Sharper Image Corp SWOT Analysis and Stock Evaluation
SHARPER IMAGE CORPORATION
Introduction Sharper Image Corporation is a San Francisco-based speciality retailing company. They are known for their original, innovative, high-quality gizmos and gadgets that no one really needs, but would like to have. They produce products in the categories of electronics, recreation, fitness, personal care, houseware, travel, and toys.
Sharper Image sells products from three sources: Sharper Image Design propriety products, private label products, and branded products. The propriety products are researched and designed by Sharper Image. Private label products are produced by other manufactures, but features and functions are changed so they will be unique to Sharper Image. Branded products are distinctive products sold only in Sharper Image stores.
Prices start at $12
Prices start at $11
Prices start at $12
Sharper Image was founded in 1977 and went public in 1987. It started as a mail-order company, but later opened its first store in 1984. Sharper Image also expanded to the Internet market by opening its site in 1999. It now has a total of 1,400 employees and about 100 stores throughout the United States (Sharper Image 2001).
Strengths Diversity One of Sharper Images’ strongest strength is its diverse methods of selling their products. Sharper Image owns and operates 97 stores thought the United States. Usually located in malls, Sharper Image stores generate a lot of traffic, resulting in a lot of business. Their stores are their largest source of income, accounting for roughly 60% of their total sales. The famous Sharper Image Catalog is their next highest source of revenue, bringing in 20% of sales.
The catalog is sent monthly to over 7.9 million people. Their most recent sales channel is their Internet web site, which opened in July of 1999. Their Internet revenues are increasing rapidly, they make up 14% of total sales (SHRP Reports Increase 2001).
Sharper Image Propriety Products The primary driver of Sharper Image’s sales is their Sharper Image Design products such as the Ionic Breeze Air Purifier, their hands-free Car Cell Phone System, and their CD Shower Companion (Materna 2000). These products are among their top sellers. A big advantage of these products is that they are not sold in any other stores. So if customers want these items, they must order from Sharper Image. Sharper Image hopes that this will bring in more customers who will buy other merchandise as well.
Fiscally Strong Financially, Sharper Image Corp. is doing very well. Sales from every channel are increasing. Same-store total sales rose from $38.2 million a year ago to $43 million, an increase of 13%. Catalogue sales for the period rose 37% to $10.7 million from $7.8 million, and Internet sales rose 15% to $6.3 million from $5.5 million. They only have a mere $2.2 million in debt, less than 3% of stockholders’ equity (SHRP Reports Increase 2001).
Weaknesses Trends toward sensible products Sharper Image Corp. has recognized a trend of consumers purchasing more sensible products. Because many of their products are luxury items that aren’t needed by the customer, they aren’t selling well. Sharper Image is combating this by means of the realignment of product lines-toward more “practical” high-end gizmos.
Same-Store sales loss In March, same-store sales dropped 1% (Austin 2001). While 1% may not seem like that much, Sharper Image is worried that it is the beginning of a trend that could last a long time. Partly because of this loss, the stock price of Sharper Image will decline much more than analyst projections. In a press release Thursday, Sharper Image said that if the current sales end continues, it sees a first-quarter operating loss of 22 cents to 27 cents a share. Analysts surveyed by Thomson Financial/First Call put the company’s first-quarter loss at 12 cents a share (Austin 2001).
Popularity waning The popularity of some of Sharper Image’s products is starting to decrease. Specifically, the Razor Scooters that became a hot item have recently reached the pinnacle of its popularity. Because so much of Sharper Image’s increase in sales has been attributed to the Razor Scooters, their overall sales are expected to decline.
Opportunities Expansion Sharper Image has recently expanded their Internet channel to include Great Britain and other parts of Europe. They can now take orders that are paid with British pounds or the Euro.
The Sharper Image plans to continue its international Web expansion to additional geographic regions and currencies later this year. Advertising, marketing and Internet affiliate programs are well underway to support the growth of The Sharper Image’s international Web initiatives. Nationally, they have just opened a Spanish-language version of their US web site. They hope to include the fast-growing 33 million Spanish-speaking people in the US who are increasing in affluence (SHRP Expands 2001).
New Products Sharper Image is going to release 23 new Sharper Image brand products in 2001 (Moran 2001). Many of these products are going to be the more sensible products that consumers are willing to buy, as opposed to the impractical gadgets that no one bought. Sharper Image has high hopes of good sales for these new products. Sharper Image is also strengthening its engineering and design teams so they will be coming out with many Sharper Image Design propriety products in the near future.
Threats Slowing economy The largest threat to Sharper Image Corp. is something they cannot do anything about: the economy. If all the news about a slowing economy proves true, Sharper Image may see decreased sales as consumers forgo the ionic hairbrushes and massage chairs for more basic retail goods. Much of Sharper Image’s future sales rely on how well the economy is doing, if there is a recession in the future, their stocks will most likely plummet (Dorfman 2001).
Brookstone is Sharper Image’s largest competitor. They sell similar high-tech items in over 210 stores thoughout the US, 100 stores more than Sharper Image. Also, Sharper Image has sued Brookstone for selling reproductions of several of their proprietary products (Lee 2000). Besides products, the suit accuses Brookstone of replicating Sharper Image’s store format and business practices, in violation of federal patent infringement statutes and state fair-competition laws. Sharper Image prides itself on their original products, but with Brookstone reproducing several of their products, customers are being lost.
The closing price of Sharper Image Corp. has been decreasing since August of 2000. It has declined more than 39% since January. Although this looks bad for the company, shares are selling for only 7 times earnings and 1.4 times book value. Right now, their stock is a bargain. If there is a recession, the stock will probably continue to drop because people will be less likely to buy expensive products they don’t need.
However, if the economy doesn’t slow, than analysts predict that it will be a good bet for a three to five year period and will produce pleasant gains within a year (Dorfman 2001). The Value Line report confirms this analysis. It reports the timeliness of the stock to be at 2, meaning it is a good time to buy. This is because the stock is low right now and is assumed to increase in the future. The safety of the stock is 4, which isn’t very good. This is due to the chance of a recession, which would cause Sharper Image stock to plummet.
Austin, Scott. 2001. Sharper Image March Same-Store Sales Fell 1%. Dow Jones News Service. April 12.
Dorfman, John. 2001. Slimmed-Down Market Holds Some Attractive Stocks. Los Angeles Business Journal, March 26:61.
Dow Jones Interactive. 2001.
http://www.djnr.com (May, 01) Lee, Henry. 2000. Lawsuit Accuses Brookstone Of Copying Sharper Image. The San Francisco Chronicle. November 2: B4.
Materna, Jessica. 2000. Substance triumphs over style for Sharper Image. San Francisco Business Times, May 26:16.
Moran, Charles. 2001. Sharper Image. Value Line. February 16: 1731.
Sharper Image Expands to European Union and Great Britain With Launch of International Web Sites. 2001. San Francisco Business Wire. March 13.
Sharper Image Home Page. 2001.
http://www.sharperimage.com (May, 01) Sharper Image Reports 17 Percent March Sales Increase; Catalog Sales Gain 45 Percent.
2001. San Francisco Business Wire. April 12.
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