Celebrity, Inc. History

Address:

4520 Old Troup Road
Tyler, Texas 75705
U.S.A.

Telephone: (903) 561-3981
Fax: 800-581-2887

Public Company
Founded: 1968
Employees: 608
Sales: $115 million (1996)
Stock Exchanges: NASDAQ
SICs: 5193 Flowers & Florists' Supplies

Company History:

Celebrity, Inc. is one of the leading suppliers of high-quality artificial flowers, foliage, flowering bushes and other decorative accessories to craft store chains and other specialty retailers and to wholesale florists throughout North America and Europe. Celebrity imports and/or produces over 9,000 home accent, decorative accessory and giftware items, including artificial floral arrangements, floor planters and trees, a wide range of decorative brass and textile products, and a broad line of seasonal items such as Christmas trees, wreaths, garlands and other ornamental products.

Initiating Changes and Growth

Celebrity, Inc. is somewhat of a giant among its competitors in the artificial flowers and decorative accessories arena, an estimated $5 billion annual market. In this industry which primarily consists of small, privately owned companies, Celebrity, based in Tyler, Texas, hopes to use its size and sophistication to capture more of this quickly expanding market through its growing manufacturing capabilities and high-quality products. Celebrity, founded in 1968, is a leading supplier of artificial flowers, foliage, flowering bushes, and other home decor items to both retailers and wholesalers across the U.S. and Europe. Through the acquisition of several manufacturing sites in the three years following its initial public offering in 1992 (Magicsilk, Inc.; The Cluett Corporation; and India Exotics, Inc.), Celebrity has expanded its presence through increased product lines, heightened standards for quality, and broadened its customer base. The company has expressed further possibilities for expanding their base of clientele, to potentially include department stores, specialized furniture stores, and import emporiums.

When Robert H. Patterson, Jr., assumed direction of Celebrity in 1984, several changes were implemented within the company. Looking to guide the company toward future growth, Patterson upgraded both its product line and its management information systems. The company sought to broaden its horizons by diversifying its clientele beyond discount retailers and instrumented the opening of a new distribution center in Charlotte, North Carolina. Finally in 1984, Patterson and Richard Yuen organized Celebrity Exports International ("Celebrity Hong Kong").

Celebrity Hong Kong, which became a wholly owned subsidiary as of December 1992, was established to act as the company's exclusive purchasing agent. This facility contracts with over 60 factories in the Philippines, Thailand, Malaysia, Taiwan, and mainland China (where most silk flowers are made) for production of floral elements. The company also contracts with more than 20 factories in India for the production of decorative brass and textiles. The Celebrity Hong Kong site allows for better quality control and faster production than those of competitors who mostly deal with third party intermediaries, since shipments can be arranged to go directly to customers. The staff can also provide financing, customer documentation, and private labeling for its customers.

Through Celebrity Hong Kong the company works to develop original Celebrity designs with its overseas manufacturers. Because of its location, Celebrity Hong Kong is also better able to build relationships with manufacturers and be more aware of their capabilities. With a policy of paying full in cash within 10 days of manufacturer delivery to its Hong Kong site, the company believes it has strengthened its relationship with these facilities.

Because of the fragmented nature of this industry, Celebrity appreciated the opportunity to increase its strength and presence through acquisitions. In its beginnings Celebrity was mainly a distributor shortly after becoming public in 1992 when the company filed to sell just over two million shares of common stock for between $11 and $13 per share.

In an effort to create a greater range of products and raise sales, the company acquired certain assets of Magicsilk, Inc., including customer accounts and distribution capabilities. One of the best-known trade names in artificial flower production, Magicsilk helped increase the quality of Celebrity's artificial floral offerings and helped to diversify its customer base. It became apparent after its first full year of operations, however, that the financial goals set for Magicsilk were too lofty. Because of its affects on overall profitability (a net income of $2.9 million in fiscal 1993, down from $3.2 million in fiscal 1992), certain measures were taken to reduce costs. Included were the application of a more streamlined method of purchasing, more rigorous management, the placement of a new sales manager, and the downsizing of the Magicsilk workforce. These improvements sparked 1993 changes at Celebrity headquarters as well, with the addition of a financial controller, a vice-president of operations, and a new products manager.

Celebrity successfully acquired The Cluett Corporation of Winston-Salem, North Carolina, in 1993, to enter the company into the $280 million market of artificial trees, floor planters, and floral arrangements. Immediately exceeding financial expectations with fiscal 1993 revenues counting for 23 percent of Celebrity's total, Cluett earned an important place within the company with its well-recognized trademarks. This acquisition would prove to be a positive move for Celebrity, both financially and in terms of the expansion of its customer base, despite the hardship that fiscal year of the considerable nonrecurring expense that attaining the company caused. The Cluett unit broke its own sales record in third quarter 1997 when it accounted for 40 percent of the $26 million total sales for the company. The addition of the Cluett product line also expanded Celebrity's presence to parts of the country where it had not had a strong market share, in particular, the Northeast.

India Exotics, a St. Louis, Missouri-based importer of decorative brass and textile products, with revenues of approximately $10 million prior to purchase, was Celebrity's third acquisition. This 1995 addition to the company's expanding repertoire of merchandise helped establish Celebrity more deeply in the home decor market. As Chairman, CEO, and President Robert H. Patterson, Jr., stated in his 1995 president's letter, "We've felt for sometime that a greater presence in the decorative accessories marketplace could add substantial leverage to our business by increasing our marketshare and accelerating and streamlining the flow of high quality decorative accessories from producers to retailers." Like Celebrity, India Exotics maintained a reputation for high quality and strong customer service. The subsidiary also kept a close relationship with a large manufacturer of decorative brass products in India. With Celebrity's acquisitions of Cluett and India Exotics, the company looked to become a major influence in the interior decoration market with these new pre-made and finished products. In a September 1997 press release, Patterson said, "We believe our manufacturing operations, though significant in sales, remain largely untapped in terms of their potential to become predictable profit contributors to Celebrity." Thus the company expected significant additional financial growth from these 1990s additions.

Product Lines and Sales

Cashing in on sales related to consumers' increased spending on home-decor items in the retail craft industry, Celebrity saw 50 percent of 1995 sales going to craft stores. With approximately 3,000 customers, primarily in the South, Midwest, and East, in 1997 Celebrity had relationships with some of the largest craft store chains in the country, as well as with discount retailers, wholesale clubs, and wholesale florists. Twenty percent of 1995 sales went to customers only recently accessed by this market--the mass merchandisers--in addition to home centers and fabric stores; $9.4 million in fiscal 1996 sales, achieved mostly through Celebrity Hong Kong, were outside the U.S., primarily to European customers.

With three U.S. production facilities to assemble final products with overseas floral elements, three distribution centers, two wholesale supply houses, and two showrooms, Celebrity boasted a 9,000-plus item 1997 product line, up from a 5,000-item line in 1993. Merchandise included artificial flowers, flowering bushes and foliage, trees and floor planters, ready-made floral arrangements, decorative brass accessories, and decorative textile accessories. The growing Celebrity Christmas line was comprised of artificial Christmas trees, wreaths, garlands, and other ornamental products. In addition to craft stores, for whom artificial flowers are typically the largest single product sales category, Celebrity customers included pottery stores, commercial consumers such as hotels, stores and malls, and individual consumers--a growing 1990s market of those whose busy lifestyles do not afford time for the care of live plants. The depth of Celebrity's line allowed for the fulfillment of the needs of these markets in an industry Celebrity estimated was growing at a rate of 15 to 20 percent. The company also looked to expand into the boutique-retailing market, including Christmas stores, and to consumers who designed their own artificial flower arrangements, for themselves or resale through in-home businesses or craft shows.

Among its competitive advantages, Celebrity prided itself in its high-quality control, citing its Celebrity Hong Kong unit as a measure to maintain product component quality. Overseas contracted manufacturers were given periodic product inspections, both before and after shipment to the U.S.

Focus in the 1990s: Serving the Customer

The company's large size compared to its competition allowed for greater product range and service capabilities. Factory-direct shipping options and discounts offered to larger-volume clients are also important aspects of Celebrity. In fiscal 1993 Celebrity introduced electronic data interchange (EDI), allowing customers to place orders electronically to help speed the process. Fast, accurate order-filling was promoted; Celebrity was one of the first in the industry to use bar-coding for distribution, as most of its customers required this for inventory tracking and reordering. This method helped Celebrity achieve its 90 percent fill rate for bulk orders, compared to the industry average of 70 percent. An emphasis on in-store customer service was another notable feature the company maintained. By providing retailers with marketing strategies, merchandising concepts, and advice on advertising, Celebrity strove to accommodate its customers in a myriad of ways.

In response to the business atmosphere of the late 1990s, Celebrity looked to improve upon its historical successes in several ways. Included among these were to maintain the breadth of its product line. Through its three 1990s acquisitions, Celebrity increased its product line to include a greater variety of merchandise. Another effort was to decrease the inventory-to-sales ratio by carefully managing the inventory and removing slow performing items. Reducing sale to delivery time, cutting shipment time, and increasing direct shipments to consumers were also among the methods to maintain Celebrity's standards.

Record Gains; Learning from Losses Suffered

Following a record-setting fiscal 1995 with a net income of $3.8 million (or $0.60 per share), Celebrity increased both its operating margin and its market share. Then came a disappointing 1996. Carrying a net loss of $5.4 million ($0.86 per share), Celebrity felt the pain of adjusting to the 1990s market. With fewer, larger customers, Celebrity was greatly affected by retailers cutting back their purchasing due to the slow retail environment of late 1995. As many of their customers retained large inventories due to sluggish sales in late 1995 and early 1996, the restocking patterns the company expected did not occur. When two major customers then significantly cut back their ordering and subsequently filed for Chapter 11 bankruptcy protection, the company suffered its embarrassing net loss. In September 1997 came the resignation of Celebrity's CFO, James R. Thompson, as part of a "mutual agreement" with the board. Celebrity had a loss of $7 million ($1.11 a share) on sales of $32.2 million in its fiscal fourth quarter.

However, first quarter 1997 showed a rebound to profitability for the company, despite a rise in general and administrative expenses associated with the Dallas, Texas, Star Wholesale location, which opened in May 1997. Celebrity's adjustments to the 1990s, including such cost-cutting measures as the 1997 consolidation of the front office operations of Missouri-based India Exotics into Celebrity's Tyler, Texas, headquarters, were based on profitable operations with annual sales of $120 million, a figure lower than the company's sales plan. Through a new operating philosophy, Celebrity looked to the future in a positive manner, despite its recent setbacks.

Principal Subsidiaries: Star Wholesale Florist, Inc.; Magicsilk, Inc.; India Exotics, Inc.; Cluett Corporation; Celebrity Exports International Ltd. (Hong Kong).

Celebrity, Inc. History

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