National Picture & Frame Company - Company Profile, Information, Business Description, History, Background Information on National Picture & Frame Company

702 Highway 82 West
Greenwood, Mississippi 38930-1910

Company Perspectives:

National is committed to delivering value and fashion in home decor. The company's value orientation is rooted in low-cost production with a fashion focus to bring product to market quickly with attractive margins for retailers at compelling prices.

History of National Picture & Frame Company

National Picture & Frame Company is a major designer, manufacturer, and marketer of a wide variety of low-priced picture frames, framed mirrors, framed art, and other home decor items. Its products are sold primarily through 12,000 major stores in North America. Sales are made only to commercial customers in truckload quantities; no sales are made to individuals or small retail stores. The company has about 200 customers; its biggest customer is Wal-Mart, which accounts for more than one-third of National's sales. Other principal customers include discount stores Target, Caldor, and Kmart; warehouse clubs such as Price/Costco and BJ's; variety stores such as Dollar General, Family Dollar, Michael's, and Fred's; and home centers such as Home Base, Builders' Square, Lowes, and Frank's Nursery and Crafts.

Multiple Owners and Corporate Raids, 1960s-80s

During its earliest years, National changed hands frequently. It was founded as a privately held company by Sydney Harris in 1964, sold to Royal Crown Cola in 1969, and then sold again to DWG Corporation in 1984. Unfortunately, Miami-based DWG was one of many companies in the 1980s that were under control of infamous corporate raider Victor Posner. DWG was one of Posner's key holdings and it suffered mightily during his tenure.

A shareholder suit against Posner revealed that, even though federal injunctions were supposed to limit his actions, he had continued to flagrantly misuse DWG's corporate funds. For example, in 1991 he charged $173,000 in meal expenses (about $474 per day) to DWG. In a five-year period, he received salaries and bonuses of $31 million--more than the company's $26 million in earnings for that time period. At the same time, DWG's creditors went unpaid and employees were under a salary freeze. While many of Posner's companies went bankrupt, DWG did manage to survive. Posner and his son were subsequently barred by a federal court in 1993 from ever again acting as officers or directors of any public company.

The Rescue of National Picture, 1992

National's management fortunately stepped in to buy the company back from DWG in 1992, retaining Jesse Luxton as president. During the next year the new owners decided to offer National's stock to the public. National's management and the investment firm Code, Hennessy & Simmons retained about one-third of the stock in the company and began to develop a broader product line, which led to greatly increased sales. After the buyout, National's revenues grew about 15 percent annually, well above the industry average of five percent. Any damage caused by association with DWG and Posner was soon repaired.

Business Strategy

National has a specific target market for its products: large chain operations that attract customers who are seeking low-priced but attractive home decorating items. Traditionally these have been discount stores, warehouse clubs, and home centers. The company's approach has been to provide "value and fashion," as it repeatedly states in its reports and press releases.

National views its business as having two parts: "continuity business," the day-to-day production of photo frames and other core products; and "promotional business," its excursions into developing new product lines and seeking out new customers. A strong emphasis has been placed on the continuity side of the business. Examples of the promotional side of the business are the acquisition of Universal Cork, Inc., whose corkboard products opened the home improvement and hardware store market to National; and innovative products such as the "windowpane" mirror, a 1996 addition to the product line that was a great success. To promote its strategy, in the later 1990s National undertook a major regrouping, in which plant facilities were consolidated and several new key management figures were hired.

National has not developed a market for its products outside of the United States, except for limited dealings with companies such as Zellers in Canada. Nor has it developed manufacturing facilities outside of the United States, even though it could most likely reduce its production costs by doing so. National's management consciously projects the image of being proud to produce its goods in this country.

Chief Products

National is one of the largest domestic manufacturers of picture frames. Its 1996 production reflected the size of the company's operations. During that year, National manufactured 22 million plastic frames, 5.2 million metal frames, and 3.6 million wood frames.

In the mid-1990s National offered a variety of major product categories to its commercial customers, all of them moderately priced. EnviroMold photograph frames were the chief product, making up 28 percent of the total 1996 production. Mirrors made up another 19 percent; wood portrait and wall frames 17 percent; EnviroMold document/wall frames 14 percent; wood and EnviroMold art objects 13 percent; metal promotional photograph frames five percent; and wood photograph frames four percent.

In the second half of the 1990s, National began to target the framed mirrors and framed art market, which it estimated would grow at an annual rate of 20 percent. For example, one of its most popular new items in 1996 was a "windowpane" mirror, a rectangular mirror with a wooden frame and dividing grids that resembled an old-fashioned windowpane. National's "Art Fair" line of framed art in various sizes and colors also was introduced successfully in 1996.

National planned to introduce additional items that had the popular "country" look. After its acquisition of Universal Cork in 1996, National also hoped to develop a core product line of framed cork boards and similar items that could expand its market into home improvement and hardware stores. An unusual new product introduced in 1996 was the "Enviro-Pasta" frame.

Competition Within the Industry

The market for picture frames and framed mirrors and art was highly competitive during the 1990s, dominated by a few large companies, such as Intercraft (a subsidiary of Newell Company) and National itself. National manufactured almost all of its products within the United States, and made a point of prominently displaying "Made in U.S.A" on each item (and even on the cover of its annual report). However, many of its competitors moved operations to other countries where labor costs were lower. National, instead, continued to rely on its products' low cost and high quality, plus its reputation for good customer service, to offset its competitors' advantage in labor costs.

Even during the recession of the early 1990s, manufacturers of value-priced frames found a huge market for their products in discount department stores, as well as craft stores, drug stores, and warehouse clubs. The key to success was to produce products with high-fashion appearance, but at budget prices. As National's president Luxton declared in 1991, "There is no difference in the taste level of a person who shops at Kmart and the person at Macy's. The only difference is the pocketbook."

Whether or not Luxton's aesthetic judgment was correct, value-priced products continued to be extremely popular. Companies that offered unique but low-priced items, such as "gold"-embossed frames and National's highly successful windowpane mirrors, continued to grow. Consumers with limited decorating budgets found that they could change a room's look by adding an attractive but inexpensive frame or mirror. In 1995, National also tested Luxton's theory about the taste of Macy's customers, by introducing the Martin Holan line of frames. These items were marketed to a new clientele for National, major department stores. In addition to Macy's, National's initial customers for this product line included other upscale stores such as Eddie Bauer, as well as major moderate-price stores such as Pier 1 and Bed, Bath & Beyond.

Technological Developments

In the mid-1990s National placed an emphasis on manufacturing technology that would allow it to be flexible in addressing customer needs and tapping into new market trends (such as the growth in art print sales). New multi-step ovens were installed that allowed wood frame and mirror moldings to be completed more quickly in one continuous process. National also initiated its own extruding processes for plastic frame production. Management estimated that this inhouse operation saved 40 to 50 percent over the cost of moldings purchased from outside manufacturers. A process also was developed for recycling polystyrene residue that was left over after frame moldings were fit together. This material had been discarded in the past because the residue particles were too small to reprocess. With the new process, almost all of the residue could be recycled.

In 1994 National installed an integrated computerized system, which it used for scheduling, distribution, and purchasing. Software allowed the company to track orders, to forecast demand for labor and materials, and to manage inventory. Radio frequency was utilized to track the movement of items through the production process, by scanning their bar codes and reporting their location.

Financial Performance in the 1990s

After the leveraged buyout from DWG by management in 1992, National's revenues grew at an average of 15 percent annually, triple the industry average. Its debt level fell from $19.3 million in 1993 to $6.7 million in 1996. Sales rose from $31.3 million in fiscal 1992 (just prior to the buyout) to $60.8 million in fiscal 1995. Fiscal 1996 brought National's best year ever, with sales of almost $67.2 million. During the same five-year period, National's net income more than doubled, from $2.3 million in fiscal 1992 to almost $5.1 million in fiscal 1996.

In comparison, some of National's competitors lost money or barely broke even during the mid-1990s and later 1990s. One industry analyst, George K. Baum & Company, attributed National's success to the cost savings of more than 25 percent in plastic frame production, resulting from its inhouse use of an extrusion process.

Major Acquisitions of the 1990s

In 1996 National acquired Universal Cork, Inc., a 20-year-old company that produced cork boards, dry-erase boards, and blackboards, for $2.4 million. Like National, Universal also was a supplier of low-cost products. This acquisition allowed National to enter the market for a new medium--cork--and to draw on Universal's existing customer base of home improvement and hardware stores, a new customer base for National.

National planned to integrate Universal's operations into its existing wood product facilities in Greenwood, Mississippi. Universal's peak sales periods for bulletin boards and blackboards (the back-to-school months of late summer) were traditionally slow months for National sales; and National's peak months for home decor items (fall and holiday seasons) were slow months for Universal sales. Combining the two operations into one facility, National's management reasoned, would allow it to use its manufacturing facilities much more efficiently.

Management Reconfigured in Mid-1990s

In 1995 and 1996 National made major reconfigurations in its management. While most key officers were retained, including president and CEO Luxton, many new faces appeared. CFO M. Wesley Jordan, Jr., was hired to restructure banking arrangements and save money on workers compensation by improving risk management. The new manager of plastics operations, John Barlow, was an expert in polymers. New materials manager Tom Walburgh's mission was to reduce inventory and also reduce the need for outside financing. And Chuck Polandick was hired as director of marketing and product development, based on his experience in designing mass-market decorator products and his ability to bring them to market quickly.

National Sold Again in 1997

In May 1997 National entered into an agreement to be acquired by Colonnade Capital, a privately held investment firm in Richmond, Virginia. Under the agreement, Colonnade would buy all of National's outstanding stock, at an estimated cost of over $67 million. Colonnade was known as the initiator of friendly buyouts of various manufacturers, consumer product companies, and printing companies. Its policy was to buy companies with growth potential, retain existing management, and provide additional capital and staff. National continued to operate under the Colonnade umbrella as a wholly owned subsidiary of NPF Holding Corporation. For fiscal 1997 it reported net income of $5.7 million on sales topping $73 million. Steady financial growth and continued enhancement of its reputation as a frame manufacturer seemed to be its course for the future.

Additional Details

Further Reference

"Frames Capture High-Ticket, Value Image," Discount Store News, March 7, 1994, p. 37."Future of Greenwood Company Looks Good Enough to Frame," Mississippi Business Journal, December 9, 1996, p. 26.George K. Baum & Co., "Equity Research Company Report," Kansas City, MO: February 15, 1996.Goldbogen, Jessica, "Mass Frame Deal; Investment Firm to Buy National Picture," HFN [Home Furnishing Network], June 9, 1997, p. 51."Greenwood Company 'Picture Perfect,' Say Analysts," Mississippi Business Journal, June 26, 1995, p. 1."National Picture & Frame Reports Fiscal Year Earnings Twelve Percent Above Prior Year," Business Wire, June 17, 1997."Picture Frame Sales Growing," Discount Store News, February 18, 1991, p. 33."A Picture Perfect Pact for Zellers," Discount Store News, May 2, 1994, p. 41."Unchained Company Free to Grow," Clarion-Ledger (Jackson, MS), July 24, 1994, p. C1.Walsh, Sharon, "Posner, Son Barred From Running Firms," Washington Post, December 2, 1993, p. B11.

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