Sharper Image Sees No New Store Growth

The plan to hold off on store growth follows a fiscal year in which Sharper Image, which operates 187 stores in 38 states, had a net gain of only three stores for the year. The company's sliding sales trend continued in the latest period, with sales for the month of May totaling $24.1 million compared to $32.9 million in the previous year, a decrease of 27%.

Total store sales were $17.8 million compared to $19.5 million in May of the previous year, and comparable store sales in May decreased 8%. Besides sliding sales in its retail stores, the company is also battling decreases in other channels, including a 61% decrease to $3.2 million in catalog and direct marketing sales during May, and a drop of 38% to $3.2 million in Internet sales.

The May sales slide was reported yesterday. Before that, the Sharper Image had reported that sales dropped to $525 million for the fiscal year that ended Jan. 31, compared with $669 million in sales for the previous year, which itself was a plunge from $760 million sales the year before that. Sharper Image lost $59.8 million for the most recent fiscal year, or about $4 a share, compared with a loss of $16 million and a dollar per share the year before.

Along with these drops in overall sales and profit, comparable store sales declined 25.4% for the latest fiscal year after dropping 16% in fiscal 2005 and 1.1% in fiscal 2004.

Chairman Jerry W. Levin called the latest fiscal year "one of the most difficult years in Sharper Image's history," pointing out the plunges in sales and earnings. Levin was part of a new management team brought in near the end of last year to try to turn the company around. "Despite continuing declines in net sales and continuing losses since I arrived, which would be expected in the early stages of a turnaround, a great deal has been accomplished and we are optimistic about the future."

Levin said that Sharper Image management has a very clear vision of where it wants to take the company and has condensed that vision into a single statement, and that the strategy to implement that vision will require the company to substantially revise its business model. He cited the new management team, headed by president and CEO Steven A. Lightman, who joined the company in Apirl, as one of the keys to the turnaround.

"The Sharper Image brand remains very strong," Levin said. "We do intend to leverage the brand to a greater extent than in the past, and will be deemphasizing secondary brands like Ionic Breeze. Lower-quality items that are available by mass distribution will be eliminated from the product mix and more upscale and exclusive items will be added. "By November approximately 50% of our SKUs will be new," Levin said.

In recent years, the Sharper Image has substantially depended on a few products. For example, in fiscal 2006, 2005 and 2004 its air-purification line of products generated 23.4%, 27.7% and 40.0% of its total revenues and our massage chair line of products generated 6.3%, 9.1% and 8.8% of total revenues. Now, however, the company is focusing its merchandising efforts on improving the differentiation of its merchandise, with an emphasis on new-to-market branded products not available in broad distribution.

"With the exception of our air-purification product line, we expect to reduce the number of products we develop in-house and increase the emphasis on third-party branded products and Sharper Image branded products designed for us by third parties," the company says in its annual report.

The annual report says that although the Sharper Image expects that its new business strategy will ultimately reverse the downward trends that have been plaguing the company, it says that many of the benefits of the new strategy "will not be achieved until after the fiscal year ending Jan. 31, 2008.