Helen of Troy Corporation
Helen of Troy Corporation
Sales: $167.1 million (fiscal 1996, ended last day of February)
Stock Exchanges: NASDAQ
SICs: 3999 Manufacturing Industries, Not Elsewhere Classified; 3634 Electric Housewares & Fans
Named for the most beautiful woman in classical mythology, Helen of Troy Corporation commands an industry-leading 35 percent share of the retail hair appliance market via its Vidal Sassoon and Revlon brand names. The company’s transformation from a struggling chain of wig shops into an industry leader is primarily credited to shrewd and timely licensing, from its purchase of limited rights to the Vidal Sassoon name in 1980 to the 1996 acquisition of rights to use the Dazey, Carel, and Dr. Scholl’s brands. Line extensions and geographic diversification helped Helen of Troy enjoy a growth rate of 15 percent from 1986 to 1996 in spite of its concentration in a generally low-growth industry. By the early 1990s, the company sold brushes, combs, hair accessories, shavers, and massagers as well as its core electric and battery operated hair care appliances. Its distribution arms reached from the United States to Europe, Australia, South America, South Africa, and Asia.
Late 1960s Origins
The company was founded in 1969 by Louis Rubin, a Chicago native who had moved to El Paso, Texas, to enjoy the weather. A 32-year veteran of the wholesale and retail cosmetics business, Rubin and his 25-year-old son Gerald launched Helen of Troy to sell wigs, then a mainstream fashion accessory. Wigs were so hot that the father-son team soon had six boutiques in El Paso and their company was ranked among the top firms in the industry. In the early 1970s, however, wigs fell out of fashion. In the middle years of the decade, the Rubins phased out their wig business in favor of professional-quality styling tools like blow dryers and curling irons. By 1978, Helen of Troy had cultivated a 25 percent niche in that market and Louis sold the company to Gerald. Although his $6-million-selling firm was marginally profitable, it was clear to the young entrepreneur that Helen of Troy faced scant prospects for growth in the salon market.
Rubin wanted to penetrate the high-growth consumer hair appliance market, but faced several obstacles. Competition from industry giants like General Electric and Gillette would require massive cash outlays to advertise the Helen of Troy brand. In fact, those entrenched companies’ yearly advertising and promotion budgets surpassed the Texas firm’s annual sales. With its comparatively meager cash flow, Helen of Troy would be hard-pressed just to penetrate the consumer market, let alone bring the brand to profitability. Rubin also worried that a mass launch of the name-plate would alienate its core hairdresser clients.
Acquisition of Vidal Sassoon Brand Jump-Starts Company in 1980s
Louis Rubin alerted his son to a possible solution in 1980, when he discovered that British hairstylist-to-the-stars Vidal Sassoon was seeking licensees for his famous name. As Inc. magazine’s Paul B. Brown put it in his 1988 article, “it was as if God had decided to speak directly to [Gerald Rubin].” But it was by no means a miracle. When Rubin approached Sassoon about the license, he found himself in a bidding war with none other than Gillette and General Electric. Rubin mustered all his powers of persuasion—not to mention a lucrative 10 percent royalty deal on a guaranteed $25 million in sales plus a $100,000 signing bonus—to win his company’s first five-year contract. The license covered “all of Sassoon’s electric- or battery-powered personal care appliances in the United States and Canada.”
The name proved a talisman for Helen of Troy, whose net income rebounded from a loss of $1.1 million in 1980 to a profit of about $1.8 million by 1983 on back-to-back doublings of unit sales in 1981 and 1982. Rubin had to swallow his pride and face the fact that his company’s name was becoming a “Trojan brand,” hidden behind the well-known Sassoon trademark. Sassoon products quickly grew to account for 80 percent of sales, but the company did not abandon its Helen of Troy name, maintaining that brand for its professional line. The company went public in 1981, raising $1 million to help pay off its licensing fees. The Rubin family retained about a 20 percent stake in Helen of Troy.
Helen of Troy wasn’t the only company to benefit from the Sassoon name’s cachet. In the early 1980s, Sassoon sold his licensing business to Richardson-Vicks, which was in turn acquired by mega-marketer Proctor & Gamble Co. in 1985. When Helen of Troy’s licensing contract came up for renewal in that same year, Rubin negotiated a reduction of the royalty to 7 percent. Helen of Troy’s relationship with Proctor & Gamble would prove highly beneficial. For example, the hair dryer company enjoyed “fallout” promotion from every one of the tens of millions of dollars P&G spent on advertising its Vidal Sassoon shampoo. P&G’s commercials featured Vidal Sassoon himself assuring consumers, “If you don’t look good, we don’t look good.” Although he was specifically promoting the shampoo, Helen of Troy’s hair appliances undoubtedly benefitted from the campaign. In a 1991 Forbes magazine article, South-west Securities analyst Richard Edelman went so far as to assert that “they’ve really ridden the coattails of P&G.”
Helen of Troy didn’t rely solely on the Sassoon name for its success; Rubin and his employees also worked hard to cultivate a reputation for attentive customer service and timely delivery. Although it did not manufacture its own goods, its well-chosen Asian suppliers enabled the company to boast “the lowest defect rate in the industry” in its 1996 annual report.
By the mid-1980s Helen of Troy led most of its main product categories, with 35 percent of the market for hatchet-style hair dryers, 29 percent of curling irons, 23 percent of brush irons, and 30 percent of combination curling iron/curling brush appliances. Helen of Troy’s sales multiplied more than tenfold, from an estimated $6 million in 1978 to about $90 million in 1987, and net income grew to $8.5 million.
Having consolidated its position in these core markets, Helen of Troy sought to expand its product line into newer hairstyling devices—crimping irons, hot air styling brushes and hairsetters—as well as other segments of the hair care and beauty markets like brushes and combs, hair accessories, lighted mirrors, and shavers. While still only a small fraction of its total business, the firm’s continuing interaction with professional stylists via its original Helen of Troy brand proved pivotal to this effort. Input from these clients fostered the development of new features like automatic shut-off, diffusers, the “cold shot” style setter, dual and adjustable handles, variable heat settings, increased wattage, new controls, and a removable filter, among other options. Late in the decade, Helen of Troy launched the “Sable” line of hair care appliances designed especially for African-Americans’ typically thicker, less manageable hair. The company also diversified its distribution channels from its traditional emphasis on department stores to include mass merchants, discounters, and supermarkets during this period. As a result of its ongoing diversifications, Helen of Troy’s revenues neared $120 million and its net profit exceeded $10.5 million by 1990.
Geographic Diversification and New Licensing Emphasized in Early 1990s
While the company continued to refine and expand its product line in the early 1990s, it also focused on two new growth strategies: geographic diversification and additional licensing. As it had in the United States, Helen of Troy followed Proctor & Gamble to Europe, purchasing the right to sell Vidal Sassoon hair appliances in nine European countries in 1990. The company expanded its international licensing agreement to include 12 other European nations, including France and Germany, in 1993. By the end of fiscal 1996, overseas sales accounted for nearly one-third of Helen of Troy’s annual revenues.
Seeking a repeat of its success with the Vidal Sassoon brand, in 1992 Helen of Troy licensed global rights (excluding Mexico and parts of Europe) to apply the Revlon label to its hair care appliances. Contrary to some observers’ warnings, the Revlon line did not cannibalize sales from the Vidal Sassoon products. In fact, analysts with Dillon, Read & Co. observed that “Retailers like the ability to purchase two distinct brands from one manufacturer, allowing them to offer customers enhanced assortments while leveraging purchases against a single supplier.” And like its Sassoon arrangement, Helen of Troy profited from Revlon’s marketing efforts. By the mid-1990s, industry analysts estimated that the combined yearly advertising expenditures of the Revlon and Sassoon parent companies totaled $300 million, dwarfing Helen of Troy’s less than $10 million annual ad budget. Helen of Troy expanded its rights to the Revlon brand to include ladies’ shavers and artificial nails in 1996. That fall, the company made its first forays outside the hair care business with the acquisition of North American rights to Dr. Scholl’s brand foot baths, foot massagers, and body massagers, as well as Dazey, Lady Dazey, and Lady Carel brand “hard hat” salon-style hair dryers and Turbo Spa products.
Helen of Troy Corporation designs, markets, and distributes quality hair care appliances and related products worldwide. The company commands a strong and growing position with its products for the consumer market, which it sells under the license Vidal Sassoon and Revlon brand names. Most of these sales are made through large discount, drug and catalog retailers. The company also markets its own professional products for the styling salon industry. Its Helen of Troy, Salon Edition, Connoisseur, Gallery Series, and Hot Tools brand are widely recognized in the professional market.
Helen of Troy suffered a fairly serious setback in 1991, when the bankruptcies of three major customers, the poor performance of a subsidiary chain of beauty supply stores, and recession conspired to reduce net income by more than 55 percent from the previous year. Helen of Troy sold its faltering Beauty Biz Inc. chain of 35 stores in Oklahoma, Texas, and Kansas to Sally Beauty Supply in 1993. The company reincorporated in Bermuda in 1994, creating a holding company structure and taking advantage of tax and financing benefits in the process. Sales increased by 41 percent from $118.8 in fiscal 1990 to $167.1 million in fiscal 1996 and profits increased by 21 percent, from $10.8 million to $13.1 million.
Industry analysts were unified in their optimism about Helen of Troy’s future prospects. Both M.H. Meyerson & Co. and Dillon, Read & Co. Inc. cited the company’s negligible debt, healthy cash flow, highly recognized brand names, and record of growth in a stagnant industry in their predictions for 20 percent growth through the turn of the century. Dillon, Reed projected that Helen of Troy’s sales would near a quarter of a billion dollars by 1998 and profits would total close to $20 million.
International Appliances Ltd. (Hong Kong); Helen of Troy (Far East) Ltd. (Hong Kong); Helen of Troy (Cayman) Ltd. (Cayman Islands); Helen of Troy International, BV (Amsterdam); Helen of Troy Ltd. (Barbados); Helen of Troy Services Ltd. (Hong Kong); Helen of Troy Corp.; Helen of Troy International Marketing Ltd. (Barbados); HOT (UK) Ltd. (United Kingdom; 50%).
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—April Dougal Gasbarre