Mr. Gadget
The setup: You’re an average affluent American enjoying the fruits of your labor. One day--on account of flood, fire, civil disturbance, power grid overload, whatever--the electricity is cut off to your house. All your lights fail, and every one of your major appliances reverts to inanimate metal or plastic. Similarly disabled are your Ultreo Ultrasound Toothbrush, Tourmaline Ionic Hair Dryer, Sound Soother 20 clock radio, Ultimate Human Touch Robotic Massage Chair, Bright as Day Power-Port Desk Lamp, Pyramat Wireless Gaming PC Gaming Chair 2.1, iTower Omega Stereo Speaker System With Universal Dock for iPod, Shake ‘N Take Personal Smoothie Maker and Ionic Breeze QUADRA Silent Air Purifier with Ionic Breeze Silent Electronic Propulsion.
The pitch: Why not be ready for anything with your own 3,000-watt generator?
Not your run-of-the-mill gasoline-powered unit--the type that spews fumes, makes a godawful racket and has to sit in the yard, announcing its noisy, polluting presence to your teeth-gnashing neighbors--but a silent, portable, emission-free hydrogen-fuel-cell-powered power plant that sits serenely in your living room, pumping out 10 hours of squeaky-clean power per cell and making your home an inexplicable island of brightness in your otherwise darkness-cloaked neighborhood! And how about giving Mom, who lives in hurricane-prone Florida, her own unit as a holiday gift? And another one for Uncle Dan, whose power was out for four days during last summer’s SoCal power crisis?
“And wouldn’t it be neat,” says Richard J. Thalheimer, leaning forward in his booth at the Spitfire Grill at Santa Monica Airport, “to have the world’s first hydrogen-powered-fuel-cell-no-emissions-generating generator?” He adds happily that he’s made contact with its inventor, begun a relationship, and if he can persuade the guy to get the retail price down to $1,000--about the same as a gas-powered generator--he might be the first to sell one.
If Thalheimer’s name doesn’t ring a bell, you might recognize his unlined face, crown of thinning curly hair and bright, white, wide-mouthed smile. He’s the guy in the countless catalogs and late-night infomercials. That’s because he’s the founder and longtime chief executive of Sharper Image, the nationwide purveyor of upscale gadgetry that’s had a profound effect on America’s annual frenzy of discretionary gift-giving.
He’s flown his single-engine Cessna 182, equipped with enough electronic navigation and communication equipment for a Boeing 737, from Marin County to discuss his future plans. Before settling in on this beautiful Saturday in October, Thalheimer (pronounced Tall-heimer) has changed his seat to maximize the feng shui and announced to his lunch companion that this very day is his 591/2 birthday. But surprise: His plans don’t include Sharper Image, from which he was abruptly ejected late last year--in an episode that has semitragic and semicomic aspects--by a cabal of deep-pocketed “activist” shareholders. The mighty wrath of Consumer Reports magazine also figured strongly in his downfall.
Instead he’s currently preoccupied with www.richard solo.com, a tiny retail website--three full-time employees, including himself--that he launched in the preceding months. He figures he’ll sell “a few” Sharper-esque products this fiscal year and be back in the game a year from now.
It’s a shocking change from Thalheimer’s previous pre-holiday seasons. At its height, Sharper Image had almost 200 retail outlets, more than 4,000 employees and about $760 million in yearly sales. But as Thalheimer traces a Cobb salad-length history of his old company, it comes across less as a well-oiled retail machine and more as a publicly traded crapshoot in which fourth-quarter sales of Thalheimer-approved blockbuster products were crucial. Holiday sales accounted for 40% of Sharper’s income; the other three quarters inevitably were unprofitable.
These special products, Thalheimer says, were ones that he either developed in-house or had an exclusive license to sell. “We created a Broadway musical,” says Thalheimer. “[We] had all the dancers in the chorus filled in, but we were missing the star and the main plot.”
These superstars, accompanied by their own promotional plot points, had names: Turbo-Groomer, the Razor and, most portentously--as you’ll see later--the Ionic Breeze. As those items went, so went Sharper Image. Thus this ultimate holiday eye-opener: After the company jettisoned Thalheimer, its financials fell faster than a pair of dead Duracells rattling down a garbage chute. Thalheimer is either gracious or clever enough not to mention this when asked how he’s holding up these days.
“I’m going through a very happy phase of my life since I left the Sharper Image last November,” he says, smiling brightly. “Because I see so many good things about the opportunities I’ve been given. And I’m not worried about the destination. I wasn’t worried about it at Sharper Image. I was just worried about the process. Of working with people, and finding products I like, and treating people well. I actually get a kick out of that.”
So sincere-sounding is Thalheimer--or maybe he’s even a better salesman than advertised--that when those words come out of his mouth his listener nods, well, covetously.
Almost everything unique and irresistible about Sharper Image’s inventory was summed up recently by Joan Storms, a longtime retail industry analyst now at Wedbush Morgan Securities in downtown L.A.: “It’s the most discretionary store in the mall.”
That’s Street-speak for the fact that at first and even second blush nobody needs to buy anything sold at Sharper Image. Society would proceed normally if all the ultrasonic eyeglass cleaners and remote-controlled model helicopters in America vanished at one stroke.
Sharper Image’s outwardly whimsical inventory means that management can’t assume that anyone will buy anything they’re selling. The upside is that the stuff is catnip to (mostly) guys who have everything and the people in despair who shop for them. On a vertical scale of un-essentialness, with the Lumb-R-Grip Hanger Hook and the Samurai Shark all-purpose handheld blade sharpener (as seen on TV) at the bottom and Neiman Marcus’ Rocket Racing League Team on the top, the Sharper Image’s sweet spot is about three-quarters of the way up.
“That’s the price point I’m most comfortable with,” Thalheimer says.
That’s also the market segment, say his admirers, with which he has an almost psychic connection. “Richard has the amazing ability to figure out the things that people want to have,” says Tracy Wan, an 18-year Sharper Image veteran who worked her way up to president and chief operating officer under Thalheimer. And he perceives their need even before they know the product exists.
This ability stood Thalheimer in especially good stead in the 1980s. It was a decade of conspicuous excess--of dollar- sign-embroidered suspenders, silk “power ties” and Stutz Blackhawks. In its formative decade, Sharper Image’s suits of armor, voice-activated light switches, home Geiger counters, telescopic sight-equipped crossbows and newfangled cordless phones and digital answering machines provided a comparatively tasteful echo. Sales exploded during the early years--and nearly stopped dead in 1990.
“That’s when the other stores caught up with us,” says Thalheimer, referring to retailers such as Brookstone and Hammacher Schlemmer. But neither he nor Sharper Image were finished. The roller-coaster ride had just started.
It’s now late October, and Thalheimer is driving to his San Francisco home in his Toyota Camry. “My mother always said: ‘Buy the cheapest house on the best block you can find,’” he says. That house is on the same Presidio Heights block as the homes of oil heir Gordon Getty; Roger Barnett, chairman and chief executive of Shaklee Corp.; and Oracle’s Larry Ellison when he’s not on his yacht or in one of his other residences.
Thalheimer lives full-time in the three-story mansion with his second wife and their 21/2-year-old daughter, and part-time with the two teen daughters from his first marriage. It has a beautiful view of the Palace of Fine Arts and, if he can get the Presidio people to cut down one annoying eucalyptus tree, the Golden Gate Bridge.
The home is equipped with a $22,000 lap pool and a five-car garage that holds Thalheimer’s two motor scooters and two motorcycles (his Smart microcar is on order for early 2008). It has a wireless Super AV system--which cost $400,000--with ubiquitous touch-screen panels that allow residents to control the temperature, sound, lighting, motorized window shades and any of 20 or so plasma TV screens from anywhere in the house.
Another thing that Thalheimer’s mother likes to say, according to her son: “Dick always wanted a new toy. And as soon as we got it for him he’d get tired of it and want another toy.”
Thalheimer was raised in Little Rock, Ark. After graduating from Yale he enrolled at Hastings Law School in San Francisco, but not because he wanted to practice law. “I just wanted to learn how contract litigation worked. What law was about. Because I thought: ‘I’m gonna have a big business someday and I’ll be at the mercy of lawyers my entire life.’”
Still in law school, he began peddling copier toner and knockoff IBM typewriter ribbons by mail order. He named his company the Sharper Image. In 1977, he visited the Consumer Electronics Show in Las Vegas and came across “a tiny booth” with a man inside. The man was selling a Taiwanese approximation of a popular $300 Seiko wristwatch for runners. Thalheimer, a serious jogger, made a deal and took out ads in Runners World and Popular Science, offering the watch for $69.95. He sold 50,000 of them the first two years. Bypassing ad agencies and market research, running on instinct, he had within a few years a monthly catalog and stores throughout the country and was flying to them via private jet. He took his company public in 1987.
In 1991, at the depth of the Bush 41 recession, the Sharper Image posted its first quarterly loss. A bit earlier, Thalheimer had decided that he needed to be in control of his own destiny--and licensing--and started Sharper Image Design, a division for creating and bringing proprietary products to market. One of its first offerings was the PowerTie Motorized Tie Rack, which empowers men to review their neckwear collection in mini-dry-cleaner mode. “And it has a light, and it has to be silent so it doesn’t disturb your partner,” Thalheimer says.
“I thought it was the silliest thing I’d ever worked on,” says Chuck Taylor, a former General Electric engineering manager whom Thalheimer brought in to head the design unit. The company has since sold 200,000 of them. Several years later Taylor was toiling on what would become, for better or worse, Sharper Image’s signature product: the Turbo-Groomer battery-powered nose hair trimmer.
“Panasonic had something like it,” cackles Taylor, “and they offered to sell ‘em to us for $20 apiece. We designed our own, a better machine, had it built for under $6 in China and sold ‘em for $60 because it was our ‘exclusive’ product.”
In 1995, Thalheimer visited the Hong Kong Toy Fair and came back with a skinny Jetsonian version of an age-old kids’ toy. Recalls Tracy Wan: “I thought: ‘People are going to want this?’ I figured maybe it would be a nice little fourth-quarter item.” Thalheimer negotiated a 30-month exclusive license for the Razor Scooter, had each one fitted with colorful plastic handgrips and wheel hubs, and started a craze. In 1999, the share price of SHRP crested $20 on Nasdaq for the first time. Then--for better or worse, squared--Thalheimer had another idea.
During the 1990s he’d determined that lots of people thought they needed air purifiers to clear the dust, dirt, pollen and other pollutants from their homes and offices, and he hated the portable purifiers then on the market because their fans were too noisy. He heard about a new technology that made fanless purifiers possible, licensed it, hired a scientist from the Harvard School of Public Health to oversee health matters and, in 1996, launched the Ionic Breeze with a series of infomercials starring himself.
The Ionic Breeze retailed for $349.95. It hit pay dirt. By 2003, that one product accounted for 40% of the company’s income. In 2004, SHRP squirted up to just under $40. Life was good.
The long version of what happened next might make a good opera. The short version: In October 2003 Consumer Reports printed the results of a test it had done on air cleaners. The Ionic Breeze was rated “ineffective” at purifying air.
According to Thalheimer and others at Sharper Image, the testing methods used by Consumer Reports were crude and inexact compared with ones they had used while perfecting their product. That was the reason, in 2004, Thalheimer sued Consumers Union, which had published the report. The suit was dismissed before trial, and Sharper Image was ordered to pay more than $500,000 in Consumer Union’s legal costs.
The suit was dismissed for technical reasons, Thalheimer says.
Nonsense, says Consumers Union.
“We’ve been testing products for 71 years,” says a spokesman for the product-testing organization. “And we’ve never lost a lawsuit.” An article in the magazine’s May 2005 issue said that, by the way, although no government agency had raised any red flags, many air purifiers--the Ionic Breeze being the bestselling model--released significant amounts of ozone that could be harmful to people’s health.
“A vendetta,” Thalheimer says.
“Our only mission is to protect consumers,” Consumers Union says.
Due to the bad publicity, says Thalheimer, sales of the Ionic Breeze--and Sharper Image’s profit margin--fell much faster than projected. Enter Knightspoint Partners, a New York-based hedge fund spearheaded by former Revlon CEO Jerry W. Levin.
In April 2006--the height of hedgemania--Knightspoint snapped up a 12.8% share of SHRP, demanded seats on the board and an overhaul of the business. Thalheimer says that, at the time, he thought he and Knightspoint would make a good team--he would provide the product and marketing expertise, and Knightspoint would provide the financial acumen.
It didn’t quite work out that way. Levin hired a New York law firm to investigate allegations of stock-option backdating, and when the dust settled Sharper Image restated its earnings by $18 million and asked Thalheimer to fork over $3 million. He did. Levin fired Thalheimer in October, giving him a few million bucks in severance and paying him $26 million, at $9.25 a share, for the part of Sharper Image he still owned.
Since gaining control, the new guys have suffered losses of more than $120 million and seen their stock price fall as low as $1.71. As of Nov. 26 it was $3.22. Agreeing on an “amicable” 45-day eviction notice by Levin, Thalheimer moved richardsolo.com to the Marin County town of Novato, into a five-bedroom spec house he’d built.
Which is not to say that Sharper Image as we’ve come to know it is totally gone. As this story was being written, Jerry Levin very publicly bought $400,000 worth of stock to express his confidence in the company. It still has a lot of mall outlets, still has a lot of employees, still prints a lot of catalogs and at last glance was the only chain retailer offering customers both steak knives that never, ever need sharpening and the Zero-G Experience, a 90-minute flight out of Las Vegas that includes “15 parabolic maneuvers” plus a “re-gravitation party” afterward. All for $3,675.
As of late October the hottest new product Thalheimer has to brag about is a reconditioned Japanese “Spider-Man”-themed slot machine that plays snippets of “Spider-Man” movies after the owner inserts a nonmonetary token. The hydrogen- fuel-cell generator project has made no appreciable progress.
But wait, there’s more.
A week-and-a-half later, Thalheimer e-mails with big news: During a trip to the humongous Hong Kong Electronics Fair earlier that month he’d come across a woman in a little booth (etcetera) and has since negotiated an exclusive license for the world’s first snap-on rechargeable lithium-ion battery that will double the talk time of any Apple iPhone.
The RichardSolo Smart Backup Battery Pack, approved for use by Apple, will go on sale Dec. 20. It will cost $49.95. Thalheimer--an iPhone fanatic himself--is excited about the four months of exclusivity he figures his company will enjoy before the competition catches up.
“After all,” he says in a follow-up phone call, “it’s exactly what everyone wants to have.”
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(BEGIN TEXT OF INFOBOX)
Mall vs. Maul
The QUIZ
Determine which gifts below are from the ubiquitous inflight magazine, SkyMall, the “Sharper Image” of the sky, or SkyMaul, its parody offspring.--Michael Shaw
[ Check the boxes below ]
Maul
Reality-Canceling Headphones
Would that they were so, until you notice that you’re wearing a giant pair of headphones on your head . . .
Mall
Chair Valet
(has drawer under seat, rack for coat and hooks for belt, tie)
For the gentleman who has it all--except a walk-in closet.
Mall
The Runaway Alarm Clock
(rolls away and hides when you hit the snooze button)
The pinnacle of the alarm clock evolution, the Runaway is the upscale version of its earlier incarnation, the spherical Throw-It-Out-the-Window Alarm Clock.
Maul
Eye Pillow
Sometimes good ideas should be pushed until they become great.
