Brookstone Moves into Soft Home

Brent Felgner, Lori Lester, November 13, 2006

Multichannel gadget-retailer Brookstone has entered home textiles with high-profile moves in its stores, in print and online, marking upwards of a 10% incursion into its total merchandise mix.

Its entry into home, which also includes hard goods, forms the company's third major market segment and represents its new investors' bid to buck up softening sales and margins, along the way finding new market niches.

Comforters, blankets, and throws have appeared in stores in recent weeks and, along with its signature Tempur-Pedic beds making a more powerful appearance, the combination has brought a notably different merchandise feel to the company's approximately 307 stores. They have been dominated by a variety of hardlines items such as massagers, lawn tools, and golf gizmos.

The full product range of towels, shower curtains, pillows, comforters, blankets, mattress pads, throws and rugs have also made entries on the Web and, for the first time, in a dedicated Home catalog, which joins the regular Brookstone and Hard-to-Find Tools mailers. The Home catalogs were set to drop in October, according to promotional emails announcing the debut.

Brookstone is making a bold, risky move. While chasing the idea of attracting more women shoppers and registering higher transactions of more profitable merchandise, the company also chances the alienation of its traditional base of men mesmerized by its cool-factor stuff. That may be why soft home items seem to appear more often in the back half of the stores.

The company's new management and owners are driving the changes, which are coming one year after it was acquired and taken private by a consortium of private equity groups led by Singapore-based OSIM International and, domestically, by J.W. Childs & Associates. There was also an executive suite shakeup six months ago that led to the appointment of Louis Mancini as president and ceo. Former ceo Michael Anthony left the company last July, at the same time that a new vp of store operations was named, George Sutherland, Mancini's former colleague at CSK Autoparts.

OSIM identifies itself as a marketer of lifestyle products, and Mancini has indicated some of its goods will be included in future Brookstone merchandise assortments.

Senior executives have been unavailable for comment. In an e-mail, company spokesman Robert Padgett declined to discuss the changes, saying that inquiries "seek to delve fairly deeply into our business and marketing strategy and we are not in a position to go into that level of detail at this time."

Turnaround plan

But in prior public statements and in recent filings with the Securities and Exchange Commission, it's clear that the company has been underperforming, and new solutions are being sought — including significant shifts in merchandise focus.

For the second and most recent quarter, the company had sales of $91.3 million, essentially flat against the same 13 weeks a year earlier, with comparable-store sales declining 1%. It also reported a deeper net loss of $10.9 million, not quite double last year's loss in the same quarter. Gross margins slid 70 basis points, to 27.3% of sales.

"We believe our success is dependent to a large degree on our expertise in product development and our ability to introduce new or updated products in a timely manner," the company stated in a spring SEC filing. "To maintain a fresh and appealing selection of products, we strive to replace or update approximately 30% of the items in our merchandising assortment every year. Significantly, a key element of our strategy has been, and will continue to be, to increase the mix of Brookstone-branded products, which generate higher gross margins."

The changes in the stores and online are not sku-intensive per se, amounting to about 100 items, excluding rugs and mats, which tend to artificially inflate the mix. On the other hand, its single towel offering — a bamboo-Egyptian cotton yarn — consists of three sizes in a dozen colors, 36 skus in all, priced from $7.95 to $24.95.


But it is important to remember that Brookstone's entire merchandise offering totals only 950 skus across all three channels; just 670 skus in its typical 3,500 square-feet, mall-based stores, according to company documents.

Online and ostensibly in print, the Brookstone Home catalog is a mix of hardlines gadgets and soft home products merchandised together — most are new. True to its existing marketing strategy, most of the products are branded Brookstone, and about half are priced at $40 or less, although softlines items commonly nudge the transactions higher.

In 2005, the Brookstone catalog circulation increased to 30 million, compared to 7.5 million in 2002. Total circulation for both catalogs last year was 51 million, the company reported.

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