Sharper Image Aims for Mass Appeal

Until recently, Sharper Image Corp. had an acute image problem: The specialty chain had become known as a high-priced novelty shop for tech-loving snobs attracted to the peculiar gadgets and contraptions sold in its stores and catalogs.

It wasn’t a formula for success, as the company’s founder and chief executive officer, Richard Thalheimer, finally came to realize in the early 1990s.

“We weren’t very efficient, our products were overpriced and lots of people were just too intimidated to come into our stores,” Thalheimer said. “Sharper Image had become known as a place that had a bunch of products that either you didn’t need or were too expensive.”

It took a few years, but a reorganization, the rise of Internet commerce and a trendy mass-market product have combined to put a new face on the San Francisco-based company.

Riding the popularity of the Razor scooter the company introduced in the United States last year, Sharper Image is midway through the best year in its 23-year history.

What’s more, this once-quirky chain is emerging as a retailing role model for blending a traditional chain store with online sales.

By employing the lessons that it learned in its catalog business, Sharper Image has built a booming Internet business without diminishing its store traffic.

The company expects to ring up about $60 million in online sales this year, accounting for about one-sixth of Sharper Image’s total revenue while also expanding its chain of 90 stores to more than 100 by the end of next year. Unlike many e-tailers, Sharper Image’s Internet business is profitable.

The Internet inroads have helped Sharper Image transform itself, from a company that typically lost money each year until the holiday shopping season, to a business that is consistently profitable. Sharper Image earned $1.1 million during the first half of its current fiscal year on sales of $139 million, versus a $2,9 million loss on sales of $99 million during the same period last year.

Even as it reaches out to the masses. Sharper Image has retained a certain elite quality. For instance, the company still carries items like an indoor rotating rock-climbing device that retails for $15,000. The company also is developing a “home robot” that will be equipped with cameras to monitor activities in other rooms. The robot is expected to sell for about $1,000.

But most of Sharper Image’s products today are more practical and priced under $100. The Razor -an aluminum scooter with upright handles has propelled Sharper Image into the mainstream.

Thalheimer first saw the product during a trip to Hong Kong in 1998 and negotiated a deal to sell the Razor, exclusively in 1999. The scooter boards didn’t become a craze until earlier this year, though, when Wal-Mart and other discount retailers were also inspired to begin selling the scooter boards, usually at lower prices.

The increased competition hasn’t noticeably affected Sharper Image’s sales so far the company’s August sales were up 80 percent from the prior year and Thalheimer said scooter sales continued to climb in September.

Yet investors are worried Sharper Image’s joyride is over. Through Sept. 27, Sharper’s Image stock had plunged by 20 percent since the end of August. Even with the recent drop-off, Sharper Image’s shares were still up 26 percent for the year.

Analyst Ozarslan Tangun of Southwest Securities in Dallas said Sharper Image is actually being hurt by the Razor craze now. “People are afraid this is a one-product company, but it’s not,” he said. “Sharper Image isn’t just selling products that technology geeks can afford. It has made its products appealing to a broader customer base.”

As more customers come into Sharper Image’s stores to buy the scooter, their eyes are being opened to other practical products, Tangun said.

Thalheimer, 52, has taken a lead role in making Sharper Image more accessible.

He writes and narrates his own whimsical radio commercials about a wide range of products, including sleek electric nose trimmers, filterless, low-noise air purifiers and a CD player for the shower. He also appears in television infomercials that Sharper Image has recently started to air in selected markets. Sharper Image spent $20 million on advertising and promotion during the first half of the year, a 60-percent increase from last year.

The commercials probably wouldn’t have made much difference if Thalheimer hadn’t decided that Sharper Image should develop most of its own products internally and then sell them through its retail channels. Many of the product ideas come from Thalheimer, a Yale-educated Arkansas native who started Sharper Image’s catalog business in 1977 to sell a lightweight watch for joggers.

Sharper Image’s patented products account for nearly two-thirds of the company’s sales. The exclusivity gives Sharper Image a bigger profit margin on its sales and keeps the company out of the Internet price wars that have hurt many e-tailers selling more common merchandise.

“The critical mass we are achieving now is so much more satisfying than where we were a few years ago,” said Thalheimer, whose stake in Sharper Image is worth $80 million.

Sharper Image Aims for Mass Appeal

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