Over the years, the Brookstone employed literally thousands of people, including me. I doubt that any of them will write the history of Brookstone, certainly I’m not. And soon, the company will just be a memory.
I received numerous articles from many of you two weeks ago when it was announced that Brookstone was filling chapter 11 again – just four years after they last filed for bankruptcy.
Each of these articles had a general theme – that Brookstone was the latest victim of the US retail mall implosion. As big anchors like Sears and JCPenney dropped out of malls, and consumers did more shopping online, traffic to the smaller stores like Brookstone simply disappeared.
Only one article which a reader sent me from USA Today mentioned some other reasons, including:
- high management turnover;
- asking vendors to accept Chinese currency instead of dollars (because Brookstone is currently owned by Chinese conglomerate Sanpower Group);
- a recent eCommerce technology shift caused Brookstone to lose “a substantial amount of data” that ended up “severely damaging” the company’s digital sales;
- finally, Brookstone recently ceased sending out hard-copy catalogs and that, according to their CFO, was “directly responsible” for a sharp drop in web traffic, which represented 40 per cent of the company’s business.
Wow! They “lost data” due to an eCommerce technology shift! How does that happen in 2018? I bet there’s a great story behind that.
All those issues were contributing factors to the final nail in the coffin – especially dropping the catalog (dumb move!) – but they were not the cause for Brookstone’s ultimate demise. It was much more basic than that.
I worked at Brookstone from 1989 to 1997 as the marketing and circulation guy for the catalog. This was before we had a website. We did not even have email at the time I left – just lots of tan-colored interoffice envelopes. Over the intervening 20+ years since my departure, I heard from many former and current employees about changes at Brookstone that were “killing sales”. In my opinion, each one of those “changes” were simply one more chapter in the story of a company destined for failure because of two over-riding problems – debt and over-confidence.
In 1981, the original founders of Brookstone sold the company to Quaker Oats, who had plans to build a “specialty retail division”, which included Jos A Banks. By 1986, Quaker Oats had had enough of retailing, and sold off Brookstone in a highly leveraged buyout to the existing Brookstone upper management.
In my opinion, the die was cast at that point for the continued “kicking of the sales can” down the road. The management at Brookstone at the time, believing in their ability as superior managers, incredible retailers, and outstandingly talented catalogers, paid an over-inflated price to Quaker Oats, because they believed they could turn the company around and grow it. They took on a ton of debt, and that started the ball rolling towards last week’s announcement.
I’m not going to get into all the details of how that leveraged buyout in 1986 work out, other than to say, it ended badly. In 1991, Mitt Romney’s Bain and Company swept in and bought Brookstone for pennies on the dollar. They took the company public a few years later and got a handsome payout. A few years after that, new owners and new management took the company private again, with the same high debt sword hanging over their heads, but with that same unshakable belief in their personal ability to grow the company, pay off the debt, and run with the ball.
It wasn’t over expansion into retail that killed Brookstone. It wasn’t eliminating the catalog. It wasn’t lack of web traffic, or failure to convert that traffic. What killed Brookstone was having a business that was based on being a leader in new, innovative products, and never putting enough resources into new product development because every dime was needed to support direct growth (more sales) to pay down the debt.
The original owners and Bain were the only long-term winners. Many others, at numerous times over the years, lost their respective shirts. The same scenario is playing out in many other companies, where ownership is relying on a management miracle to grow the company.
When I joined Brookstone, I was surprised that there were absolutely no reminders at headquarters of the Quaker Oats years, even though that period of ownership had ended only three years prior to my arrival. I asked the then-CEO about it, and he said that he had learned only one valuable lesson from the Quaker Oats management. He said that the Chairman of the Quaker Oats board had warned him “that it is always the last warehouse that gets you”. In the grain business, during years when there is a great harvest, the tendency is to always build more warehouses to store the whole crop, because the harvest may not be as strong next year, and the prices will go up. That doesn’t always happen, for many reasons, and then you realize that you built one too many warehouses.
Debt and over-confidence in management’s ability to pay down that debt doomed Brookstone time after time. Sadly, it appears that this time, there will be no savior for what is left of the company.
On a personal note, if you have been in the catalog industry long enough, you usually end up as a model in at least one photo. That’s me below, in a photo my wife took, using my Brookstone snow roof rake in the 1997 Winter catalog, pulling snow off our roof the year before. If you want a good time, try standing on a ladder, extended to the 2nd floor, with the temperature in the teens, and pull three feet of snow off a steep roof without losing your balance. That is over-confidence!
by Bill LaPierre, Datamann USA