CML Group, Inc.
CML Group, Inc.
CML Group, Inc.
524 Main Street
Acton, Massachusetts 01720
Fax: (508) 264-4073
Sales: $645 million
Stock Exchanges: New York
SICs: 3949 Sporting & Athletic Goods; 5961 Catalogue & Mail Order Houses; 5947 Gift, Novelty & Souvenir Shops; 6719 Holding Companies
The CML Group, Inc. is the corporate parent of three specialty retailers: NordicTrack, an exercise machine company; Britches of Georgetowne, a men’s clothing retailer; and The Nature Company, a company offering books and other objects relating to nature, as well as the products of Smith & Hawken, an upscale garden supply franchise. From its start, CML has grown by targeting the needs and desires of consumers with money and leisure time. The company reaps profits in small market niches by changing its group of subsidiaries to match shifts in demographic trends.
Charles M. Leighton founded CML and named the company with his initials. Leighton’s partner in this venture was G. Robert Tod, who added a background in engineering to Leighton’s marketing expertise. Before starting CML, Leighton had worked as a professor of management at the Harvard School of Business, and he and Tod had collaborated on an article for the Harvard Business Review called “After the Acquisition: Continuing the Challenge.” This article put forward ideas about how companies should manage new businesses after an acquisition. Although many companies were being bought and sold at the time, little thought had been given to how best to run them after the purchasing process had been completed.
Leighton and Tod decided to put their theories to a real-world test in 1969. To do so, the pair chipped in $40,000 of their own money, and raised $2 million in seed funds from nearly 100 different investors, including venture capitalists, the Ford Foundation, Reader’s Digest, and the First National Bank of Boston.
When this process was complete, CML was launched as a holding company on June 3, 1969. The company’s four employees were housed in offices set up in an old railroad depot in Concord, Massachusetts. Trains thundered by the building at regular intervals.
CML’s founders planned to operate by two principles. First, they planned to use a light hand in managing the businesses they bought, keeping corporate interference to a minimum. Second, they sought out companies in the leisure products field, guided by the belief that a demographic shift was underway in which Americans would devote more and more of their time to leisure activities, and become increasingly willing to pay for equipment and paraphernalia to be used in those pursuits. CML sought out companies that produced “ego-intensive products,” as Leighton told the Wall Street Journal
CML started out by making two purchases. First, the company bought Carroll Reed Ski Shops, Inc., a North Conway, New Hampshire-based retailer of ski equipment and clothing that was founded in 1936. Although the company’s founder, Carroll Reed, had not initially wanted to sell out, Leighton and Tod convinced him that they would not interfere in the company’s management. Nearing retirement, Reed turned over the business for $2.5 million. After acquiring Carroll Reed, CML set out to expand the company’s operations and profits. It computerized the company’s mailing list for its catalogue, sent out four times a year. A new building to house Reed’s headquarters was built, and two new stores in Connecticut, one in Simsbury and a second in Westport, were opened.
CML made its second purchase a week after finalizing the Carroll Reed sale, when it bought Boston Whaler, Inc., a manufacturer of outboard motor boats. Boston Whaler products used rails to form their prows and a special fiberglass foam construction process to make the boats unsinkable, which provided safety and stability. Boston Whaler, founded 11 years earlier, had run into financial difficulties after attempting to enter the engine-manufacturing industry.
After this start, CML continued to acquire companies at a steady rate. Seeking out fast-growing fields, the company then investigated to discover which firms within that field had the highest reputation for quality. If they found one with a good product, potential for a growing market, and a management team—including a good president, marketer, and accountant— who wanted to stay with the company, then CML’s leaders considered adding it to their roster of businesses. In this way two Massachusetts companies, Hood Sailmakers, Inc. and Madison & Sullivan, Inc., which sold kits to make grandfather clocks, were added to the CML Group in the early 1970s. Branching out from its New England base, the company soon added Kelty Pack, Inc., a backpack manufacturer; Sierra Designs, Inc., which made camping equipment; and Ericson Yachts.
This steady expansion was accompanied by growth in revenues. By mid-1970, sales stood at $12.2 million, with earnings of nearly $270,000. Two years later, revenues had more than doubled to $26.2 million, and earnings were approaching $700,000.
In the mid-1970s, CML continued to acquire companies and foster their growth through its management philosophy. In addition, some properties were dropped from its holdings, including Kelty Pack, Inc. Hood Sailmakers was sold back to its founder after CML refused to underwrite an entry for the company in the America’s Cup race, believing that this venture would be an expensive and unwise risk.
In their stead, CML added a number of companies, bringing its list of subsidiaries up to 11. It purchased the Hoyt Archery Company, which made items such as an archery bow used in the Olympic Games; Gokey’s, a maker of hunting boots and camping equipment; The Outdoorsman, Inc., which sold sporting goods; Country Store of Concord, Inc., a sportswear retailer; Mother Karen’s, a ski wear designer; and the Sturbridge Yankee Workshop, Inc., which sold Early American furniture. Each of these companies had developed a loyal clientele and a reputation for quality. CML allowed them to retain their own names and identities, but made sure that the businesses were managed with computers, three year plans, and a steady expansion in sales.
These techniques showed results. Boston Whaler, for instance, saw sales grow from $5 million to $25 million in nine years, despite a strike at the company’s main plant. Overall, CML’s financial returns showed steady improvement. By the end of the 1970s, sales were topping $100 million a year, and profits had reached $2.7 million. Despite these gains, CML kept the number of employees at its corporate headquarters low. By the end of the decade, CML’s staff consisted of just six executives and three secretaries. The company had by then moved out of its offices near the railway to new corporate headquarters at a wooded site in Acton, Massachusetts.
After fourteen years of steady growth, CML sold stock to the public for the first time in 1983. By 1984, sales had grown to $180 million. During the early 1980s, CML further refined its corporate identity to target customers between the ages of 35 and 50. This demographic group was projected to quadruple before the end of the century as the baby boom aged. The CML customer had a higher than average income and an active lifestyle. He or she sought out quality and convenience in products to purchase. In addition, CML sought to market products that were fun to use and did not harm the environment, ruling out such categories as snowmobiles and all-terrain vehicles. CML summed up its corporate philosophy with its name, suggesting that CML stood for “customer, marketing, and lifestyle,” as well as the initials of its founder.
To further appeal to its busy, high income target customers, CML also sought to make shopping easy. To do this, the company located its stores in specialty malls, where they would be surrounded by other exclusive retailers, and focused on providing full service to customers. In addition, CML emphasized catalogue shopping. By the mid-1980s, mail order operations made up about 20 percent of the company’s sales. To further increase convenience, CML also began offering stockholders a credit card program for purchases in its stores.
In the early 1980s, CML also further refined its mix of product offerings. The company discontinued some unprofitable catalogues, and also sold off its Hoyt Archery subsidiary, after deciding that its products did not fit the image that CML was trying to project. To replace Hoyt Archery, CML founded a company named Ingear, its only start-up. Ingear was a California sports equipment retail chain in which stores were arranged by “pods.” Each pod was dedicated to one activity, and contained the products that members of the store’s staff had selected as the best in that category. Rather than a selection of brands, the stores offered an assurance of quality.
In addition, CML purchased two other companies: The Nature Company and Britches of Georgetowne. The Nature Company was a small San Francisco retailer which sold books, art, and other products with a naturalistic bent. CML helped the company to organize and finance a cross-country expansion in 1983. Britches of Georgetowne was a Washington, D.C., clothing retailer. Along with Boston Whaler and The Nature Company, this company provided the bulk of CML’s profits in the early 1980s.
CML suffered one financial setback in 1982, when Gokey’s, the company’s midwestern sportswear chain, tried to computerize its accounting records. When the job was botched, orders went unfilled, bills went unpaid, and some debts were paid twice. The fiasco cost CML a $1 million write-off. Despite this setback, CML executives felt that overall their hands-off management philosophy gave companies the independence to succeed unhampered, even if mistakes were sometimes made. CML suffered another financial setback when a Canadian mail order subsidiary was forced to fold after an eight-month strike by the Canadian postal service. “We lost money. There was nothing we could do. The strike didn’t stop. We eventually had to liquidate that company,” Leighton told The Boston Herald.
By the mid 1980s, however, profits were holding steady. Sales of clothing through Carroll Reed had grown to $45 million, and Boston Whaler revenues had reached $40 million. In addition, new units of CML, such as SyberVision, contributed profits. SyberVision produced audio and video self-help tapes, which showed experts playing various sports, such as skiing, golfing, and tennis, and also included other topics, such as weight loss. With a large advertising budget, SyberVision peddled its products through television and catalogues. In 1985, at the time of its purchase, SyberVision had annual sales of $2.5 million.
As it acquired SyberVision, CML also sold off Ericson Yachts. The company’s executives had decided that the yacht business was too cyclical to provide steady profitability. It had also jettisoned its Sierra Designs unit after it became clear that the outdoorsy appeal of the company’s products had diminished as the 1960s faded into memory. Despite these changes, CML revenues grew 26 percent in 1985, nearing $200 million. These sales were generated by 118 separate retail stores and more than 21 million catalogues.
In June 1986, CML made an acquisition that would prove to be key to the company’s growth when it purchased NordicTrack, a Minneapolis-based exercise equipment manufacturer. CML installed an aggressive marketing manager at NordicTrack, which helped the company to double its sales of cross country skiing machines through television and direct mail advertising.
As CML continued to grow in size, reaching sales of $283 million in 1987, the scope of the company’s operations made it difficult to continue searching out small companies that might make good investment prospects. To counter this difficulty, CML developed a “farm team,” late in 1987. This special division was assigned to seek out acquisition targets among small businesses earning about $3 million a year and investigate and develop them.
Despite these efforts, the potential for a little company to contribute significantly to the growth of CML, whose annual revenues had reached $326 million by 1988, was small. To offset this fact, CML announced in 1988 that it would also begin to fund a select number of marketing concepts, effectively floating start-up companies for a trial period. It’s first experiment in this area involved an American designer named Lillian August. CML hoped that her designs would compete successfully with the lucrative British Laura Ashley franchise.
By 1989, CML’s success and the debt it had taken on in the late 1980s to finance its acquisitions had attracted the interest of corporate stock speculators. In June 1989, one such corporate raider, Irwin Jacobs, bought 14 percent of the company’s stock and announced that he might seek to take over the company. This threat forced CML to take defensive measures and maximize its financial health by selling off its less successful businesses.
In August 1989, CML’s leaders announced that the company would undergo a radical restructuring which would halve its size. Four poorly performing units, Gokey’s, SyberVision, Carroll Reed, and Boston Whaler, were sold. SyberVision’s products fit poorly with the corporate profile CML was trying to build. Carroll Reed, with 54 stores, had suffered from low profitability for years. Boston Whaler, which had recently laid off one-fifth of its workforce and closed a plant in Rockland, Massachusetts, was sold for $30 million to Reebok International in August 1989. In addition, Britches’ unprofitable women’s stores were closed.
CML also announced that it would spend $36 million to buy the remaining shares of NordicTrack, giving the company an estimated net loss for the year of $13 to $17 million. With these moves, CML became the owner of three main units: Nordic-Track, Britches of Georgetowne, and The Nature Company, as its other, smaller companies had been pared away over the years. The company planned to concentrate its energy on specialty store and mail-order retailing.
CML entered the 1990s with this new focus and an even more sizable debt, brought about through the company’s prolonged battle with Jacobs, which did not come to an end until April 1990. Centering on the products of NordicTrack, CML announced that it would situate itself as a “wellness” company, stressing health and environmental awareness in the coming decade. As part of this push, the company planned to open NordicTrack fitness centers in shopping malls around the country.
This new direction proved to be in sync with the tenor of the times, and CML’s profits, driven largely by the strong growth of NordicTrack, grew steadily. By the end of 1990, NordicTrack profits accounted for more than 90 percent of CML’s overall earnings. On the strength of NordicTrack’s earnings, CML was able to steadily reduce its debt.
By 1992, a quarter of NordicTrack’s earnings were derived from retail outlets in malls, and the company had introduced new products, such as fitness chairs and body building machines, to supplement its cross country skiing machines. These products were also sold in a second chain of stores, called NordicSport by NordicTrack, which featured products with sleek styling to appeal to younger customers. NordicTrack had also developed a third line of less expensive machines, called ExerScience, that were sold through catalogues and television shopping channels.
In an effort to develop additional products, two CML executives traveled to Russia in the spring of 1993 to talk with people there about marketing products based on technology created for the Soviet Olympic and space programs. The company’s efforts to develop new products were driven by the fact that Nordic-Track’s patent on the device that made its ski machines unique expired in 1994.
By May 1993, NordicTrack’s success had spawned a number of imitators. In that month, CML won a $1 million settlement in a suit against a competitor, CSA, Inc., charging copyright infringement. By the middle of 1993, 43 stores and 45 mall kiosks selling NordicTrack’s products had been opened nationwide. In the fall of that year, NordicTrack’s first European store made its debut.
CML also moved to shore up the profits of its other divisions in 1993. Although Britches had shown erratic results for years, efforts to control costs had begun to show results, and the company ended 1993 with sales up 12 percent. The Nature Company, CML’s third unit, forged an alliance with the National Geographic Society to market products with this prestigious imprimatur. In addition, in February 1993, CML added Smith & Hawken, a specialty garden retailer, to The Nature Company’s franchise. CML believed that gardening, with its trendy ecological appeal, would grow in popularity as the American population continued to age.
As CML moved into the mid-1990s, it relied on the continuing strong popularity of NordicTrack for its robust financial health. If this market remained strong, CML appeared well situated to prosper along with it. If, however, the vogue for NordicTrack products proved to be a mere fad, CML would be obligated to re-imagine itself once again, as it had done twice before in its 25-year history, to preserve its status as a successful and growing venture.
Britches of Georgetowne; The Nature Company; NordicTrack.
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