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Winter 2008 Partnering for Growth

Sometimes the whole is greater than its parts.

That’s what a number of specialty retail companies have decided when looking for innovative ways to increase sales and expand their operations. Rather than going it alone, they’ve discovered the value of teaming up with other businesses to produce results none of the companies could accomplish on its own.

If the right synergies can be found and the partnership is executed well, working together can lead to a big payoff.

New lines, less risk

For Ryan Treft, vice president of marketing for Zoobies, teaming with another company gave Zoobies the chance to introduce a new line that appeals to a new set of buyers while minimizing risk. The year-old enterprise, based in Provo, UT, designs and manufactures Zoobie Pets, plush animals that can be unclasped to become a pillow. The pillow can then be unzipped to reveal a hidden child-sized blanket. All in one easily tote-able package.

The product’s unique design is patent-protected, and while parents are likely to appreciate the design’s functionality, kids go nuts over the fun colors and dozen zoo critters that make up the line. They retail for about $40 each.

Since sending out its first wholesale shipment in April 2006, the company has quickly built up a following, selling to more than 600 retailers by the end of 2007. But as popular as Zoobie Pets have turned out to be, Treft and company founders J.C. Smoot and his brother, Reid Smoot, quickly discovered there was another market just begging to be tapped, when retailers and their customers started asking about a possible collegiate line.

“It wasn’t just a few, but lots” who asked, Treft says. A mascot line “was something we’d never thought of.”

But with everyone at Zoobies focused on fulfilling the orders already pouring in, Treft and the Smoot brothers weren’t sure they could devote enough time to developing new mascot designs, not to mention obtaining the necessary licenses to duplicate college and pro team trademarked images.

A potential solution presented itself when the Zoobie executives met Mark Stanke, executive vice president and partner of TeamHeads, at a trade show. Based in Lee Summit, MO, TeamHeads designs and manufactures novelty hats and stuffed toys made in the shape of college and professional sports mascots. A new line of children’s backpacks is in the pipeline.

The potential synergy between the two companies was obvious to all. Not only were their product lines similar in many ways but TeamHeads, itself only a three-year-old company, already had licensing agreements with about 150 schools in the National Collegiate Athletic Association and some two dozen professional basketball, hockey and minor-league baseball teams.

It took only a few months to come together in a formal partnership that draws on the talents and capabilities of each partner, Treft says. Zoobie will produce and manufacture the new mascot product line using designs provided by TeamHeads. TeamHeads will be responsible for the licensing, marketing and distribution.

Treft says they’ll start out with 10 or 12 major colleges, then expand if sales warrant. Retail prices are expected to be $25 to $30.

“This is a quick, easy way to get a new product to the marketplace,” Stanke observes. “For [Zoobies] to try to get licensing on their own, it could take a year to a year and a half.”

TeamHeads benefits from “a unique product that promises to boost our sales with minimal effort.”

Two systems selling together

Two west coast companies found a different kind of synergy that’s working for them.

RST Inc., a Las Vegas company with two specialty retail skincare concepts, Sea Spa and Naturally Right, is teaming up with CSS Access, a San Diego company that provides point-of-sale and related services to the specialty retail industry. They’ve combined technologies to create a unique selling, POS and back-office system that neither company would even want to develop on its own.

RST sells its Sea Spa line, formulated with minerals found in Israel’s Dead Sea, through about 500 independent seasonal carts and kiosks worldwide. Naturally Right, an organic line launched in September 2007, is sold from carts at about 20 US locations.

Onsite skin testing using the company’s proprietary DermaScope is a major element of the retail sales strategy for both lines. The DermaScope is a countertop skin-testing device that integrates with a PC program to determine which skincare products best suit each customer based on this on-the-spot skin analysis. The system also supplies salespeople with key product talking points and ingredient information so they can relay critical selling points to the customer.

The DermaScope system is a fantastic selling tool, says its inventor and vice president of RST, Sebastien Gavillet. Once the customer says, “I’ll take it!” another fantastic system takes over.

The CSS LivePOS is an inexpensive point-of-sale system designed specifically for cart and kiosk operations. It ties into an interactive web-based POS and business-management system, giving specialty retailers the ability to track and manage cash and credit-card sales, view live sales and inventory data, handle payroll and generate tax and mall reports.

Specialty retail entrepreneurs with multiple locations will appreciate that they can access all store data securely online from anywhere, explains CSS Access Chief Technology Officer Liad Biton. Because the system is web-based, all data resides in the CSS data center, giving retailers a real-time off-site backup system.

That means smaller retailers can get a lot of POS system features designed for major retail chains who pay $5,000 to $10,000 per store for a system that requires thousands more dollars annually in technical support, Biton says. LivePOS’s costs are much lower, at $2,200 for hardware plus a $150-a-month subscription fee. The system also can be rented month-to-month for a $600 installation fee and a $200-a-month subscription.

The RST-CSS Access combined system allows Sea Spa and Naturally Right salespeople to fully demonstrate and sell their skincare line while getting the powerful POS and back-office functionality of LivePOS. They can easily toggle between systems.

The system provides real-time reporting that helps on a variety of levels. For those with multiple locations, the CSS system will indicate where product can be found in one store, if another store is running low. And it saves time. “Basically you save two hours of office-type work a day—time you can instead devote to sales,” Gavillet says.

Biton says the system is easy to learn, requiring about 15 minutes of training time for a salesperson, while owners or managers need one to three hours of training, depending on how many of the system’s 300 features have been installed.

When it comes to specialty retail, he says, frontline salespeople need a system they can learn fast and use easily. Combining the RST and LivePOS systems makes a positive impact at the cash wrap where it really matters.

Three companies strong

SolarEx Sunglasses of Brooklyn Heights, OH and Toucan Sunglasses of Octavia, NY found two ways to make teaming up work for them.

First, the companies merged to form a new company, SolarX Eyewear, which combined the strengths of each in a unified platform. Second, the merged company formed an alliance with Gift Giant of Central Islip, NY to share cart and kiosk locations with Gift Giant’s Personalized by Santa holiday ornament business. The latter uses the carts and kiosks during the holiday season; the former uses them the remainder of the year.

SolarX Vice President of Sales John Norris explains that the SolarEx-Toucan merger brought together the two companies’ complementary strengths. SolarEx contributed a strong sales team and leases in hundreds of malls while Toucan had what Norris terms a “great product and great distribution capabilities.”

At Toucan, “We didn’t have reps—we didn’t have a trade show presence,” says Chuck Flynn, co-founder of Toucan and now a partner at SolarX Eyewear. “We grew our business totally through referral and our advertising. It was a very passive approach.”

The Toucan product line always “sold itself,” he continues. Since the company started seven years ago, sales have been growing 50 percent a year. Over those years Toucan developed sophisticated warehousing processes that enabled it to ship high volumes on short turnaround.

What SolarEx had was the retail real estate as well as a large wholesale business. “For 2008, we’ll have about 300 mall locations, 30 that we own and the rest independent,” says Norris. “We’re going to wholesale to another 700 retailers.”

Both men say the merger, formalized in November under the SolarX Eyewear name, will allow them to devote company resources more efficiently, free up capital and reduce production costs.

The alliance with Gift Giant is an ingenious idea of a different order. It takes advantage of each company’s peak selling period. The winter holiday selling season is make-or-break time for 250 Personalized By Santa ornament carts and kiosks, but for SolarX it’s not the best time of the year to sell sunglasses, because demand is traditionally lower and the rents are significantly higher.

Because each company had agreements on hundreds of mall of locations, with only partial location overlap between them, the partnership enabled each company to greatly expand its market in one fell swoop.

Norris feels the pairing is ideal because the companies’ selling seasons don’t overlap and because both are established successes, making mall managers open to the concept of co-tenancy.

“If they weren’t getting two equally strong performers, they might be unwilling to approve the arrangement,” he says, adding they don’t hesitate “when it’s the right combination.”

And the right combination is what synergistic partnering is all about.

John McCloud

McCloud, a San Francisco-based freelancer, covers retail, commercial real estate, housing and design.

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