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The
Leather Factory has opened 30 stores Tandy stores over the past 25 months with a plan to
reach about 100 stores within three to four years
Consumer Cyclical
Apparel/Accessories
(TLF-AMEX)
The Leather Factory, Inc.
3847 East Loop 820 South
Fort Worth, TX 76119
Phone: 817-496-4414
Shannon Greene
Chief Financial Officer
Interview conducted by:
Lynn Fosse
Senior Editor
CEOCFOinterviews.com
February 2004
BIO:
Shannon L. Greene has served as Chief Financial Officer and
Treasurer of the Company since May 2000. She was appointed to serve on the Board of
Directors in January 2001. Prior to May 2000, Ms. Greene served as the
Company’s Controller and Assistant Controller since September 1997. From
January 1996 until she joined TLF, she served as CFO/Controller for a venture capital
group specializing in the computer industry in Dallas, Texas. From 1987 to 1995, she
worked in public accounting. Ms. Greene received the Bachelor of Accountancy from New
Mexico State University in 1987 and was licensed as a Certified Public Accountant (CPA) in
1991. Her professional affiliations include the American Institute of Certified Public
Accountants, the Texas Society of Certified Public Accountants and its Fort Worth chapter,
the Fort Worth Association of Financial Professionals, and the National Investor Relations
Institute.
Company Profile:
The Leather Factory, Inc. ("TLF"), founded in 1980,
is a premier manufacturer and an international marketer and distributor of a broad line of
leather and related products to customers worldwide. Its product lines consist of leather,
leatherworking tools, buckles and adornments for belts, leather dyes and finishes, saddle
and tack hardware, and do-it-yourself craft kits, suede lace, western-hat trim, and
fringe. Its distribution network consists of 27 U.S.-based Leather Factory stores,
targeting the wholesale customer, 30 U.S.-based Tandy Leather stores, focusing on the
retail market, and 3 Canadian combination (Leather Factory/Tandy Leather) stores. It also
sells products via mail/telephone/Website orders. In addition, TLF produces cigar cases,
wallets, and other accessories through its Royal Crown Custom Leathers unit. Its hat
trims, which are sold to hat manufacturers directly, are produced through Roberts, Cushman
& Company, Inc. (Cushman), a subsidiary of The Leather Factory.
The Leather Factory frequently introduces new products either through its own
manufacturing capability or by purchasing from vendors. The Company holds a substantial
number of copyrights for its designs, which have been incorporated throughout its product
line. TLF sells 2,800 items to retailers, wholesalers, and manufacturers. The Company
extends an invitation for retailers to become a Leather Factory or Tandy Leather
Authorized Sales Center. They feel that most types of retail stores can become successful
Authorized Sales Centers, including craft stores, western stores, shoe repair stores,
hardware stores and general merchandise stores.
The Leather Factory welcomes anyone with an interest in leather and leathercraft, whether
it's a hobby or a way-of-life, to think of The Leather Factory as "your one-stop
source" for leather and supplies. The Company offers its customers 100% satisfaction,
the lowest possible prices on every item, plus wholesale and manufacturing options, the
broadest leather and leathercraft line found anywhere and orders that leave The Leather
Factory sales distribution centers within 24 hours.
CEOCFOinterviews: Ms. Greene, you’ve been CFO as well as
a board member for a couple of years now. How has The Leather Factory changed during
that time?
Ms. Greene: “The
most obvious change is the development of our Tandy Leather retail store chain. We
acquired Tandy Leather in December of 2000. Beginning in January 2002, we opened the
first Tandy Leather retail store. Since that time, we've increased the chain to 30
stores with plans to have approximately 100 stores with the next five years or so.”
CEOCFOinterviews: How do you decide where to open a store?
Ms. Greene: “There are a couple of factors that we look
at when deciding to open or acquire a store. First, we look at market data. We have a
rather detailed mailing list that provides us with customer demographics and demand.
We also look at Tandy’s sales data from years ago, when they had 350 stores.
Finally, the store's ability to succeed is dependent on the quality of the manager.
Therefore, we need qualified managers in particular geographic areas or have a manager
that is willing to relocate to a particular area because he plays a key role in the
success or failure of a store.”
CEOCFOinterviews: I noticed that you’ve opened three
stores very recently. One of them was acquired and the owner is now managing your
store.
Ms. Greene: “Here's a quick history of that situation:
Tandy Leather was founded in 1919, but really got going in the late 40’s/early
50’s. By some time in the early 80’s, there were 350 Tandy Leather stores across
the country. In the mid-90’s, I think due to some changes in management philosophy
and shift in direction, the stores began to close. The first closings were probably those
stores that weren't producing profits, but by June of 1999, all of the Tandy Leather
retail stores had closed their doors. As the stores were closing, corporate management
gave some of the store managers the option to buy their stores and operate it as a sole
proprietorship. This was the case with the store in Syracuse, NY that we acquired in
January 2004. The owner was a Tandy manager when it was a Tandy store. She bought
the store from Tandy and has been running it as her own business since the middle of 1999.
She was a prime candidate for acquisition, fitting very well in our store model.
Basically, it was a Tandy store with inventory practically identical to what we would put
in a brand new store anyway. So it’s a fairly easy way to get a store going. We also
get access to her mailing list and customer list - those leathercrafters who have
continued to patronize her store, so they just become Tandy customers again.”
CEOCFOinterviews: Are there particular geographic areas of
the country that lend itself more towards leathercrafters?
Ms. Greene: “Not necessarily. New York City is probably
not one of our best markets, although the state of New York is a strong market. The
Southwest quadrant naturally lends itself to leathercraft as there tends to be a strong
western and Native American influence there. The Northwestern quadrant of the U.S. has a
strong saddle and tack customer base. The Northeast does well simply because of the vast
population. The Midwest is also good for us with its farmers and ranchers. Leathercrafters
come in all shapes and sizes, backgrounds and interests. So, I guess it's safe to
say we cover the U.S. from one side to the other."
CEOCFOinterviews: Will people come from a considerable
distance get to one of your stores?
Ms. Greene: “They tend to. People who do leathercrafts
tend to be very serious about it. We have customers that will drive 100 or 200 miles to
shop in a Tandy store as opposed to making a phone call or getting a catalogue to order
from. They like being able to see what’s there - see the new products that are
available and personally select their leathers depending what they're working on.
That’s part of the motivation for us doing what we’re doing with the store
chain. The previous Tandy owners decided that maybe the Internet would sell as well as the
brick and mortar stores, but it’s certainly not the way leathercrafters generally
like to shop. They like to walk into the store, they like to know who the manager is, and
they like to pick the product themselves as opposed to relying on someone else to do it
for them. So we think that’s one reason that the Tandy stores are as successful as
they are and will continue to be so.”
CEOCFOinterviews: What is the average ticket price at a Tandy
store?
Ms. Greene: “The average ticket price is about $30 to
$40. We have those customers working on one project at a time so they purchase one item at
a time. Others have several projects in process at any given time so their purchases tend
to be larger. A leathercrafter with an on-going interest in the craft tends to develop
into a fairly regular customer in a particular store and the manager will usually begin to
recognize them after they are in the store a few times. The customer gets to know the
store personnel and the manager by name as well. It's almost like a family operation -
very friendly and personable, lots of attention. It's an old-fashioned way of doing
business that seems to work.”
CEOCFOinterviews: Do you have finished products as well?
Ms. Greene: “No. We sell raw materials. We do offer
do-it-yourself kits - purse kits, wallet kits, belts and moccasin kits - that would
contain all of the supplies you would need and the instructions to complete it. If you're
not the most creative person, we offer products you can take home that have everything you
need in that one bag and you can put together your project without having to run back to
the store for something that you may have forgotten. We don’t sell anything finished.
It's all craft items, tools etc., for you to make your own.”
CEOCFOinterviews: Leather Factory is the one-stop source for
leather and supplies.
Ms. Greene: “Generally, the leather is what gets people
in the door and Tandy is carrying more leather now than they probably have before.
Therefore, the big piles of leather in the different colors and thickness and grades are
what bring people in the store. The one-stop shop concept is that you can pick from the
wide variety in leathers that we have available and also buy the other items that
you’ll need such as tools, finishes and dyes, needles and thread. Our saddle skirting
is one of our best sellers. It’s a thicker leather - very popular - that is used for
horse tack (bridles, harnesses, etc.), Renaissance and SCA projects like armor and
shields, and weight belts. The do-it-yourself kits are very popular for children as well
as adults. Several are particularly kid-friendly. As a parent myself, I
certainly appreciate those activities wherein my children are able to do the majority of
the work without getting frustrated and asking me to finish it for them. They tend
to enjoy it more and are proud of what they were able to produce. We sell a lot of belt
buckles and conchos to people who make belts and sell them at the weekend traders' market.
We offer a wide variety of products with almost 3000 items in our line so we have
something of interest for everyone.”
CEOCFOinterviews: Is there a wide variety in leathers?
Ms. Greene: “There aren’t two pieces of leather
that are identical because they come from animals. We probably carry hundreds of grades,
thicknesses, styles and colors. For example, we carry pigskin suede in 25 different
colors. Generally it’s going to be the same thickness. It’s very soft and good
for making apparel items. If you count every color and thickness as a separate item, we've
got hundreds of different leathers available. Leather is graded based on the thickness and
quality of the hide. The branding on the animal can affect the grade, depending on where
the brand is on the hide once it's tanned. Scarring on the hide - the severity and
location on the hide - affects the grade as well. The better the grade, the more
expensive the leather is. Thicker hides tend to be a higher grade and carry a higher
price. Depending on what your project is, you may or may not need the better grade. The
best leather worldwide, and most expensive of course, is used in the production of the
high-dollar footwear, handbags, etc. and automobile upholstery. The exotic leathers
are also high quality. We stock the high-grade leathers as well as the medium and lower
grades.”
CEOCFOinterviews: What about the wholesale end of the
business?
Ms. Greene: “Our wholesale customers are generally
serviced by our Leather Factory stores. We have 30 Leather Factory stores - 27 in the U.S.
and 3 in Canada. The first six stores were opened in 1980 and our latest store opening was
in August of 2002. They are slightly more than twice the size of a typical Tandy store and
they do a large amount of mail order business. Wholesale customers don’t necessarily
need to be in the store to buy product. Many are resellers, independent dealers, small
manufacturers, etc. The geographic locations of the Leather Factory stores are such that
we are able to generally service the United States and Canada quickly. In 2002, Leather
Factory stores generated more than $30 million in sales and we will do slightly better
than that for 2003. Generally, the Leather Factory sales grow modestly at 2 to 4% a year.
That's not a real attention -getter in terms of sales growth, but it's fairly reliable
year after year.”
CEOCFOinterviews: So, the growth is primarily coming from the
retail stores.
Ms. Greene: “Yes. The real growth in the company right
now is coming from the Tandy store chain and we still think that there is quite a bit of
potential out there. We won't ever have 350 stores because Tandy did that before and
learned that they weren't able to produce profits in all 350 stores. However, we think
that we can cover the United States with about 100 profitable Tandy stores and be very
successful.”
CEOCFOinterviews: Is there any difference in the Canadian and
U.S. operations?
Ms. Greene: “Not a lot in terms of product acceptance.
The three stores that we have in Canada are what we call "combination stores".
They carry the full line of Tandy and Leather Factory products and they service both the
retail and wholesale customer. The main difference in Canada versus the U.S. is that
Canadian customers tend to accept mail order as a way to do business more so than U.S.
customers because the overall Canadian population is much more spread out than the U.S.
is. As a result, we can service the Canadian market with less stores because we do a
lot more mail order.”
CEOCFOinterviews: How do you attract new customers to Leather
Factory?
Ms. Greene: “Our advertising focus is primarily direct
mail and we maintain a very detailed database of customer information. We have an in-house
advertising department that produces a hundred sales flyers or mini catalogues throughout
the year, specifically designed for different customer groups. So if a customer provides
us with his name and address, we will mail product flyers to him based on his specific
interest. For example, we produce six flyers a year for the saddle and tack industry.
Those flyers highlight the products on sale that would specifically interest that customer
group. Another example of this direct marketing would be the camp flyers we produce for
summer youth camps - scouts, churches, etc.
In addition, we attend various trade shows throughout the year. That helps advertise and
draw new customers. Our managers do demonstrations at schools, hospitals, scout meetings,
etc. They also offer classes in our stores. The classes are usually held on Saturdays or
one night during the week. If there's a leather guild in town, we can get one of the guild
members to teach a beginning leather crafting class for us. We have great success with
those as the classes tend to fill up quickly. It's a great way to expose people to
leather crafting. That’s always been one of Tandy’s strategies - the continuing
education process for customers and the development of their skills. Children are
potential customers in the long-term so we try to provide opportunities for children to
experience the satisfaction of working with leather. For example, we offer to hold a scout
troop meeting at our stores. The scouts can work on a leathercraft project to satisfy the
requirements for the leathercraft merit badge.”
CEOCFOinterviews: Tell us about the competition and what sets
you apart?
Ms. Greene: “We do have competition, but to my
knowledge, there aren’t any comparable companies in our industry. The typical
leathercraft store is generally an independently owned business - usually a customer of
ours as was the Syracuse store. There are other companies that sell some of the same
product that we sell; however, you won't find a company that offers the combination of
product that we do.”
CEOCFOinterviews: Your stock has appreciated quite a bit this
year. Why should potential investors be interested and what should they know that they may
not realize when first looking at The Leather Factory?
Ms. Greene: “I continue to emphasize our old-fashioned,
traditional perspective as a company. We like revenue growth, earnings growth, and cash
flow. We like to make money and put cash in the bank. Over the last several years, we have
been able to accomplish all of those things while expanding. Our revenues and earnings are
continuing to grow and our cash flow is very good. We have very little debt right now -
and are committed to eliminating it completely. If we can continue the pace we're on right
now, it is likely that we will be debt-free this year. Considering that our debt balance
was almost $6 million a year ago, I think that's quite an accomplishment. Besides
all of that, we have a quality management team with high ethical standards committed to
running a solid, stable company.”
CEOCFOinterviews: In closing, what would you like people to
remember about the Leather Factory story?
Ms. Greene: “Keep an eye on the Tandy Leather stores. I
think you will continue to see solid performance as that chain expands and matures.
CEOCFOinterviews: Certainly people want something safe and
steady these days.
Ms. Greene: “ I think that’s true. Following the
baseball analogy, the home runs are out there - if you're lucky enough to find them. But
what comes with the guy trying to hit the home run every time is a lot of strikeouts in
between. Personally, I'll take the consistent single hitter to get around the bases every
time.”
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