Losing An Edge
Next time you stroll through the mall, take a good look at the lineup of stores. It’s not likely to stay that way for long. Shoppers are pinched by high gas and food prices, and specialty chain stores across the retail landscape are closing up shop. One of the more spectacular collapses of late is that of Sharper Image.
Founded in 1977 by Richard Thalheimer, the gadget retailer got fat on high-end massage chairs and its hugely popular Ionic Breeze air purifier. It grew into a $760 million public company with 196 stores. But the business took a hit in 2005, the same year Consumer Reports questioned the safety of the Ionic Breeze. A group of investors ousted Thalheimer, but they couldn’t stop the losses. In February of this year, the company filed for bankruptcy, and it planned to auction its assets in late May. Thalheimer, bought out for $31 million, has since started an online store he’s calling RichardSolo.com. Inc. contributor Andrew Park spoke with him about dark days for retailers, what went wrong at Sharper Image, and his plans for the future.
What’s behind the slump in retailing?
Today it’s easier for the biggest players to get their hands on cutting-edge products. You can go to Best Buy or Amazon and find most of the same products that five years ago you could find only if you went to Sharper Image or CompUSA. Now the specialty retailer has to stay a generation ahead of the big-box stores. But product innovation goes in waves. When times are tough, there’s less money and less innovation.
Have retailers opened too many stores?
It’s very common. Wall Street pressures you to show growth. There’s a certain seduction to opening up more stores, because that’s an easy way to show growth. But in a downturn, you wish you hadn’t. It’s like overeating at Thanksgiving. Sharper Image was guilty of that sin.
What happened at Sharper Image?
One of the biggest challenges that Sharper Image faced in the past five years was that the Apple store took over as the place to hang out and play with gadgets in the mall. We were lulled into a period of complacency because of the success of the Ionic Breeze.
Were Sharper Image products too pricey, especially when times got tough?
The stores had a nice assortment of lower-priced products from $5.99 to $59.99. The strategy was to get people to pick up an item at a price point they could afford on an impulse and get them to walk away with a shopping bag so that they remember you and come back at Christmas.
So the days of consumers splurging on $3,000 massage chairs aren’t gone for good?
We had our first loss in 1990, after 13 years of steady growth and profitability. We had our second 15 years later. My reaction and my strategy both times was to transition to lower price points. In boom times, it’s easier to sell a $1,000 product. In tough times, it’s easier to sell a $49 product. You keep the traffic going with more lower-priced products. That’s not original to me.
Has the failure of Sharper Image since you left vindicated your strategy?
The investors that bought into Sharper Image did not understand merchandising well enough to come up with innovative, creative ideas to sell. I don’t think [the bankruptcy] was driven by the economy. I think it was driven by the lack of product innovation. Private equity people have thought for 10 years that retailing was an easy way to make money, and it’s proving not to be so easy the moment you get a slight tick down in the economy.
How does it feel to see this company that you built in bankruptcy?
Bittersweet. If [the new owners] had made the stock go to $100, I’d feel they were so much smarter than me. On the other hand, to see it go through bankruptcy is very disheartening to me as the creator. I was hoping my children could grow up and walk past the store and say, “Hey, my dad created that.”
Generally speaking, do you think there has been a decline in product innovation?
I walk the Hong Kong Electronics Fair every year. You see so many iterations of the same thing. It’s very hard to find anything that’s actually new.
Which products is RichardSolo.com betting on?
My interest has always been gadgets and collectibles that make your life easier or more enjoyable. The products on our website range from a pogo jumper to a backup battery for the iPhone, our best-selling item. I spent most of 2007 getting the groundwork laid. In 2008, I’m going to start introducing the new products that I’ve been working on. I have a category of green products. Some are functional; some are cosmetic. In some way they all help the earth, such as notepads and stationery made of 70 percent elephant dung and 30 percent recycled paper. I love telling stories. What’s more fun than trying to tell people the story of the elephant-dung cards?
Retail chains scale back
Ann Taylor Stores: 117 stores to close by 2010
Bombay Company: All 335 of its U.S. stores have closed
CompUSA: Only 16 of its 225 stores remain open
Levitz Furniture: Filed for bankruptcy in November 2007. It’s shuttering all 76 stores
Linens ’n Things: 120 stores to close. Filed for bankruptcy in May