With Design In Mind Makes Toys to Entertain Grown-Up Children : Gadgets: The Chatsworth company hopes a stock offering will raise about $4 million, easing a cash crunch.
Steven Zuloff and Barry Benjamin define their target audience as “the child that lives in the adult.” But the adult also must have plenty of disposable income.
With Design In Mind International Inc., a Chatsworth company founded by Zuloff and Benjamin in 1986, designs and markets many of the odd toys and electronic gadgets sold by department stores and such specialty retail/catalogue companies as The Sharper Image and Spencer Gifts, a unit of MCA Inc.
Design’s products are not must-have gifts, and cynics would dismiss the items as dust collectors. Even Zuloff, Design’s president, said “We tend to stay away from functional items. We tend to be entertainment oriented.”
One hot-selling item is PinPressions, a frame filled with 2,310 soft-pointed pins that forms a detailed sculpture of your profile when you press your face against it. Retail price: $30. Another Design product is Plasma FX, a clear ball that displays “controlled lightning” when you touch it ($99). There’s the Levitating World Globe ($150). And Laser FX, whose three models create a laser-light show when hooked up to your stereo ($99-$249).
Zuloff said Design, with more than 20 products that retail for $25 to $400, is one of the few companies that offers retailers a variety of such gadgetry from a single vendor. Sharper Image, a San Francisco company that annually sells about $210 million worth of gadgets through its glossy catalogue and chain of stores, confirmed that it buys from Design, but said that it does not publicly comment on its suppliers.
Regardless, Design is still a pipsqueak operation with 23 employees, wide-swinging profits and annual sales that reached only $8.2 million last year. The company also is operating on a razor-thin margin of excess cash--less than $10,000, down from nearly $400,000 a year earlier--and until recently it was a penny-stock company whose whopping 350 million shares outstanding traded for 3 cents apiece.
But Design is trying to sharpen its image. Last week, Design had a 1-for-352 reverse stock split, so that it now has 1 million shares outstanding that trade at about $9 each. By leaving the penny market, Design hopes to appeal to more investors and raise about $4 million by issuing additional shares, which would help alleviate its cash crunch.
Design also will use the proceeds to expand, but it’s in no hurry to grow until its financial health is stronger, said Benjamin, the company’s chief financial officer. “We want to get as big as our foundation and our capital base will allow,” he said. “I have no problem with growth as long as you can manage it in the back room.”
Design’s profitability has been erratic. The company’s earnings shot up from $92,000 in 1987 to $551,000 in 1988, but then plunged to $26,000 last year because of increased overhead costs, higher taxes and product purchases from its outside manufacturers, Benjamin said. Those factors also dried up Design’s cash, so the company was forced to sell some of its existing inventory at a discount to raise cash, which further lowered its profit, he said.
Included in the overhead costs were the salaries and other compensation paid to Zuloff and Benjamin, which totaled $110,000 and $230,000, respectively, in fiscal 1989, according to Design’s annual report to the Securities and Exchange Commission.
Zuloff, a stocky, bearded 46-year-old, has been developing and marketing odd products for two decades. Between 1968 and 1980, he owned a company called Moonlite & Co. that initially sold black lights, strobe lights and other equipment to the psychedelic crowd. When that craze faded, he went into the gift industry, and among other things marketed the Light Beam, patterned after the laser swords used in the “Star Wars” movies.
“With the ‘70s and ‘80s came a whole generation of yuppies looking for escapism and looking for uniqueness,” Zuloff said, “and I decided to cater to that marketplace.”
In the early 1980s, Zuloff came up with PinPressions and it sold well. He followed that with Plasma FX, the lightning ball. “Suddenly we were developing a line,” he said.
In 1985, he hooked up with Benjamin, now 52, who was brokering sales of businesses after spending 10 years in banking. They founded Design with about $20,000 apiece and merged it into Pacific Acquisitions Inc.--a publicly held shell company that was organized solely to invest in another business. Today, the pair own 70% of Design’s stock.
Zuloff and Benjamin don’t bother with consumer tests or other surveys in deciding whether to market a new product. They just play their hunches. “I use my own love and dislove for things that come to mind and that come to me,” Zuloff said. They conceded, however, that they occasionally show a new product to their big customers to get their input.
Sometimes the hunches don’t pan out as planned. For instance, Zuloff admitted that sales of Design’s Talking Crystal Ball, which offers 28 different answers when asked “yes” or “no” questions, are lagging. One problem: Too many shoppers thought it was a lamp.
About 30% of Design’s products are developed by Zuloff and his staff, and outside inventors create the rest and receive between 2% and 5% of their item’s gross sales, depending on how closely their invention resembles the product’s final design. The products are manufactured by contractors in South Korea, Taiwan and Hong Kong.
As for which products get dropped from Design’s line, “your customer really decides that,” Benjamin said. “The consumer has an insatiable appetite for new products.”
Zuloff also knows that not everyone is a Design customer; he figures only three out of 10 people are. “We have a very select audience that we go after,” he said. “Usually it’s an upper-middle-class person who has the bucks to spend, and usually with that comes a sense of boredom, and that’s my customer. My customer usually is the impulsive buyer wanting to feel different or unique.”
He now wants to cash in on the renewed interest in cartoon characters, such as the Simpsons and Dick Tracy. Design is developing a product called Toon Tones, which allows its user to modulate the voices on a television or videocassette recorder so that they sound like cartoon shows. “With home videos, you can change the kids into cartoon characters,” Zuloff said.
Silly? Sure, but that’s Design’s business. Besides, Zuloff said, the problem for specialty catalogues and department stores these days “is finding unique items. There aren’t enough.” The question is whether Design can find more profit by supplying them.
WITH DESIGN IN MIND INTL. AT A GLANCE
With Design In Mind International in Chatsworth markets unique gift items sold in specialty stores, department stores, and catalogues. Founded in 1986, the company’s 20 products are made by outside manufacturers based on designs developed in-house or licensed from inventors. The company has 23 employees.