Closet Remodeler Puts Own House in Order : Stock swap: A Woodland Hills company whose product 'struck a nerve' is sold to Williams-Sonoma.


Sol Goldberg, a retired furniture retailer, and his wife, Jacqueline, are moving to a Marina del Rey condominium that has half the closet space of the Encino house they're leaving. Instead of throwing out half their possessions, they decided to call California Closet Co.

Recently, an installer came to the Goldbergs' condo and fixed up their closets with new poles, shelves and cabinets. He even added tie and belt racks, sweater drawers with Lucite doors, a jewelry drawer and a special compartment for stockings.

Goldberg said his usable closet space has been doubled. "It just makes sense," he said.

He's not the only one who thinks so. Neil Balter, the 30-year-old founder and president of Woodland Hills-based California Closet, said the company and its franchises across the country will remodel closets in about 60,000 homes this year. Frustrated with cluttered storage spaces but often unwilling to throw anything out, homeowners are apparently willing to spend hundreds--and often thousands--of dollars to have one of California Closet's 97 franchises or five company-owned stores straighten up their messes.

When California Closet was founded in 1978, companies specializing in closet reorganization were virtually unheard of. California Closet was the first to commercialize the idea, and "was probably the first national company in the market," said David Rogers, president of Closettec Franchise Corp. in Dedham, Mass., who said his company is No. 2 in the closet refurbishing business behind California Closet.

"We stumbled upon a product that struck a nerve," Balter said. "Everybody's got messy closets."

But after 12 years in business, Balter said he realized that to help California Closet maintain its growth, he needed the financial and management resources of a bigger company. So in May he sold California Closet to Williams-Sonoma in a stock swap valued at about $11.5 million.

San Francisco-based Williams-Sonoma, with $218 million in revenue in its latest fiscal year, is a highly successful retailer that sells upscale home and garden products through its Williams-Sonoma, Pottery Barn and Hold Everything shops and catalogues.

Balter, who started California Closet at age 18, has made a good living tidying up other people's closets. Starting with a $1,000 investment from a friend in 1978, he built California Closet into a company with $9 million in revenue and net income of $851,590 in the fiscal year ended May 31, 1989.

But its earnings have sputtered lately. California Closet lost $52,441 on $6.6 million in revenue in the eight months ended Jan. 31.

Janet Joseph Kloppenburg, an analyst at the brokerage firm Robertson Stephens in New York, said the sale to Williams-Sonoma was a smart move for California Closet. Williams-Sonoma will "probably be able to make California Closet a more profitable company and they'll be able to make it grow," she said.

For Williams-Sonoma, California Closet represents "the third leg of the stool" in its quest to become the "dominant home-centered specialty retailer," said President Kent Larson. Williams-Sonoma already has successful retail and mail order businesses in place; California Closet gives it a direct sales force.

With Williams-Sonoma behind him, Balter said he wants to build California Closet into a company with revenue of $300 million a year.

California Closet's service begins when a California Closet salesperson visits a home, after which a design is drawn up based on the size of the closet and the customer's needs. An average job costs between $400 and $600 a closet and uses racks, shelves, drawers and baskets of various sizes and shapes. The parts, made of laminated particleboard, plastic and wire, are assembled at a factory and installed in a few hours. Accessories such as hangers, hampers and wall safes are also sold.

Besides its typical yuppie clientele, California Closet says it has revamped closets for dozens of celebrities, including Sylvester Stallone, Dolly Parton, Kevin Costner, Tom Petty and George Harrison.

So far, the most elaborate job the company has undertaken was a $20,000 all-Lucite closet for a Newport Beach home. It has redone closets to hold only sporting goods; one closet was designed for a 300-pair shoe collection. One popular closet design features a revolving clothes rack, like the carousels seen in dry-cleaning shops. California Closet has also started tackling garages, pantries and basements, and has even created storage areas for compact disc and videotape collections.

Balter was a part-time carpenter and student when he started reorganizing closets for friends. A friend's father was so impressed with his work, he gave Balter $1,000 to start his own business. A year later, Balter's marketing professor at Pierce College, David Siegel, helped Balter place his first newspaper ad and the orders started pouring in.

In 1981, Balter's parents--who kicked him out of the house when he was 17 because he partied too much and didn't study--invested $15,000 in California Closet and went to work for their son. Today, Jack Balter is an executive vice president and Roberta Balter is vice president of company store operations.

In 1983, again with the help of Siegel, Balter started selling franchises. Today, California Closet has 125 employees and its franchise network includes stores in Australia, Japan, Canada and New Zealand and a sales force of about 350. Most franchisees pay California Closet a $40,000 entrance fee and 5% of sales. Systemwide sales will total about $75 million this year, Balter said.

Last fall, when a deal to sell California Closet to a New York company--which Balter wouldn't identify--fell through at the 11th hour, Balter said he summoned up the nerve to call Williams-Sonoma. They had never heard of California Closet, but were intrigued by the concept and the potential fit with Williams-Sonoma's other home-reorganizing products.

Larson said California Closet will continue to operate independently and Balter, who owned 51% of California Closet before the buyout (his parents and a few other investors owned the rest), will remain as president under a five-year contract.

Balter, who admitted to some ambivalence about selling his company, said he has had to make some changes. "Up until this merger, I'd never worked for anyone else." Now, he said, "I've got a boss."

But Balter said he's eager to learn from Larson, a former Pillsbury Co. executive, and W. Howard Lester, Williams-Sonoma's chairman. "I didn't want to make the same mistakes that other people make," Balter said. "The typical entrepreneur brings his business to a peak, then holds on too long and it outgrows his ability to manage it."

Balter said his ability to keep his ego in check is what distinguishes him from those other young, well-known San Fernando Valley-based entrepreneurs, Mike Glickman and Barry Minkow, to whom Balter was once compared.

Minkow, the founder of the now-defunct ZZZZ Best carpet cleaning company, is serving a 25-year prison sentence for fraud, and Glickman's real estate company filed for bankruptcy liquidation last month.

Balter recalled a 1987 appearance he made with Minkow and other young business phenoms on the "Oprah Winfrey Show."

At one point, Balter chastised Minkow for his "think big" philosophy, saying that most entrepreneurs go out of business because they're undercapitalized and over-optimistic. Minkow quickly retorted that California Closet and its franchises had $17 million in sales. "Mine are $50 million. End of story," Minkow said.

"It was, at that time, an embarrassing situation," Balter said. "But a year later, he's in jail."

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