chain, who has cut down the number of Clairol products he carries to create space for the Vidal Sassoon line.
This same buyer had previously turned down the chance to carry Helen of Troy-branded products, which are virtually identical to the ones with the Vidal Sassoon name. That doesn't trouble the buyer in the least. He wanted the name -- and so did consumers. In its first year, Sassoon-labeled products produced $10 million in sales, and they have climbed ever since, helped in large part in recent years by an interesting turn of events.
Shortly after Sassoon signed the contract with Rubin, he sold his company -- and with it, his name -- to Richardson-Vicks Inc., the company producing his shampoo. Then in 1985 Procter & Gamble acquired Richardson-Vicks and decided to spend $30 million a year -- about double R-V's budget -- advertising Vidal Sassoon shampoos and conditioners. And every time Vidal came on the screen saying "If you don't look good, we don't look good," Helen of Troy's products got a plug. In the two full years since the Richardson-Vicks acquisition, Helen of Troy's revenues jumped by two-thirds, to nearly $68 million in 1987. Earnings nearly tripled.
The result of all this has Rubin talking about sales of more than $90 million this year and earnings of about $8.5 milllion. (Wall Street apparently has yet to catch on. Recently, Helen of Troy traded at about $13, or 8 times earnings, compared with multiples of 12 for Windmere, another hair-care products retailer, and 15 for Gillette.)
While Rubin is bothered by the low stock price, he has no intention of changing a thing.
"The Sassoon line is growing at 30% to 40% a year. We are going to ride it as long as we can.'
What to look for in a license
If you're looking for a quick and relatively painless way of breaking into a mass market, licensing can work wonders. You gain instant name recognition in exchange for a percentage of your sales. But for this marketing strategy to work, you have to know whose name to use and how to use it. Here's the approach that founder and chairman Gerry Rubin used at Helen of Troy Corp.:
* The name must fit. Both Brooke Shields and Pierre Cardin put their names on hair dryers. You can still find some of them in liquidators' bins.
"The problem was," says Rubin, "consumers asked themselves, what do Brooke Shields and Pierre Cardin know about hair dryers? And the answer was not much. The name has to carry with it some expertise, and the expertise has to fit." For example, Black & Decker may know about small electrical appliances, and hair dryers may be small electrical appliances, but we don't know of many people lining up for Black & Decker-branded items to dry their hair.
* Control. The way to handle the control issue, says Rubin, is clear. You can't give it up.
It's their name, but it's your product. While you might let the licensor decide how his name will be displayed, you have to be the one who decides how the product is made, packaged, and shipped.
* How long does the marriage last? ``You have to make sure you're covered, if it turns out that the license creates a monster business," Rubin says. In other words, the license is an asset, and, as always, you want to make sure your assets are protected. This can run into serious money. Helen of Troy has paid a total of $6 million -- over and above royalties -- to retain its rights to the Vidal Sassoon name until the year 2030.
* Partners today, competitors tomorrow? One of the things you're going to do when you license -- through your sales force, advertising, and promotional efforts -- is build up the value of the licensed name. The name Roy Rogers is worth a lot more today than it was when the cowboy was cantering about on Trigger, thanks to Marriott's effective promotion of Roy Rogers restaurants. If you are going to make that kind of investment, be certain that the licensor is not going to turn around at some point and compete with you.