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Closing the Closet : Management: Neil Balter, the reorganizing Wunderkind, has left Williams-Sonoma before his 5-year contract expired.

TIMES STAFF WRITER

It was June, 1990, and Neil Balter had just sold his growing closet reorganization business, California Closet Co., to upscale San Francisco retailer Williams-Sonoma in a stock swap valued at about $11.5 million.

It was a nifty deal for Balter, who had just turned 30. Since starting California Closet in Woodland Hills while still in his teens, Balter had built the company into the largest closet remodeler in the nation, with $9 million in annual revenue and about 100 franchises worldwide.

Under a five-year contract with Williams-Sonoma, Balter was to stay on as the company’s president. At the time, the former Pierce College student looked forward to learning about big business from Williams-Sonoma Chairman W. Howard Lester and President Kent Larson.

“I didn’t want to make the same mistakes that other people make,” Balter said shortly after the acquisition. “The typical entrepreneur brings his business to a peak, then holds on too long and it outgrows his ability to manage it.”

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Fateful words? Perhaps in light of Balter’s departure from Williams-Sonoma in February, more than three years before his employment contract was due to expire.

Marty Allen, a Williams-Sonoma vice president who assumed the helm at California Closet--now based in San Francisco--called Balter’s leaving “a mutual parting of the ways.” Balter characterized his exit as friendly.

But Allen, who acknowledged that California Closet went through “a pretty tough time” in the 18 months after the acquisition, summed up the company’s problems in two words: “bad management.”

Allen wouldn’t say if that assessment was directed at Balter. The only elaboration he offered was that the company was unprofitable because of high overhead and a product line that was too narrow. He wouldn’t say how much money the company lost; Williams-Sonoma doesn’t break out California Closet’s results. But Allen said California Closet’s sales declined about 10% over a two-year period.

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Balter’s only response to Allen’s remarks about poor management was that Allen was “a subordinate to me” prior to Balter’s departure. “I guess he’s entitled to his opinion.”

Nonetheless, Balter said he left on good terms. Williams-Sonoma executives “had their ideas. I didn’t agree with all of them,” he said. “But it’s a big company and they want to run it the way they want. They paid for the right to do that.”

Balter and Allen declined to discuss the terms of Balter’s severance pay, saying the agreement was confidential.

Balter formed California Closet just as the closet-reorganizing business was taking off across the country. The company redesigns closets with new racks, shelves, drawers and baskets of various sizes and shapes. The parts are assembled at a factory and installed in a few hours, with individual jobs ranging in price from a few hundred to several thousand dollars.

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When Balter ran the company, he was celebrated as a Wunderkind, one of those hotshot young entrepreneurs who made good with a simple but successful idea and a lot of hard work. He was regularly featured in the press and was a frequent guest on talk shows such as the “Oprah Winfrey Show.”

Indeed, when Williams-Sonoma acquired California Closet, it saw the company as a good fit with its retail and mail-order businesses, through which it sells home and garden products. Allen said he still believes that California Closet and Williams-Sonoma made “a nice marriage,” despite the difficulties encountered after the merger.

Allen said California Closet has undergone a reorganization since the buyout that included moving the company’s headquarters to San Francisco about a year ago, relocating local warehouse operations to Atlanta, and expanding the product line to include organizing home offices and small commercial operations such as medical offices. Its retail outlet in Tarzana was consolidated with the Los Angeles store; another store in the Sherman Oaks Galleria remains open.

As a result of the restructuring, Williams-Sonoma took a $2-million charge in its fiscal fourth quarter that ended Feb. 2. The charge contributed to an 86% decline in Williams-Sonoma’s profit for the full fiscal year, to $1.6 million from $11.2 million the previous year. The company’s sales for the year rose 9% to $313 million from $287 million.

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Others in the industry say California Closet’s financial problems might have also been tied to the slow economy, which put a damper on consumer spending. The closet-reorganizing business “has really been hurt by the recession,” said Brian McDermott, owner of Discount Closets & Garage Organizing in Canoga Park.

“Neil sold at the right time in regard to the economy,” said David Rogers, president of Closettec Franchise Corp. in Dedham, Mass., who says his company is the second largest in the closet-refurbishing industry.

Now that the restructuring is mostly done, Allen contends that California Closet has an advantage over competitors because it is one of only a few companies that does all closet designing, manufacturing and installation itself. It has also become more efficient, lowered operating costs and improved marketing techniques, he said.

“It’s kind of like McDonald’s,” he said. “They’ve got it down to a science. That’s what we’re doing with closets.”

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Allen said most of the management and other employees from Balter’s regime are gone.

As a result of all the changes and an improving economy, he said, sales have recently flattened out and “we’re now back on track for some good growth potential.”

Meanwhile, Balter, who still lives in the Bay Area, regards California Closet as “a closed chapter of my life.”

Since leaving the company, he has been busy as president of the Young Entrepreneurs Organization, a Washington-based group, and doing public speaking.

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Balter said he has no regrets about any decisions he made regarding California Closet. The sale to Williams-Sonoma was “the best thing for the business,” he said. And, personally, “it was a very positive learning experience.”

He has no immediate plans to start another business. “I’m 31 years old,” he said. “I’ve got the rest of my life ahead of me.”

California Closet Chronology * 1978--Neil Balter graduates from Cleveland High School in Reseda. He begins doing carpentry work and stumbles on a specialty of redesigning closets.

* 1980--Balter meets Pierce College marketing instructor David Seigel, who advises Balter to advertise and lends him $10,000. California Closet in Woodland Hills is one of the first companies in the new closet-reorganizing business.

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* 1981--Balter’s parents, Jack and Roberta Balter, who kicked their son out of the house when he was 17 because he partied too much, invest $15,000 in California Closet.

* 1983--California Closet begins selling franchises.

* 1989--The company earns $851,590 on $9 million in revenue in its fiscal year that ended May 31. It has 125 employees, a sales force of about 350, five company-owned stores and 97 franchise stores. Balter owns 51% of the company, with the rest owned by his parents and a few other investors.

* 1990--California Closet is sold to San Francisco retailer Williams-Sonoma in a stock swap valued at about $11.5 million. Balter signs a contract to stay on as president for five years.

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* 1991--Williams-Sonoma moves California Closet’s headquarters to San Francisco.

* 1992--Balter resigns. Williams-Sonoma reports that it takes a $2-million charge in its fiscal fourth quarter that ended Feb. 2 for restructuring California Closet.


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