DEP Corporation

DEP Corporation

2101 E. Via Arado
Rancho Domínguez, California 90220-6189
U.S.A.
(310) 604-0777
Fax: (310) 537-4098

Public Company
Incorporated:
1983
Employees: 300
Sales: $119.1 million (1996)
Stock Exchanges: NASDAQ
SICs: 2844 Toilet Preparations

DEP Corporation is a California-based company that develops, manufactures, distributes, and markets hair, oral, and skin care products. In addition to its leading trademark Dep styling gel, the company manufactures L.A. Looks, Halsa and Agree haircare products; Lilt home perms; Topol toothpaste; Lavoris mouthwash; and Porcelana and Cuticura specialty skin care products. Each DEP product line is supported by a team from finance, R & D, manufacturing, and other areas, and each brand is run as an independent business. DEPs products are marketed in over 40 countries worldwide, and are sold in every major drug, food, and mass merchandise store in the United States. DEP is also the exclusive U.S. distributor for Jordan toothbrushes, and the distributor for Molinard perfume and Unilever fragrances, Nino Cerruti mens products, and Pears soap.

DEP began operations as a private company in 1955, marketing one product: Dep hair gel. The company and its hair gel were christened by warehouse workers, who nicknamed an ingredient called deprovinyllol that was used in the original hair gel. In the 1970s, DEP launched a childrens toiletries line, but the new product coincided with the recession and did not take off.

After 27 years in business, the company went public in 1983, with an initial public offering of 1 million common shares. The company finished its first public year with sales of $15 million.The next year, DEP entered the skin care market and added $6 million in sales when it acquired the Natures Family line.

By 1986, chairman and president Robert Berglass wanted to initiate growth for DEP through acquisitions and internal expansion. A college graduate who started out in business by selling typewriters door-to-door, Berglass was a self-taught entrepreneur with big ideas. Lacking the capital to support his vision, Berglass approached investment bankers but was put off by long waits for available cash. Finally, now-deposed junk-bond king Michael Milken of Drexel Burnham Lamberts Beverly Hills office came through with financing in three weeks. The deal featured a $16.5 million high-yield bond offering, and paved the way for DEPs successfulif often unevengrowth in the 1980s, growth that would include the creation of over 100 new jobs, the addition of a wing to the Rancho Domínguez plant, and a sales increase from $18 million to over $100 million by 1990.

The company began to expand its product line in 1987, purchasing 85 percent of Jeffrey Martin, Inc.s shares in an acquisition valued around $73 to $75 million. With the acquisition, DEP inherited big-name products including Lavoris mouthwash, Topol toothpaste, and Porcelana Fade Cream. Other less promising product lines which came with the transaction included Bantron smoking deterrent tablets, Compoz sleeping pills, Doans backache pills, and Ayds appetite suppressant candies. DEP sold the Doans line, which it had bought for $14 million, and received an impressive $35 million. The company placed several other lines on the market block. In April 1987, the company further reduced the bank debt incurred in the acquisition, successfully selling Compoz and Bantron.

A delicate situation was presented by the Ayds candy line. New awareness of the AIDS epidemic created a name problem for the candy, which in turn presented a marketing dilemma to DEP as its new distributor. On the one hand, the name Ayds sounded exactly like that of the deadly virus. On the other, weight-conscious Americans had been purchasing Ayds candies for 48 years. Marketing campaigns to introduce a brand new name for the candy would throw away the rewards of almost a half-century of marketing and name-recognition. With Ayds sales dropping by 50 percent, and no prospective buyers for the line, DEP tackled the problem on a number of fronts: boosting the calcium level in the candies and marketing them to the health-conscious as well as dieters; redesigning the package; and test-marketing a new name (Aydslim) and new flavors (apple and black currant) in Britain. For the first time in years, broadcast advertising was used to support the new name. By 1988, DEP concluded that the candy required a second name change for the U.S. market, christening it Diet Ayds. In all, the company spent about $250,000 on the image campaign for Aydsa candy priced at $5 per box.

However, with Ayds candies $7 million sales accounting for a fraction of DEPs annual sales of $66.8 million, the name problem was not the companys top priority. To help design new product strategies, the company had hired ad agency Lowe Marschalk, Inc. With the advice of the ad agency, DEP set to work on the redesign and freshening of each product line, one at a time. To update the image of Dep styling gel, the company traded the tube container for a pump, redesigned the package, and invested in advertising stressing the ease of usage. The changes paid off, with Dep gel posting annual sales of $25 million in the $250 million hair-styling products market in 1987. A new mint flavor and updated image were introduced for Lavorisone of the nations oldest mouthwash products. Since the 1960s, the mouth washs market share had dropped from 14 percent to 3 percent. The Lavoris campaign targeted younger mouthwash users, aged 18 to 24, in an effort to chase the market leader, Scope. The bottle was enlarged by 33 percent and television ads marketed Lavoris as a value brand. By 1993, market share for the mouthwash would double. New packaging and ad campaigns were also designed for Topol, and the ad agency set to work on the new campaign for Ayds.

In addition to its product marketing strategies, the company received recognition for the institutional imaging promoted by its annual reports. In 1987, DEPs annual reportwhich featured grainy black-and-white photographs of a female nude received a design award. The company was encouraged to step out further on the same limb, and its 1988 annual report featured a cover photo of a nude in three-quarters profile (with strategic shadowing), in full color. Scattered between financial reports and news inside the report were other nude photographs. Judith Berglass, vice president of corporate development and wife of chairman Robert Berglass, told the Wall Street Journal that the nude shots promoted an image of DEP as a young and aggressive company. While the design was suggested by an outside firm, Besser Joseph Partners, Robert Berglasss preference had always been to present the company flamboyantly, and earlier annual reports had sported spiky hairdoed models on the covers.

Aside from the presentational design, DEPs 1988 annual report had good news inside. The companys earnings had peaked at 71 cents a share, and its stock had peaked at $12. The next year, however, earnings dropped to 26 cents a share, rising again in 1990 to 32 cents. Such erratic earnings were the result of operating expenses that were rising faster than sales, with the introduction of the L.A. Looks hair care line, the expansion of the DEP line, and other product introductions. Berglass launched a major campaign to trim expenses.

In 1990, DEP surpassed the $100 million mark in sales, and employed 400 people. When smoking was banned on airplanes that year, DEP took advantage of the new market potential. The company began negotiating a deal with airlines to offer its Bantron stop-smoking pills to customers. Overall, 1990 was a year of conservative management for the company. Defaults on junk bonds had led to disastrous results, and the savings and loan crisis had spilled over to commercial banks, who had stiffened their requirements for business loans.

Notwithstanding profitability, the company shelved acquisition plans due to the difficulty of raising capital without losing equity.

DEP surprised the analysts and shareholders with a major success in 1991. DEPs three-year-old L.A. Looks hair care product, marketed at teenagers, suddenly took off with surging sales. A jump in quarterly earnings triggered an 87.5 cent stock price increase to a new 1991 high of $7 in June. The sweetest part of the success, though, was that DEP had spent nothing on advertising L.A. Looks. With no cash on hand for advertising, the company had resorted to what Berglass termed guerrilla marketing. For the L.A. Looks line, the strategy consisted of no ads, a flashy package, and an affordable price (under $2), to attract young shoppers looking for a stylish hair care solution without a high price. By 1992, L.A. Looks had surpassed Dep in unit sales. The company had more than doubled its total sales since 1986, and it finally appeared that the spotty earnings record would catch up with sales.

Continuing to develop new hair care products and broaden markets for existing ones, DEP introduced two new spritzing formulas, designed to work together, in 1991. The company marketed the spritzers in magazines with teenaged and health and beauty conscious reading markets. In 1992, the company launched a major campaign targeting younger women with its DEP gel line and Lilt home permanent products. DEP had acquired the Lilt linewhich had a customer base of older womenfrom Proctor & Gamble Co. in 1990. DEP used television commercials to target professional women and young mothers in their 20s and 30s. Appealing to the health conscious, DEP stressed the natural ingredients in its Natures Family body lotion, with aloe vera, vitamin E, and extra strength products.

Company Perspectives:

DEP Corporation is a diversified, innovative personal care company committed to providing quality products to value-conscious customers. The company is the nations leading manufacturer of hair styling gel. Taken together, the Dep and LA. Looks brands also position DEP Corporation as a leader in the overall hair styling category.

Nineteen ninety-three was the year of the toothbrush. Once an ordinary bathroom item, the toothbrush was acquiring a stylish new function, and sales were expected to increase by 13 percent that year. DEP jumped into the fray with its first toothbrush product: the Jordan Magic Color Changing toothbrush. Like the 1970s mood ring, the Jordan toothbrush changed colors after being held in the hand for two minutesthe amount of time dentists recommend for thorough brushing. Through a $10 million advertising campaign, DEP targeted both consumers and dentists with the new product. The companys 1993 sales reached approximately $123.7 million, but income fell 80 percent to $1.2 million due to slow core product sales and high promotion costs. By the next year, L.A. Looks and Dep gel together held 40 percent of the styling gel market, as the two leading products.

A major turning point for the company occurred in the summer of 1993, when DEP acquired the Agree and Halsa hair care brands from S.C. Johnson & Son Inc. for $45 million. Berglasss strategy was to increase DEPs presence in the shampoo market through this major acquisition. The company promoted several executives to integrate the new brands into the company, and hired E. Michael McNamara to fill the newly created position of senior vice president of marketing. In all, the transaction left the company owing over $60 million, with the bulk lent by Citicorp.

All too quickly, the deal went sour. DEP discovered that sales for Agree and Halsa totaled far less than the company had believed: only around $48 million. In March 1994, DEP filed a lawsuit against S.C. Johnson & Sons, alleging that the company misled DEP regarding the sales condition of the hair care brands prior to their sale. The lawsuit was not easily or quickly settled, and DEP began losing money due to declining sales for Agree and Halsa and increasing interest expenses related to their purchase. In the six months following the acquisition, DEP saw only $12 million in sales from Agree and Halsa. Total sales for the company were $138 million in 1994, but earnings continued to fluctuate, and a $3.6 million loss was incurred that year. By the second quarter of 1995, a loss placed the company in technical default of a bank loan, and stock prices fell from $15 a share in 1993 to $2.13 a share in 1995. The company received a bank loan waiver from its lenders.

In 1995, the company publicly admitted it needed a life preserver. Taking a first step toward a solution, DEP hired Donaldson, Lufkin & Jenrette Securities Corp. as its financial adviser, to formulate a strategic business plan. Layoffs of about 50 people were made, shrinking the work force, and executive salaries were cut. The company also wrote off $25.2 million in assets. After announcing that it was considering options such as a business combination, sale of assets, strategic investment, or refinancing, DEP saw its Class A shares fall $1 to $17/s on the market, and closed fiscal 1995 with a loss of $27 million on revenues of $127.7 million.

By April 1996, having explored its options, the company filed for bankruptcy-court protection. The company listed liabilities of $77.3 million and assets of $83.9 million. The filing to restructure the companys long-term debt provided for payment in full, with interest, to the companys lenders and creditors, allowing the company to continue operations while it worked out a repayment plan. Having reduced overhead and expenses by more than $3 million annually, the company believed that its goals were achievable. Under an amended reorganization plan, finalized in August, DEPs two classes of shares were reclas-sified into one class and the company obtained $62 million in long-term financing. Subsequently, the companys Class A shares rose 12.5 cents to $1.75.

New product development continued after the bankruptcy filing in 1996, including a mousse and a department store skin care line called Basique. Problems continued, however, and DEP was sued by Estée Lauder Cosmetics, who claimed that Basique was a repackaged look-alike of Lauders Clinique line. The Basique line was recalled at a cost of $600,000. The companys new promotions included sponsorship of Melrose Place on E! on cable television, reaching 55 million homes. Purchasers of L.A. Looks hair care products received a special promotional opportunity to play a walk-on part in Melrose Place. Fiscally, 1996 ended better than the company had projected in its court filings, with $3.1 million in operating income on net sales of $119.1 million, an increase over 1995 operating income of $1.5 million. Net loss for 1996 was $8 million, a considerable improvement over the previous years $27 million loss.

In December 1996, DEPs executives decided to stop putting money and resources into the lawsuit against S.C. Johnson, which had been pending since 1994. The company reached an out-of-court settlement with S.C. Johnson, receiving $3.9 million, and set its sights on the future.

At the end of the 1990s, DEP strategized to strengthen sales by increasing advertising aimed at stabilizing and reinvigorating its brands, and by pursuing new contract packaging customers. The companys cash situation, despite the bankruptcy, continues to be positive. If the reorganization is successful, and if the company is not again plagued by unfortunate acquisitions, DEP will continue to achieve quiet success as the name behind stylish, value-priced brands with large market share.

Further Reading

All Thats Missing Is a Centerfold, Wall Street Journal, October 11,1988, p. Bl.

Brooks, Nancy Rivera, DEPs Bottom Line Takes a Real Lather, Los Angeles Times, March 6, 1995, p. Dl.

Brooks, Nancy Rivera, DEP Corp. Ready to Put a New Face on Things, Los Angeles Times, November 5, 1996, p. Dl.

Cuneo, Alice Z., Lavoris Unveils New Flavor, Color, Advertising Age, February 8, 1988, p. 36.

DEP Agrees to Buy Jeffrey Martin Inc., Wall Street Journal, January 5, 1987, p. 12.

DEP Corp, Drug & Cosmetic Industry, May, 1996, p. 8.

DEP Files for Bankruptcy, Citing Purchase of Brands, Los Angeles Times, April 2, 1996, p. D2.

DEP: Hair Today, a Lot More Tomorrow, Business Week, June 9, 1986, p. 97.

DEP Initial Offering, Wall Street Journal, September 22, 1983, p. 44.

DEP to Pay $45 Million for Hair Care Brands, Los Angeles Times, July 13, 1993, p. D2.

Financial Markets, Los Angeles Times, July 12, 1995, p. D2.

Horovitz, Bruce, Diet Product Firm in Dilemma, Los Angeles Times, June 24, 1987, p. 4.

_____, Ayds Considers Changing Its Name to Aydslim, Los Angeles Times, March 3, 1988, pp. 4-5.

_____, Where Have All the Yuppies Gone? Ads Have Dropped Them,Every One, Los Angeles Times, March 8, 1988, pp. 4-6.

_____, Familiar, Trusted Brand Names Are Lure for Grand Met, Los Angeles Times, October 5, 1988, p. 4.

_____, Thinning Sales Prompt Diet Candy to Change NameAgain, Los Angeles Times, December 27, 1988, p. 4.

Magiera, Marcy, DEP Targets Younger Women, Advertising Age, March 30, 1992, p. 48.

Matzer, Maria, E! Jumps Aboard DEPs Melrose -Manic Fall, Brandweek, July 15, 1996, p. 5.

Paltrow, Scott J., Grieving Over Junk Bonds: Some Firms Sure Miss Them, Los Angeles Times, April 22, 1990, p. Dl.

Petruno, Tom, DEPs Stock Soars After Hair-Care Lines Get Restyled, Los Angeles Times, June 5, 1991, p. D3.

Rosendahl, Iris, Hair-Raising Sales for Hair-Styling Products, Drug Topics, February 18, 1991, pp. 61-63.

Rosendahl, Iris, Hand and Body Lotions Targeting Special Niches; Integrate Hand, Body Lotions for Best Results, Drug Topics, September 21, 1992, pp. 105-07.

Sanchez, Kimberly, DEP Settles for $3.9 Million in Trademark Suit, Los Angeles Times, December 21, 1996, p. D2.

Sing, Bill, The Milken Indictment, Los Angeles Times, March 30,1989, p. 4.

Sloan, Pat, DEP Joins Toothbrush Rush with Grip That Changes Color, Advertising. Age, June 7, 1993.

_____, DEP Sues Over Halsa, Agree Deal, Advertising Age, March 14, 1994, p. 43.

Teitelbaum, Richard S., DEP Corp., Fortune, February 8, 1993, p. 127.

Woodyard, Chris, Stop-Smoking Firm Ready to Cash in on Ban, Los Angeles Times, February 24, 1990, p. Dl.

Heidi Feldman

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"DEP Corporation." International Directory of Company Histories. 1998. Encyclopedia.com. 24 May. 2016 <http://www.encyclopedia.com>.

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