The Sharper Image: Creating Better Desires

My old professor, Frank Knight, used to say, that what people wanted was not the satisfaction of their wants, but better wants. —Herbert Stein, Presidential advisor and economist, The Wall Street Journal

When I was a small boy growing up on Long Island, the big annual December outing was an overnight trip to Manhattan to visit my grandmother for the movie and Christmas pageant at the Radio City Music Hall and the annual visit to F.A.O. Schwarz, the great toy emporium on Fifth Avenue and 59th Street to see the newest in 0-gauge Lionel electric trains.

When I became a man, I put away childish things and started frequenting The Sharper Image. Founder Richard Thalheimer makes it far easier to spend money than the Schwarz of my youth; rather than a 25-mile hike into Manhattan, The Sharper Image comes to me—with 95 retail stores, 63 million catalogs, special e-mail offers and a Web site that is accessible from any hotel room in the world.

Modest Beginnings

In 1977, Thalheimer, then a young office supplies salesman and sometime lawyer, used to jog in San Francisco and keep track of his progress on a wristwatch that had been specially designed for runners. All who jog should have this item, Thalheimer reasoned. So he cut a deal with the manufacturer and had designer Steve Sugar craft a small ad for Runner’s World, using the corporate moniker, The Sharper Image. The rest is history.

It was Simon and Schuster founder Richard Simon who said, “One book is an item, two is a line.” Young Thalheimer intuitively understood that Simon’s dictum applied to all businesses.

In a recent interview with Sales And Marketing, Thalheimer said, “My mission at the time was to find products that were interesting and unusual and put them together, first in a catalog and then, in 1981, in a store. We had a mix of unusual products, like the first cordless telephone. The idea was to show people unique and interesting products that they wouldn’t find everywhere else.”

During the 1980s, The Sharper Image bumped along, achieving moderate success and decent growth with some 70 retail stores and close to $200 million in sales. Thalheimer’s dilemma was a cut-throat retail climate where proprietary products were being knocked-off. In the words of GAP alumnus Tony Farrell, senior vice president of creative services for The Sharper Image, “The core business, consumer electronics, migrated into warehouse discounters as margins shrank. Suddenly our core business category was not sustainable.”

In addition, total dependence on outside suppliers can be the kiss of death. An example of one such marketing catastrophe was when whiz kid entrepreneur Jay Walker (of Priceline.com fame) gave Thalheimer a $40,000 co-op advertising allowance to feature a spectacular electronic light sculpture on the catalog cover at $1,200 a pop, only to discover that the manufacturing facility could not keep up with demand. Walker’s company went bust and everyone involved got egg on their faces.

In a candid interview with Leslie Goff, Thalheimer talked about this period in his company’s history: “We weren’t very efficient, our products were overpriced, and a lot of people were just too intimidated to come into our stores. The Sharper Image had become known as a place that had a bunch of products that either you didn’t need or were too expensive.”

The New Business Model I: Product

It was during the mid-1980s that Thalheimer realized he needed to create unique products on his own. He had to control every step in the process—from concept and design to manufacturing and packaging. Only then would he be able to control inventory, margins, pricing, distribution channels, velocity, shelf-space allocation, Point-of-Purchase collateral, shelf life, and the disposal of returns and overstock.

As a result, The Sharper Image has morphed into perhaps one of the country’s premier, ahead-of-the-curve designers, manufacturers and marketers of irresistible high-tech consumer products for home, office, rec room, patio, swimming pool and automobile. Thalheimer created Sharper Image Design, a research and idea factory in Marin County, CA, and has assembled a staff of engineers and industrial and packaging designers who create some 15 new products a year, taking them from the drawing board all the way to the factory (usually in China). In addition, existing products continually are tweaked and improved. For example, the first Sharper Image Design product was item #SM605, the Auto Drive Tie Rack for $39.95. It was introduced on the back cover of the December 1993 catalog and has continually been improved over the years. Most recently, an upgraded model was introduced in 1999. Another product that has been improved is the sound machine. Originally it came with a choice of four background noises to lull you to sleep: Surf I, Surf II, Rain and Waterfall. It was later improved to offer a choice of harbor or country noise with the following variations: ship’s horn, buoy bell, loons, church bells, fog horn, dual horn, dove or rooster. Now, you can walk into the bedroom in the dead of winter and thanks to the Digital Sound Soothers X5, you can hear a summer meadow at night complete with crickets. This new model not only includes a clock, radio and alarm, but The Sharper Image has designed a portable model for the traveler.

Management began creating its own products with an almost messianic zeal five or six years ago. Currently, about a third of the merchandise features private labels from third-party manufacturers, and another third are by the in-house design team and bear the “Invented Here” logo. For example, the Ionic Breeze Quadra Silent Air Purifier electrostatically removes dust and particles from the air—a boon for human respiratory systems, especially in urban areas where particulate matter turns the atmosphere to haze. Capitalizing on this technology, the design team came up with the Ionic Shoe Freshener, Ionic Closet Dry Cleaner, Ionic Hair Wand Pro, and even an Ionic Bath Pet Brush!

Other hot-selling proprietary items that “combine fun, new technology while enhancing the customer’s lifestyle” include the Turbo-Groomer nose- and ear-hair clipper; the Personal Warm+Cool System neck piece, an improved variation of a Joe Sugarman invention of many years ago; and the CD Shower Companion, an item that allows you to play CDs, a radio and television sound in your shower, as well as keep time and set an alarm.

One unique aspect of Sharper Image electronics instantly sets them apart: While virtually all digital readouts from other manufacturers have green LEDs, The Sharper Image uses blue, which gives them (dare I say it?) a sharper image, even though it adds considerably to the cost.

“We now have products with great appeal and at many price points for both men and women,” says Farrell, “while at the same time maintaining brand cachet and superb customer service. Yes, our products are glitzy, but they make you feel good, help you work more productively, and live better and healthier.”

Explaining his merchandise philosophy to a magazine reporter, Thalheimer said, “We are not a seller of commodities where gross margins are elusive. Instead, our own developed products enjoy very high gross margins. And because they are unique to us, these items cannot be search-engine price-shopped by customers, nor discounted by other retailers—on the Internet or anywhere else.”

The Sharper Image maintains frequent communication with customers via phone, mail, e-mail and occasional surveys, as well as real-time monitoring of sales, all of which can give the company a near-instant reading on the degree of a product’s success. Sometimes, customers will write, lamenting that such-and-such an item doesn’t have this or that feature, whereupon the change can be made within weeks or, at most, months, and once in a while on the fly if it’s coming off the production line. With products sourced outside the company, such changes could take years. The Sharper Image adheres to Joan Throckmorton’s dictum: “Properly treated, the customer will continue to tell us reliably not only what to sell, but when to sell, how much to sell, the best offer to use.”

Stratospheric Financials

While wandering around the Hong Kong toy fair in 1998 Thalheimer (who seldom attends shows) came upon an item that was a raging fad in Japan and across Asia: a child’s rollerboard scooter.

“It was introduced on the back cover of the July 1998, catalog and did OK. Results were spotty and regional, with stores in Hawaii and Southern California selling 10 times the national average,” says Farrell.

The folding version of the aluminum Razor Rollerboard Scooter from the same company was introduced in July 1999 and, in Farrell’s words, “a tsunami wave hit the Southern California stores with sales jumping from tens a week to hundreds a week.” From spring 2000 through September of that year, the folding Razor Scooter became a national obsession in the grand tradition of Silly Putty, the Hula-Hoop and Tickle Me Elmo. Dozens of knock-offs turned up around the country, and that single product made such a huge impact on sales and profits, The Sharper Image may have to break out the scooter business in its Q3 2001 financial reports to explain to investors why it did not hit the previous year’s third-quarter results. Then again, given the intensity and passion that drives Thalheimer and his team, the company may well surpass those numbers.

The New Business Model II Marketing

In 23 years, The Sharper Image has grown from selling merchandise via space ads and a catalog into a highly sophisticated marketer that surrounds the marketplace with every conceivable outgoing and incoming medium: space ads, catalogs, retail, phone, the SkyMall catalog, corporate sales, permission-based direct mail and e-mail, the Internet, and radio.

Retail in 2000, the 95 retail stores were responsible for $249.4 million in sales or roughly 60 percent of the company’s total revenue vs. catalog sales of $86.8 million or 20 percent of the total. The first thing you notice when you enter a Sharper Image retail store is that it is a lot of fun. You’ll find a dizzying array of merchandise for, as the adage goes, “children of all ages.” You can listen to CD players, get a “Shiatsu massage plus soothing, vibrating massage” in the Ultimate Get-A-Way Chair and Ottoman (at $3,195 a copy), sniff Ionic pure air, and get the feel of a scooter.

How, with 95 stores and more openings all the time, can the company guarantee uniform service and excellence all over the country? It all starts with the company mandate that store managers have to be with the company for five to 10 years. So, when a new store opens, an experienced hand is transferred in to get it up and running. In addition, Thalheimer has instituted a series of training videos titled “Product Talk With Richard” that every store associate must watch. Included is a product quiz with answers to FAQs so that every person who deals with the public becomes knowledgeable about every product and SKU in the store.

Where the older retail stores were cluttered, the new design is far cleaner and more airy, rather like a space ad with some white space around it. The company has begun to renovate the old stores to conform to the new image.

Catalogs & Direct Mail

Farrell and Circulation Manager Julie Hopkins turn out 12 catalogs per year, as well as eight flights of four solo direct mail pieces—a program started in March 1999—for prospecting as well as jogging customers to order. Incidentally, while the company is headquartered in San Francisco, the main warehouse for storing and shipping merchandise is in Thalheimer’s hometown of Little Rock, AK.

Radio:
Taking a cue from a famous voice in America, David Oreck, Thalheimer wrote and recorded a number of radio spots. In addition, the company provides loose scripts for strong on-air personalities to deliver their own commercials. Sharper Image currently is in 30 markets and finds that radio spots drive people to the stores and the Web site.

Television:
Says Farrell: “We do a significant amount of television advertising, but only for direct sales (that is, no regular TV commercials). We run both two-minute and 28-minute infomercials—mainly for our best-selling Ionic Breeze Quadra Silent Air Purifier. We run on all kinds of stations, in many markets, throughout the day. We do very well on a direct basis and believe we also benefit from a spill-over ‘advertising effect’ that helps support our stores, Internet and catalog. We started running infomercials in mid-1998 and have successfully built [that program] into a multi-million-dollar business, although we do not disclose the exact amount. Years ago, Sharper Image tested direct-selling TV channels but none really paid off for the company.”

The Internet:
With the marketing world seemingly losing its collective shirt on the Web, The Sharper Image has been making big-time money—a whopping $60.2 million in 2000 or close to 15 percent of total sales there. That’s roughly equal to the sales of the entire J. Peterman Co. in its heyday! At www.sharperimage.com, the first thing you see is four, full-color thumbnails of the company’s best-selling items and multi-colored flags that click through to foreign versions of The Sharper Image Web site. Quite simply, Thalheimer & Co. is announcing it is ready and eager to do business anywhere.

The site is easy to navigate. Click on an item and a picture comes up immediately along with complete pricing and ordering information. Thus, a person who read about the item in the catalog or saw it on television doesn’t have to wade through any descriptive verbiage. If you want more information, a simple click will bring forth full descriptive copy.

Thalheimer’s letter to the Internet shopper:

I started this business 23 years ago for one reason—to have fun! And today, my passion for discovering great new products hasn’t diminished one bit. I hope you share my enthusiasm for innovative products you’ll find here—especially those items “Invented Here” by Sharper Image Design.

We think of sharperimage.com as our biggest store—one that’s open 24 hours every day. We’re please to offer special conveniences, innovative features, gift guides and more products than you could find in any of our stores or any of our catalogs.

If you prefer ordering by phone, you’re welcome to use our site just for browsing. If you find something you like, telephone us toll free, 24 hours a day, 7 days a week at 800-344-4444 and enjoy fast, friendly personal service.

If you’d like to share your thoughts directly with me about our stores, catalogs, Web site or products, I welcome your e-mail at Richard@sharperimage.com

One truly fascinating feature of The Sharper Image Web site is the auction. Inaugurated in early 1999, The Sharper Image Auction is reminiscent of eBay with its eclectic mix of products and its bidding time limits. Prior to the auction site, the company relied on four outlet stores to dispose of overstock, floor samples and refurbished returns. No longer. Farrell says that at the time the auction feature went live, the company had a two-year supply of non-new massage chairs. After taking a full page ad in The New York Times to announce the auction, the behemoths immediately sold out at a few hundred dollars over cost.

Imagine that!

Denny Hatch, consultant and freelance copywriter, founder of Who’s Mailing What! (now Inside Direct Mail) and former editor of Target Marketing magazine, is the author of “Method Marketing” and “2,239 Tested Secrets for Direct Marketing Success.” E-mail him at dennyhatch@aol.com or via www.methodmarketing.com.

The Sharper Image List
As of January 2001 Updated: Monthly
1,221,630 Total Catalog Buyers $120/M
88,399 30-Day Buyers +$37/M
430,123 3-Month Buyers +$32/M
626,236 6-Month Buyers +17/M
870,656 12-Month Buyers +12/M
513,724 Internet Buyers $145/M
61,680 Business Address +$10/M
$150+ Buyers +52/M
$250+ Buyers +77/M
111,646 Catalog Requesters $65/M
Fund Raiser/Publisher Rate* $80/M
*Fund raisers charged a maximum of $25/M for any combination of selects
E-mail Delivery - Please Inquire
Unit of Sale:
Catalog Average $160
Internet Average $130

Market Demographics:
Age 35-55
Income $75,000+
Married 70%
homeowners, highly educated professionals, upper management or business owners

List Manager:
Walter Karl, A Donnelley Co., One Blue Hill Plaza
Pearl River, NY 10965; (845) 620-0700