Home Products International, Inc.

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Home Products International, Inc.

4501 West 47th Street
Chicago, Illinois 60632
U.S.A.
Telephone: (773) 890-1010
Fax: (773) 890-0523
Web site: http://www.hpii.com

Public Company
Incorporated: 1952 as Selfix, Inc.
Employees: 1,215
Sales: $249.7 million (2001)
Stock Exchanges: NASDAQ
Ticker Symbol: HOMZ
NAIC: 326100 Plastics Product Manufacturing

Home Products International, Inc. (HPI) is a leading maker of value-priced, non-electric consumer houseware products sold under the HOMZ brand. The Chicago-based company divides its business into five product categories. The largest, laundry management, accounts for more than one-third of all annual sales. The company manufactures a broad range of ironing boards, covers, and pads, as well as drying racks, clothes lines, clothes pins, laundry bags, hampers, and sorters. General storage is HPI’s second largest product category, comprising plastic storage containers and stack drawer systems. Plastic clothes hangers are the primary items that make up the closet storage products category. Bathware products offers an assortment of plastic bath accessories and organizers, including soap dishes, shelves, towel bars, and shower organizers. Finally, the kitchen storage products category is mostly devoted to plastic food storage containers but also includes sinkware and wire organization products. Nearly half of all sales are attributed to three major customers: Wal-Mart, Kmart, and Target. Other important customers include Bed Bath & Beyond, Linens ‘N Things, Staples, SAM’s Club, Home Depot, and Lowe’s.

1950s Origins

The origins of HPI date back to 1952 when a company named Selfix was started to produce a single, simple product: a plastic hook that could be fixed to a wall by wetting the dry glue on its back. The so-called “Wet ‘n Set” application process is still used by some of HPFs products. By 1962, the limited Selfix line of plastic hooks was generating annual sales of $1 million. In that year, it was purchased by the husband and wife management team of Meyer ( “Mike” ) and Norma Ragir. Together they would run the company for the next 30 years, adding hundreds of plastic housewares products, mostly for use in the bathroom. In the 1960s, Selfix expanded its sales beyond the United States, turning to the Latin American market, then in 1969 opened a Canadian subsidiary. Another subsidiary was launched in England in 1976 to serve Europe. The company’s entry into the German market during the early 1980s proved difficult, leading to a net loss of $500,000 before the operation was shut down. Although Selfix was still selling its wares to more than 25 countries, annual revenues stalled around $17 million, and the company began to see profits decline. Nevertheless, Selfix was debt free, with $3 million in cash, and appeared well positioned for growth under the proper leadership.

In 1987, the aging Ragirs brought in a seasoned executive, 52-year-old Robert Mariani, to help revitalize their stagnant business. Although Mike Ragir would serve as chairman and CEO, Mariani was essentially given a free hand in shaping the future of the company. He was well experienced in growing small businesses, especially in the housewares industry. From 1971 to 1979, he had served as president of Acme Frame Products, improving annual revenues from $2 million to $20 million during that time. He then became president and CEO at Spartus Corp., a wall clock subsidiary of Kidde Consumer Durables Corp. Under his leadership, Spartus diversified into electronics, starting with clock radios and later adding digital clocks, travel alarms, portable audio products, combination TV/clock radios, and even venturing as far afield as telephones. As a result of Mariani’s strategy, sales at Spartus grew from $25 million to $90 million during his tenure.

Mariani’s goal at Selfix was, through acquisitions and the introduction of new products, to achieve annual revenues of $75 million within five years. To help fund this expansion Selfix planned to go public in July 1987, but when the initial public offering (IPO) market soured, and the opening price fell from an anticipated $13 a share to just $9, the Ragirs elected to cancel the offering, deciding instead to wait for better conditions.

Before then, however, the company doubled its research and development budget and brought out 32 new products. In February 1988, Selfix completed its first acquisition, paying close to $6 million for Shutters Inc., maker of decorative plastic house shutters with $5 million in annual revenues. Although not quite in keeping with the rest of Selfix’s business, Shutters was a plastic consumer product that benefited somewhat from Selfix’s ownership. Instead of relying on remodelers, lumberyards, and mobile home manufacturers, Shutters would now be able to sell its products through the mass merchandise channels of the parent company.

Going Public in 1983

Selfix renewed its effort to raise money in the equity market, completing an IPO of stock in October 1988, with a subsequent listing on the NASDAQ. Believing that Selfix was now well funded for expansion, Mariani upped his expectations, setting a goal of $100 million in annual revenues in the near future. He targeted the burgeoning home organization field as a major growth vehicle for the company. Early in 1989, Selfix launched its Space Works storage and shelving system, relying on a patented plastic locking mechanism, as a way to break into the category. A year later, the company introduced Spaceworks II, a complete line of plastic kitchen organizers. Furthermore, in 1990 Selfix made two acquisitions to bolster its growth in home organization. First it acquired Independent Products Co., a Pennsylvania-based plastic hanger manufacturer, then later in the year it bought the Orangeburg, New York-based Homecraft division of Dynacast Inc. Homecraft produced a wide variety of metal hooks, including hooks for hanging plants, baskets, picture frames, and even bicycles. Selfix also attempted to move beyond plastic and began to offer brass and wood fixtures for both the bath and kitchen, sourced in the Far East.

In September 1992, Mike Ragir died of leukemia at the age of 76. His wife Norma was named chairman and CEO, but Mariani continued to run the company on a day-to-day basis, and Selfix continued to follow his strategy of growing the business through product development and acquisition. Assimilating the company’s three recent acquisitions, however, proved more difficult than anticipated. The move into brass and wood fixtures also failed, prompting the company to stick with the more familiar plastic products. All told, in 1992 Selfix lost nearly $800,000 while sales declined by 5 percent over the previous year. The company began to show signs of improvement after it shuttered some underutilized plants and introduced a new line of bedroom and play area organizers for children, which were well received by mass merchandisers. The Tidy Kids Juvenile Storage Organizers included the Bedside Buddy nightstand, Toy Chest Jr., and Shoe Store Jr., as well as several bathroom storage products.

Management Changes in the Mid-1990s

In February 1994, Selfix reached a major turning point when Norma Ragir died of a heart attack. Although Mariani had in effect been running the company for several years and her loss would not materially effect day-to-day operations, the Selfix board of directors took the opportunity to change management. Mariana’s bid to become the new chair and CEO was rejected by the board, which instead named James Tennant to the open posts. Tennant, a Selfix board member for the past two years, was significantly younger at age 40 than Mariani, and his expertise was in marketing rather than finance. He came to Selfix after serving 14 years as president of FCB Direct, the direct marketing operation he founded for Foot Cone & Belding. Tennant’s appointment at Selfix was well received on Wall Street. As expected, he announced that the company would now focus on aggressive marketing in addition to product innovation and growing international sales.

In August 1994, Mariani resigned the presidency of Selfix, a job he had held for seven years. Tennant established his own management team to implement his growth strategies for Selfix. A number of restructuring efforts were initiated that were not expected to pay off for a couple of years. Unprofitable products were eliminated, warehouses were reduced from five to just two, and the company invested heavily in research and development as well as in infrastructure. Selfix also sought new sales channels for its products, in particular home-centers like The Home Depot and Builders Square, and specialty channels like Bed, Bath and Beyond and Container Store. During this period, Tennant and his team had what Tennant told an interviewer was a “Moses sort-of-the-mountain meeting with our own product line and we felt that we had to understand what business we’re in. The business we are in is space management. We help people organize the space that they have in their homes and at their office.” Before coming to grips with this realization, however, Selfix found itself occasionally straying away from its core business. In 1995, for instance, the company briefly flirted with acquiring Studio RTA, a maker of ready-to-assemble computer furniture.

Company Perspectives:

Home Products International, Inc. is a leading designer, manufacturer, and marketer of a broad range of high-quality, non-electric consumer housewares products.

After two years in charge of Selfix, in which a net loss of $4 million in 1995 was succeeded by earnings of $806,000 a year later, Tennant launched the company on a cycle of expansion through acquisition, a move becoming increasingly more necessary as consolidation took place among retailers, which in turn put pressure on their vendors to provide support at a larger scale. In the words of one executive, it had become “big guys serving other big guys.” Tennant’s strategy was to target compatible companies that were leaders in their market segments but would stand to benefit from HPI’s infrastructure and established sales channels. The first acquisition for Selfix was the $43 million stock and cash purchase of Tamor Plastics Corporation, a 50-year-old Massachusetts maker of plastic laundry baskets and other home storage and organization products. Not only did the Tamor deal triple Selfix’s annual revenues to more than $120 million, there was little redundancy in their product lines. Moreover, the two businesses by combining their purchasing power would be able to save on resins and other raw materials. Before completing the transaction, Selfix was replaced on the NASDAQ by Home Products International, Inc., a new holding company to operate Selfix, Tamor, and Shutters. Tennant then became the chairman and CEO of HPI. In June 1997, the company issued a secondary offering of stock to help reduce the high level of debt it incurred from the Tamor deal.

Several months later, in January 1998, HPI completed another acquisition, a $100.7 million cash, stock, and debt deal to pick up Seymour Housewares, America’s largest supplier of laundry care products, boasting the number one share in ironing boards, pads, and covers. Like other HPI subsidiaries, Seymour would operate independently, retaining its chief executive. The addition of Seymour added another $94 million in annual sales, and while providing significant diversification in household products, it also helped to further reduce HPFs total exposure to resin price volatility. Several months after the Seymour deal, HPI acquired Anchor Hocking Plastics and Plastics Inc. from Newell, which had received Anchor Hocking Plastics as part of the acquisition of Anchor Hocking 11 years earlier and now elected to sell off its plastics division because it no longer fit into its long-term plans. The addition of the Newell assets for $78 million in cash allowed HPI to make a strong entry into food storage, with Anchor Hocking Plastics selling its products to mass retailers. On the other hand, Plastics Inc., selling plastic serveware products through commercial channels, was not a natural fit for HPI. At the same time that it was arranging the Newell transaction, HPI was also finalizing a deal to buy the consumer storage line of Tenex Corp. for $16.4 million in cash, adding such product lines as plastic storage bins and rolling carts.

By the end of a very active 1998, HPI restructured its operation, splitting its subsidiaries between two “power platforms”: storage and organization products—comprising Tenex, Anchor Hocking Plastics, and Tamor—and laundry-management, made up of Selfix and Seymour. Shutters no longer fit into the company’s plans, and in January 1999 it was sold to the subsidiary’s management team and a group of investors. Also in 1999, HPI acquired select assets from Austin Products, Inc., adding a number of plastic housewares products, including laundry baskets, tote caddys, crates, bins, and utility buckets. As a result of HPFs aggressive expansion, annual revenues grew at a dramatic rate, from $38.2 million in 1996 to more than $250 million in 1998 and close to $300 million in 1999. In the process, however, HPI took on considerable debt, and its stock was battered by investors. Despite strong cash flow, HPI, because of a poor perception on Wall Street, was not able to place a secondary offering of stock that would help reduce its debt load. The situation became so difficult that in December 1999 HPI retained First Union Securities Inc. to assess its strategic alternatives, essentially putting itself up for sale. Much larger players in the housewares industry, Corning and Newell Rubbermaid, were the likely suitors, but by May 2000, with no suitable bids in the offing, HPI elected not to sell. As a result, the price of HPI stock dipped below $7. Moreover, the company was crippled by the high cost of raw materials in 2000 when resin prices increased by more than 40 percent, a major factor in a $71.5 million loss for the year. Revenues, on the other hand, remained essentially flat. By September 2000, the price of HPI stock hovered around the $2 mark, making the company a potential takeover target.

HPI regrouped somewhat in 2001. It sold off Plastics Inc., whose serveware products were not part of the company’s focus, for $71.25 million, which helped a great deal in lowering debt. HPI also took other cost-cutting steps, closing a plant in Leominister, Massachusetts, and eliminating about 15 percent of its workforce.

Unfortunately, a downturn in the economy hurt many of its customers, which in turn had an adverse effect on HPI. Smaller customers like Ames Department Stores and Bradlees filed for bankruptcy in 2001. For the year, revenues were down 16 percent, dipping below $250 million, but HPI was still able to post net income of $17 million. In January 2002, a more significant customer, Kmart, which owed HPI $5.7 million, filed for bankruptcy protection. With a large number of retailers suffering through tough economic times, HPI was not alone in downsizing its operations. When the company might be able to grow again, however, was very much an unanswered question.