5980 Miami Lakes Drive
Windmere Corporation is a leading manufacturer and distributor of personal care and seasonal products, such as hair dryers, curling irons, mirrors, and electric fans. The company is perhaps best known for introducing the American public to gadgets ranging from hair crimpers to lint removers. With more than 20 percent of the $800 million annual personal care hair appliances market during the early 1990s, the company made a name for itself by making specialized hair dryers and curling irons, once found only in beauty and barber shops, available to the general public at a low price. Nearly all of its products are manufactured by Durable Electrical Metal Factory, Ltd., the company's wholly owned Chinese manufacturing subsidiary, which employs more than 8,000 people and occupies more than one million square feet of space. One of the nation's largest suppliers of hair care appliances to the U.S. salon industry, marketing products under brand names such as Curlmaster, Gold'n Hot, and Pro Star, the company also sells to national retailers such as Wal-Mart, Kmart, Target, and Sears. In addition to selling products under the Windmere name, the company also markets under a number of private labels and derivative brand names developed for retailers requiring their own brand.
Windmere Corporation was founded in 1963 by Belvin Friedson, a longtime operator of five barber colleges in downtown Miami. With an initial capital investment of $45,000, the former college dropout launched Save-Way Barber and Beauty Supply, Inc., selling various hair-care products on a cash-and-carry discount basis to both professional shop owners and consumers. In 1964, Friedson opened his first store, in North Miami Beach, and generated $2 million in sales, quickly taking advantage of the contacts he had acquired during his career in the barber and beauty shop industry.
In his fourth year of operating the company, Friedson took it public to raise funds for his rapidly expanding business. The $450,000 generated from the initial public offering of common stock not only stood as a visible sign of the promise shown by the young company, but it provided the capital for product diversification. Backed by this financial support, Save-Way's early success continued in the late 1960s as Friedson began marketing women's wigs and hairpieces nationwide.
With the new decade came the first serious test for the company. The market for beauty and barber supplies virtually dried up, forcing Friedson to focus on a new market. And in 1972 he switched to the product line that would soon become the company's backbone: hair dryers, curlers, and other personal care accessories. That same year, he enlisted the services of Durable, a Chinese manufacturing company that would later become a subsidiary, to supply Save-Way with appliances. And to handle the distribution of the new product line, Friedson established the Windmere Products division.
The new strategy showed early signs of success. By 1975 revenues had grown to $9 million, and Save-Way had landed its most important sales contract to date, entering into an agreement with Eckerd Drugs, a nationally known retailer which would remain one of its largest customers through the 1990s.
During the mid-1970s, the Windmere division quickly rose to the forefront of the company. Under the direction of Friedson's son David, who took over as the division's national sales manager in 1976 after he himself dropped out of college, Windmere sales would increase five-fold over the next eight years, jumping to $35 million in 1983, 70 percent of the entire company's revenue.
The rapid expansion of Windmere products was fueled primarily by what Toni Mack of Forbes has called an "unabashed copycat" strategy. Instead of developing its own products, the company attempted to reproduce gadgets that others had made successful. For instance, when an industry leader such as Bristol-Myers' Clairol was successful with an innovative curling iron or hair roller set, Windmere would quickly join forces with Durable, which became a 50 percent joint partner in 1979, to produce a replica of the product at a considerably lower cost. Taking advantage of cheap labor costs in Durable's Hong Kong factories, Windmere was able to pass the savings along to its customers and become the low-cost producer in the industry.
Explosive Growth in the 1980s
Having completed a second public offering that raised an additional $1 million, the company entered the 1980s with a sound balance sheet and momentum from a year that saw revenues increase by 50 percent to $41.8 million and net profit more than double to $4.6 million. Such rapid growth, however, was temporarily checked in the early 1980s by a shortage of labor in the company's Hong Kong factories that made getting products out the door on time a difficult task. To fix the chronic problem, Friedson and Durable established manufacturing operations in China, where the labor supply was abundant and half as costly. Although the decision proved to be sound in the long run, immediate gains were negated by high set-up costs that resulted in three years of slow growth.
A new marketing strategy, though, would serve as another catalyst for the company's strong growth in the mid-1980s. Having adopted the corporate name Windmere in 1983, making Save-Way Industries Inc. a division, the company attempted to increase its presence in the hair care products market and jump-start its profit margins through an aggressive mail-in rebate campaign. Hair dryers and curling irons, for instance, were advertised at an outrageously low "final cost"--usually below $5 and sometimes even free. Consumers had only to follow the rebate form correctly and mail it in with their coupon and sales receipt to take advantage of the savings. Although the company would, of course, lose money on consumers who were so diligent, Friedson wagered that most would not, after leaving the store, take the time to follow the correct procedure.
The former philosophy major's views on human nature proved correct; on average, only one out of every four buyers went to the trouble to claim his money. And the cost of paying off that 25 percent, according to Friedson, did not come close to offsetting the increase in sales volume--at no additional cost--that the rebates generated. One product alone, the VIP Pro hair dryer, advertised at just $4.88 after rebate, netted a profit of $6.5 million, a large contribution to a 30 percent climb in total earnings in 1983.
While this rebate gimmick provided a needed boost during a down period in the personal care appliance market, it could not sustain long-term growth. That would depend on the company's ability to add reputable brand names to its stable through acquisition, while at the same time adapting rapidly to the trends in the volatile hair care appliance industry.
To meet the first of these two marketing objectives, Windmere acquired a 44 percent interest in Extron International Inc. in 1983 and the remaining 56 percent the following year. The purchase of the Texas-based private corporation gave Windmere the licensing rights to the trade names Fabergé, Brut, and Grand Finale.
Six months after signing the deal, Windmere acquired an exclusive license to market four lines of Ronson electric shavers and other small consumer appliances. By June 1984, the company had contracted Japanese and Austrian firms to manufacture rotary electric and rechargeable razors and was selling them by as much as $20 less than the competition. Six months later, Windmere controlled five percent of the national electric razor market. Licensing established product names such as these proved a more cost-effective strategy for expanding the company. Not only did the company save on research and development expenses, but it did not have to invest heavily in the expensive advertising campaigns needed to introduce a new product to the market.
Much of the company's growth in the mid- and late 1980s, however, was the direct result of the strong performance of its own products. From its earliest days, the company had attempted to develop the Windmere product line by introducing products used in beauty salons to the general public. In the 1970s, for instance, Windmere began manufacturing and selling a pistol-grip hairdryer based on a model from its professional line.
The company tried to make the same profitable transition a decade later with a product designed to make hair wavy, known as the Crimper. Although retailers initially showed little interest in the hair-crimper when it was introduced in 1987, once it became popular in trend-setting Hollywood, it became a huge success. A similar type of curling iron, the Waver, introduced that same year, along with the Clothes Shaver, a device that removed fuzz and fabric pills from clothing, helped to give Windmere instant brand recognition, something it had struggled 12 years to achieve.
As young women across the country snatched up the newfangled curling irons in hopes of achieving the "in" look, Windmere revenues and profits soared to record levels. By 1987, the performance of the company had exploded to record-breaking levels. Sales climbed to $145 million and earnings had risen to $11.9 million, increases of 54 percent and 120 percent, respectively, from the previous year. The momentum from these new products led the company to another year of torrid growth in 1988, as sales rose to $193 million and earnings more than doubled to $32.6 million. Meanwhile its stock jumped from $11 a share to high of $27 per share.
Late 1980s Setbacks
While most outward signs suggested that Windmere had finally arrived as a major player in the personal appliances industry, a number of obstacles surfaced in the late 1980s that brought growth to a near standstill. In May 1989, the first sign of trouble appeared. Sales of hot products such as the Crimper fell victim to changing fashion trends, leading to an 11 percent decline in earnings and an alarming build-up of inventory. Moreover, products designed to fill the void performed poorly, exacerbating the problem. And in November Friedson sold $2.9 million worth of company stock shortly before another quarter of disappointing financial results was released. As Windmere stock plummeted, revenues--which had been predicted by some analysts to exceed $285 million--dipped to $178 million and earnings fell to $7.6 million.
Perhaps the most serious threat to the stability of the company, however, came from China (the site for 90 percent of Windmere's manufacturing operations) and the 30-cents-an-hour labor that made the company the low-cost producer in the industry. In June 1989 a series of student-led protests and period of political unrest temporarily slowed down production and jeopardized the future of Windmere's manufacturing operations. Although the turmoil in China directly affected the company for only four to six weeks, it posed a serious threat to the company's debt financing. With virtually all of the company's manufacturing equipment based in the tumultuous area, the violence in Tiananman Square, in the view of the financial community, made Windmere a risk. For the next three years, the company would be forced to take out unsecured loans on a 60-90 day basis.
Early 1990s Recovery
Windmere's downward spiral continued into the new decade. It failed to come up with a new premier product that could pick up the slack left by declining sales of the Crimper, the Waver, and the Clothes Shaver. The company's entrance into the health-related products industry, through the introduction of an electric rotary toothbrush called Plak-Trak, did not live up to the high expectations suggested by a $3 million advertising campaign. Furthermore, an ongoing unfair competition and patent infringement lawsuit with North American Philips regarding Windmere's rotary electric shaver, initiated in 1984, continued to divert much needed resources and energy from the development of a viable management strategy for renewal.
In 1990, however, Windmere emerged from the lawsuit victorious and was awarded an $86.9 million judgement, and two years later, the company collected $57 million in full settlement from Philips. The decision not only gave the company a financial shot in the arm--a net gain of $29 million after legal fees, taxes, and other expenses--but it enabled Friedson and his managerial team to focus on reshaping the business.
Between the time of the decision and the time of the final settlement, Windmere devoted its attention primarily to reorganization and restructuring. The company cut costs at its Durable manufacturing facilities, reducing the break-even point by more than one-third, largely by reducing its work force by 30 percent, down to 7,000. At the same time, the company worked to reduce its inventories and tighten up its balance sheet. Not only did the company trim its inventories by more than 16 percent, but it used the money from the lawsuit to pay off debts.
A favorable ruling from President Bill Clinton the following year, retaining China's status as a most favored nation, added to the positive momentum of the lawsuit. If duties had been imposed, Windmere would have had to raise prices and most likely would have lost its advantage over such competitors as Conair, Bristol-Myers Squibb and Helen of Troy, all of whom manufactured in Costa Rica or bought from the Far East, locations that all had higher labor and manufacturing costs.
The Mid-1990s and Beyond
As Windmere celebrated its 30th anniversary in 1993, it showed several visible signs of recovery. Total revenues, for the second straight year, approached the record levels of 1988. More significant, the company attained the strongest financial position in its history, with $146 million in equity, $25 million in cash, and virtually no debt. An aggressive television and print campaign to support new lines of hair and curling irons, combined with completely redesigned packaging represented the company's renewed commitment to its core business. The following year, the company strengthened its presence by acquiring the licensing rights to the Helene Curtis Salon Selectives brand name for a line of personal hair care appliances, opening the way for a new line of hair dryers, curling irons, hair setters, combs, and brushes.
As Windmere entered the second half of the 1990s, it looked to distance itself further from the 1990-1991 decline and regain the respect of its stockholders and the financial community. While continuing to improve the efficiency of its operations, the company has also hoped to develop a gadget that would do for the 1990s what the Crimper and the Clothes Shaver did for the 1980s. In a June 1996 meeting with shareholders, Friedson unveiled one of the leading candidates: the Litter Maid, a computerized cat box billed as the "pooper scooper" for the Internet Age. Friedson planned an extensive marketing campaign, including infomercials and adding specialty retailers to market the companies latest gadget to the 65 million cat owners in the United States. Whether or not the product that used infrared signals to activate an automatic raking system would enjoy widespread use depended largely on the company's ability to make the space-age invention affordable--the same type of manufacturing challenge the company has faced throughout its history.
Principal Subsidiaries: Durable Electrical Metal Factory, Ltd.; Paragon Industries (50%); Salton/Maxim Housewares Inc. (50%)