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The Rise and Fall of the Sharper Image

The Bob Pritchard Column 

The Sharper Image was where you could purchase an electric nose trimmer, a motorized surfboard, and a bulletproof raincoat, then take a ride in a $1,500 massage chair while being serenaded by a bird-calling robot. This is the story of the man who founded this great kingdom — and how one flashy gadget ultimately led to its downfall.
 
Richard Thalheimer spent his youth working odd-jobs in the toy section of his father’s department store. He went on to study psychology and sociology at Yale University, where in his freshman year he sold enough encyclopedias to buy a brand new Porsche. In his early 20s, he started “The Sharper Image” a wholesale business selling paper and toner that would help people make good copies.”
 
 
While running The Sharper Image and going to law school he tried mail-order.  First, he needed a product. At CES in Las Vegas, a man was selling a “very similar” product to Seikos first-of-its-kind $300 fully digital watch, for $35 wholesale. He struck a deal with the vendor and bought a full-page ad in Runner’s World Magazine, offering the watch for $69. At a cost of $1k, the ad netted $10k in sales with $5k profit. He repeated this process, each time with better results and by the age of 27, he’d made his first million dollars. By 1979, he decided to launch his own catalogue of high-tech gadgets nobody knew they needed.
 
He set out to find the most unique products on the market, things that other people didn’t sell, things nobody had ever heard of. The first catalogue contained 25 items, including the first cordless phone, answering machine, and car radar detector. He focused on the features that made the products exceptional. The first year, sales topped $500k; the second year, they reached $3m, and soon, the catalogue was being sent to 3m people around the world, at a cost of $1.4m per mailing. A dozen orders were being processed every 60 seconds.
 
He expanded into physical retail. By 1985, The Sharper Image was grossing $100m in sales with no outside capital or debt. The Sharper Image IPO’d at $10 per share  Then came the ‘90’s recession. The Sharper Image tried to switch gears by selling more “socially responsible” products but sales fell by 28%. Staff was cut by 20%. Stock tumbled to $2. And the company posted a loss.
 
 
Thalheimer was unusually involved in minute decisions earning him a spot on California Magazine’s Worst Bosses in America list. He decided to step back from day-to-day operations and go back to his roots: Finding wacky, one-of-a-kind products. At a “hippie street fair” in San Francisco, he found a blue gel shoe insert, the first of its kind. They became the company’s best-selling product, adding 50% to their sales figures. Then came the Razor scooter and they sold a million of them in the first year.
 
He then began to design and patent his own products so margins could be higher. He assembled a team of engineers and designers and formed Sharper Image Design to make gadgets in house. The team churned out some 300 patents and 100 products.
 
They put all of their resources behind a noiseless air purifier called the Ionic Breeze.  It became a smash hit. But Consumer Reports ranked the Ionic Breeze dead last in a feature on air purifiers, deeming it “ineffective.”  Thalheimer sued and lost.  Cost $525,000. Three years later, Consumer Reports struck again, alleging that the Ionic Breeze actually emitted harmful amounts of ozone. Once again, he sued and lost, costing millions of dollars in store credits and refunds.
 
In 2006, a group of outside shareholders, Knightspoint, snapped up 13% of the company. Thalheimer was fired and forced to sell all his remaining shares for a sum of $26m, a fraction of what his holdings were once worth. Knightspoint set to work recrafting The Sharper Image into a general electronic retailer, like Circuit City or Best Buy.
 
Stock plummeted to 28 cents per share. Within a year, The Sharper Image declared bankruptcy, closed down all 183 stores, and laid off 4000 employees.
 
Thalheimer now runs his own gadget site, aptly named RichardSolo.com, and has taken up investing. He says his net worth is “3-4x higher” than when he got pushed out, and that his studies of the stock market have earned him beefy returns of between 50% and 100% per year.
 

What are the lessons you have gleaned from this story? 

 
Posted on November 13, 2018

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