Goody Products, Inc. Business Information, Profile, and History

History of Goody Products, Inc.

Goody Products, Inc. is the leading producer of hair accessories for the American market. The company was founded in the early twentieth century by Henry Goodman, a recent immigrant, and grew through the decades, remaining in the control of Goodman's children and grandchildren. In the early 1980s, Goody sold stock to the public for the first time, and, in the mid-1990s, the company was acquired in whole by another company, becoming a subsidiary of the larger consumer products manufacturer Newell Co.

Goody was founded in 1907 by Henry Goodman, who had recently emigrated to the United States from the Ukraine with his family. Goodman first set out to be a grocer, and when that business failed, he set up shop as a peddler with a pushcart on the lower east side of Manhattan. Goodman soon recognized that the peddler next to him was doing much better than he was by selling ornamental combs for women's hair.

With his two sons, Abraham and Jacob, Goodman decided to enter the women's hair accessory business. Working out of their apartment, the family set up shop in a back room. Whenever the boarder who lived in the room was out for the evening, the three Goodmans used it as a workshop, drilling holes into blank combs they had purchased, and insetting them with rhinestones.

From these humble beginnings, the Goodman comb business grew and flourished. By the time Abraham and Jacob took over the family enterprise, H. Goodman & Sons had staked out a market in decorative combs not only on the lower east side, but also in jewelry stores up and down the east coast, from Hartford to Philadelphia.

The most logical place for Goodman & Sons to expand its distribution and sales was in variety stores, such as Woolworth's and Kresge's. However, throughout the 1910s, the company had no luck persuading buyers from these large national chains to carry their goods. Finally, the company got a lucky break in 1920. A buyer for the Kresge chain, Howard Patton, was in New York, and he wanted a jeweler to make him a set of rhinestone-studded dice. When the jeweler across the hall from the Goodman's turned Patton down, he went across the way to the Goodmans, who agreed to make up the dice, on the condition that Kresge begin to carry a full line of their products.

After this breakthrough, Goodman's sales rose rapidly throughout the 1920s, as hairstyles changed and women snapped up the company's products. With the profits that it made from its flourishing core business, Goodman purchased a 50 percent interest in the Foster Grant Company in 1929. Foster Grant was then a plastic molding concern that had fallen on hard financial times. In fact, the company was in such bad shape that, often, Goodman was forced to use its own funds to pay Foster Grant's workers.

In the wake of the stock market crash, and the Great Depression of the 1930s, Goodman's boom years came to an end, and the company's business slowed. In 1933, the company incorporated, under the name Goody Products, Inc. With the entry of the United States into World War II in 1941, and the conversion of the American economy to a wartime footing, Goody's fortunes sunk even lower. Because its products were considered nonessential, and raw materials were being carefully rationed to contribute to the war effort, Goody suffered from severe shortages of materials and manpower in the early 1940s.

By the end of World War II, the once thriving business of the 1920s was barely profitable. However, the company's subsidiary, Foster Grant, was doing well, having received contracts for defense work and experiencing an increased demand for its aviator sunglasses. Throughout the 1940s and 1950s, Goody's hair accessories company remained financially weak, while its Foster Grant unit thrived.

During this time, the market for consumer goods in America grew dramatically, as both the popularity and the demand for luxury goods in the postwar era expanded rapidly. Despite this growth, some of the small, privately-owned manufacturers in Goody's industry failed to invest in their businesses, and their products suffered. Goody did try to upgrade its equipment, borrowing money from banks and using its stock in the high-performing Foster Grant company as collateral for the loans it needed to build its market share. A new generation of Goodmans joined the business, as Leonard Goodman, the son and nephew of Abraham and Jacob Goodman, respectively, came on board.

Slowly, in painstaking steps, Goody developed new products and expanded its line of offerings. Still, the company's lack of funds for development hampered these efforts. "We were never out of debt on that stock," Leonard Goodman later explained to Forbes. "We were adding equipment in all buildings, borrowing as we went. At no time did we have a good balance sheet. Things were getting stretched tighter and tighter," Goodman recalled.

By the early 1970s, Goody's reliance on its Foster Grant stock to fund its further expansion had started to cause concern among the company's bankers. In 1970, another company, United Brands, purchased a large block of Foster Grant's stock after one of Foster Grant's founders died, and suddenly, Goody's control over the company seemed to be in doubt. Without effective control of Foster Grant, Goody's ownership of the company's stock was far less valuable, in the eyes of the firm's bankers.

The threat to Goody's finances became more serious as United Brands, headed by a well-known corporate raider, Eli Black, sought a greater stake in the company. "Our collateral was becoming less and less liquid," Goodman later recalled in Forbes, "We were really in serious danger." In September 1974, however, the company was saved, when Hurricane Fifi struck Honduras, devastating the banana plantations there owned by United Brands. In the face of this event, United Brands was forced to sell its holding in Foster Grant to another company, American Hoechst. At the time, Goody also divested itself of its holding in the company, reaping $24.6 million. For the first time in more than 30 years, Goody had a sizable sum of capital to invest in its business.

With this money, however, the company made several unwise investments, according to analysts. The company guaranteed loans for the Hebrew Arts School in New York City, an institution that had racked up $4 million in debt through costs associated with building and operating deficits. The company also lent its officers, directors, and associates a total of $1.3 million. In addition, Abraham Goodman, at that time in his 80s, involved the company in a Jacksonville, Florida, real estate project, that ended up losing hundreds of thousands of dollars a year.

As the 1970s came to a close, Goody's investments worsened. Deficits from the Florida real estate deal and the strong possibility of a default at the Hebrew Arts School left the company in a weak financial position. Faced with this predicament, Goody's owners, the two sons of its original founder, finally gave in and sold stock to the public. In July 1980, the company sold half a million shares, representing 24 percent of its outstanding stock, raising $4.4 million in the process.

With this money, for the first time in its history, Goody had the capability of investing sufficient funds to expand its market share. The company spent money on new machines to manufacture its products, as well as on new systems for its warehouses. Goody hoped to solidify its status as the lowest-cost, best-integrated supplier of hair accessories.

The company also sought to distribute a wider variety of hair accessories to retailers. In doing so, it offered higher profits than those reaped by many other hair care products. Goody accessories were 56 percent more profitable than shampoos, 68 percent more profitable than hair dyes, and 300 percent more profitable than hair sprays. Because of these high margins, Goody sought to persuade stores to give its products more display space than those of its competitors. The company's efficiency meant that many of its products provided more value for their price than competing accessories manufactured in Japan, Hong Kong, and Korea. In fact, the company was successful in selling its goods in these markets, despite the generally low cost of manufacturing in the Far East.

By the start of 1982, Goody products held 60 percent of the market for hair accessories, more than twice the market share the company had held six years earlier. From sales of $123.2 million, Goody reaped $6.6 million in profits. These figures were the result of annual growth in sales and earnings of 20 percent since 1977.

At the start of the 1980s, Goody was producing 450 different hair care products. These included 75 new items, introduced as part of the company's Marvelle International Collection. This group of goods was designed to have a high-fashion look and to carry a higher price tag. These products, which were intended for sale in supermarkets, drug stores, variety stores, and other traditional Goody outlets, were the kind of merchandise ordinarily found in expensive boutiques and department stores.

To promote these new products, and to maintain the market share of its other, more traditional goods, Goody embarked upon an extensive advertising campaign in the early 1980s, a first in the hair accessory industry. The company spent $75,000 on television advertising and print promotions created by fashion photographer Richard Avedon. By the end of 1982, Goody's revenues had risen to $128 million, while its earnings shrank to $5.8 million.

Earnings continued to drop in the following year, decreasing to $5.1 million, while sales again grew to $129.4 million. In the following year, Goody embarked upon a program of expansion through acquisition of companies with compatible product lines. In October 1984, Goody bought Duray, Inc., for $3.2 million. This company, which manufactured cosmetics and travel accessories, was expected to help Goody capitalize on its own well-established network of distribution channels to enhance profits from sales of Duray products.

Also in 1984, Goody began to implement a new computer system to track raw materials and finished products. The company purchased new software and hardware in order to do so. At the end of that year, Goody reported revenues of $133.8 million and income of $5.4 million, as earnings rebounded slightly from the previous year.

In 1985, Goody made another acquisition, buying the sunglasses marketer Opti-Ray, Inc., for $20 million in cash. With this purchase and the Duray buy, Goody hoped to broaden its sales base significantly, generating higher sales and profits. Both of the company's new units were highly similar to Goody in their styles of operation. They had similar sales techniques, marketed to the same customer, and employed like warehousing and distribution processes. Nevertheless, integrating the new companies into the Goody operation promised to be challenging for the firm. "We have plenty to do over the next few years, fitting in these two acquisitions and expanding their operations," Goodman told Barron's, noting "We're going to have our plates full."

In addition to its core business in the hair accessory field, Goody had also branched out during this time to other related businesses. Through a subsidiary called J & PB Myers, the company made folding boxes and other packaging for cosmetics and pharmaceuticals. Goody also marketed an automated, computerized inventory, distribution, and shipping system through its Distribution Technologies division. In addition, the company continued to add to the hair care products it made. In 1985, for instance, Goody began offering hand-held mirrors and hair brushes. The company also introduced Little Miss Goody, a line of children's hair accessories.

The following year, Goody resumed its acquisition spree, purchasing the Ace Comb Company from the Beecham Group in July for $3.5 million. Soon thereafter, Goody also bought Pretty Neat Corp., a manufacturer of plastic cosmetic organizers, for $3.1 million. In making these acquisitions, Goody stuck to its program of buying companies whose products were sold in the same retail outlets as Goody's, and whose manufacturing processes were similar. Toward that end, the company divested itself of its carton manufacturing subsidiary, selling it to the Union Camp company in July 1987. By the end of that year, with the revenues contributed by its two new units, Goody's sales had risen 21 percent, to top $200 million, while earnings had increased by 70 percent.

By the start of the 1990s, Goody's steady success had caught the eye of outside investors, among them the Newell Co., a manufacturer of housewares and hardwares based in Beloit, Wisconsin. This company's goal was to acquire enough smaller consumer goods producers to become a serious supplier for large national retail chains such as Kmart and Wal-Mart. As part of that plan, the company bought stock in Goody, citing the hair accessory maker's strong presence in its market. "It fits the mold very well and has a strong staple product going into the mass merchandiser. Its core product has a 60 percent market share and was responsible for $150 million in sales last year," Newell's president, Daniel Ferguson, told Financial Weekly.

In September 1991, Newell increased its holding in Goody to 13.4 percent, expressing increased interest in the firm. However, since Goody had adopted a "poison pill," or plan to prevent outsiders from acquiring more than 15 percent of the company's shares, Newell did not press its interest in the company any further. "They don't want us ...," Ferguson explained, "But we would still love to be allied with them in some way, even as an investor."

Four years later, in 1995, Newell got its wish, when the remaining shares of Goody stock were tendered to the midwestern manufacturer, and the company became a subsidiary of a larger conglomerate of consumer goods manufacturers. The enterprise that had started in the early years of the twentieth century on a pushcart on the lower east side of Manhattan would end the century as part of a much larger Midwestern firm, no longer a family business.

Principal Subsidiaries: Ace Comb Company, Inc.; Goody Canada, Limited; Opti-Ray, Inc.; Pretty Neat Corporation.