Item 1. Business
Item 1. Business
OVERVIEW
The Company designs, sources and sells branded kitchenware, tableware and other products used in the home and markets its products under a number of widely-recognized brand names and trademarks, which are either owned or licensed by the Company or through retailers’ private labels and their licensed brands. The Company’s products, which are targeted primarily towards consumers purchasing moderately priced kitchenware, tableware and housewares, are sold through virtually every major level of trade. The Company generally markets several lines within each of its product categories under more than one brand. The Company sells its products directly to retailers (who may resell the Company’s products through their websites) and, to a lesser extent, to distributors. The Company also sells a limited selection of its products directly to consumers through its own websites.
The Company’s product categories include two categories of products used to prepare, serve and consume foods, Kitchenware (kitchen tools and gadgets, cutlery, kitchen scales, thermometers, cutting boards, shears, cookware, pantryware, spice racks and bakeware) and Tableware (dinnerware, stemware, flatware and giftware); and one category, Home Solutions, which comprises other products used in the home (thermal beverageware, bath scales, weather and outdoor household products, food storage, neoprene travel products and home décor).
The Company continually evaluates opportunities to expand the reach of its brands and to invest in other companies, both foreign and domestic, that own or license complementary brands. In March 2018, pursuant to a merger agreement, the Company completed the acquisition of Taylor Holdco LLC and its subsidiaries (dba Filament Brands, and which the Company refers to as “Filament”). Filament primarily designs, markets and distributes consumer and food service precision measurement products (including kitchen scales, thermometers and timers), bath scales, wine accessories, kitchen tools, and hydration products, and select outdoor products to major retailers in the United States, Canada and select distributors throughout Europe and Asia. Filament distributes products under the Taylor, Salter, Springfield, HoMedics, Rabbit, Houdini, Metrokane, Mako, EatSmart, TravelWise, Chef’n, Vibe, d.stil, RBT and private label brand names. Pursuant to the acquisition of Filament, the Company issued approximately 27% of its then-outstanding shares to Taylor Parent, LLC (“Taylor Parent”), and entered into a stockholders agreement (the “Stockholders Agreement”) with Taylor Parent, pursuant to which Taylor Parent has the right to: (i) designate up to two persons for nomination for election or appointment to the Company’s Board of Directors, for so long as Taylor Parent beneficially owns at least 20% of the outstanding common stock of the Company on a fully diluted basis and (ii) designate one person for nomination for election or appointment to the Company’s Board of Directors, for so long as Taylor Parent beneficially owns more than 10% of the outstanding common stock of the Company on a fully diluted basis. The other rights granted to Taylor Parent under the Stockholders Agreement are discussed in greater detail under Item 1A, “Risk Factors”, below.
The Company has a presence in international markets through subsidiaries and affiliate companies that are based outside of the United States. Lifetime Brands Europe Limited is a wholly-owned subsidiary trading as Kitchen Craft. Kitchen Craft is a leading supplier of kitchenware and tableware products and accessories in the United Kingdom (“U.K.”) and in over 80 other countries. In 2020, the Company completed its consolidation efforts of Lifetime Brands Europe Limited to create operational efficiencies. As a result, Lifetime Brands Europe Limited’s brand development and design teams, administrative teams, and distribution combined and operated out of one state of the art facility in Aston, England.
The Company also has a subsidiary in the People’s Republic of China (“China”) to supply kitchenware and tableware products to the Chinese market and a subsidiary based in Hong Kong to facilitate the sale of its products to other parts of Asia and smaller markets elsewhere in the world. The Company has a presence in Mexico and other parts of Latin America (excluding Brazil) through its 30% equity interest in Grupo Vasconia, S.A.B. (“Vasconia”), a housewares company and aluminum manufacturer based in Mexico, and a strategic alliance with a Canadian company to distribute many of the Company’s products in Canada.
The Company is a Delaware corporation, incorporated on December 22, 1983.
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The Company’s top brands and their respective product categories as of December 31, 2020 are:
Brand Licensed/Owned Product Category
Farberware® Licensed (1)
Kitchenware
Mikasa® Owned Tableware and Home Solutions
Taylor® Owned Kitchenware and Home Solutions
KitchenAid® Licensed Kitchenware
KitchenCraft® Owned Kitchenware
Pfaltzgraff® Owned Kitchenware, Tableware and Home Solutions
BUILT NY® Owned Home Solutions
Rabbit® Owned Kitchenware
Kamenstein® Owned Kitchenware
MasterClass® Owned Kitchenware
(1) The Company has a royalty free license to utilize the Farberware ® brand, primarily for its kitchenware products, for a term that expires in 2195, subject to earlier termination under certain circumstances.
With the exception of the Company’s sterling silver products, the Company sources almost all of its products from suppliers located outside the United States, primarily in China. The Company manufactures its sterling silver products at a leased facility in San Germán, Puerto Rico and fills canisters with spices and assembles spice racks at its owned distribution facility in Winchendon, Massachusetts.
BUSINESS SEGMENTS
The Company has two reportable operating segments, U.S. and International. The U.S. segment includes the domestic operations of the Company’s business that design, market and distribute its products to retailers, distributors and directly to consumers through retail websites. The International segment consists of certain business operations conducted outside the U.S.
Additional information regarding the Company’s reportable segments is included in NOTE 13 — BUSINESS SEGMENTS of the Notes to the consolidated financial statements included in Item 15.
CUSTOMERS
The Company’s wholesale customers include mass market merchants, specialty stores, commercial stores, department stores, warehouse clubs, grocery stores, off-price retailers, food service distributors, pharmacies, food and beverage outlets and e-commerce.
The Company’s products are sold globally to a diverse customer base including mass market merchants (such as Walmart and Target), specialty stores (such as Bed Bath & Beyond and Dunelm), commercial stores (such as Williams Sonoma and Kohl’s), department stores (such as Macy’s, Belk and John Lewis), warehouse clubs (such as Costco, Sam’s Club and BJs), grocery stores (such as Publix, Kroger, HEB, Meijer, Winn-Dixie, Tesco, Waitrose and Sainsbury’s), off-price retailers (such as TJX Companies, Ross Stores and Big Lots), food service distributors (such as US Foods, Clark Food Service and Jetro), food and beverage outlets (such as Starbucks) and e-commerce (such as Amazon). The Company also does business with independent retailers, including through business-to-business websites aimed at independent retailers.
The Company also operates its own consumer websites that provide information about the Company’s products and offer consumers the opportunity to purchase a limited selection of the Company’s products directly.
During the years ended December 31, 2020, 2019 and 2018, Wal-Mart Stores, Inc., including Sam’s Club and, in the U.K., Asda Superstore, (“Walmart”), accounted for 20%, 16% and 14% of consolidated net sales, respectively. During the years ended December 31, 2020 and 2019, sales to Costco Wholesale Corporation (“Costco”) accounted for 11% of consolidated net sales. During the year ended December 31, 2020, Amazon.com Inc., (“Amazon”), accounted for 10% of consolidated net sales. Sales to Walmart, Costco and Amazon are included in the Company's U.S. and International segments. No other customers accounted for 10% or more of the Company’s sales during these periods.
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DISTRIBUTION
The Company sells its products directly to retailers and, to a lesser extent, to distributors. The Company also sells a limited quantity of the Company’s products to individual consumers and smaller retailers through its own websites. The Company operates distribution facilities at the following locations:
Location Size
(square feet)
Rialto, California 703,000
Robbinsville, New Jersey 700,000
Aston, England 228,000
Winchendon, Massachusetts 175,000
Las Cruces, New Mexico 24,000
Medford, Massachusetts 5,600
Additionally, the Company uses third-party operated distribution facilities to supplement its distribution capacity.
SALES AND MARKETING
The Company’s sales and marketing staff coordinates directly with its wholesale customers to devise marketing strategies and merchandising concepts and to furnish advice on advertising and product promotion. The Company has developed many promotional programs for use in the ordinary course of business to promote sales throughout the year.
The Company’s sales and marketing efforts are supported from its principal office and showroom in Garden City, New York, as well as showrooms in New York, New York; Medford, Massachusetts; Atlanta, Georgia; Bentonville, Arkansas; Issaquah, Washington; Pawtucket, Rhode Island; Menomonee Falls, Wisconsin; Aston, England; and Hong Kong.
The Company generally collaborates with its largest wholesale customers and in many instances produces specific versions of the Company’s product lines with exclusive designs and/or packaging for them.
DESIGN AND INNOVATION
At the heart of the Company is a culture of innovation and new product development. The Company’s global in-house design and development teams currently consist of approximately 100 professional designers, artists and engineers. Utilizing the latest available design tools, technology and materials, these teams create new products, redesign existing products and create packaging and merchandising concepts.
SOURCES OF SUPPLY
The Company sources its products from hundreds of suppliers, almost all of which are located outside the United States (other than the suppliers for the Company’s sterling silver products). Most of the Company’s suppliers are located in China. The Company also sources products from suppliers across various countries including, Hong Kong, Taiwan, Japan, South Korea, Vietnam, Malaysia, Thailand, India, the United States, Canada, Mexico, the U.K., Italy, France, Portugal, Poland, Sweden, Turkey, Netherlands, Denmark, Belgium, Germany, Czech Republic, Slovakia, Cambodia, Indonesia and Australia. The Company orders products significantly in advance of the anticipated time of their sale by the Company. The Company does not have any formal long-term arrangements with any of its suppliers and its arrangements with most manufacturers allow for flexibility in modifying the quantity, composition and delivery dates of orders.
MANUFACTURING
The Company contracts with third parties to manufacture the vast majority of its products.
The Company manufactures its sterling silver products at a leased manufacturing facility in San Germán, Puerto Rico and fills jars and other containers with spices and assembles spice racks at an owned facility in Winchendon, Massachusetts.
COMPETITION
The markets for kitchenware, tableware and other products used in the home including home décor products are highly competitive and include numerous domestic and foreign competitors, some of which are larger than the Company. The primary competitive factors
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in selling such products are innovative products, brand, quality, aesthetic appeal to consumers, packaging, breadth of product line, distribution capability and selling price.
PATENTS AND LICENSES
The Company owns approximately 800 design and utility patents. The Company does not believe that the expiration of any of its patents would have a material adverse effect on either of the Company’s segments.
The Company holds certain rights to use the Farberware brand for kitchen tools and gadgets, cutlery, cutting boards, shears and certain other products which together represent a material portion of its sales, through a fully-paid, royalty-free license for a term that expires in 2195, subject to earlier termination under certain circumstances. The Company also holds a license to use the KitchenAid brand subject to a license agreement that will expire in December 2022. The Company originally entered into a licensing arrangement for use of the KitchenAid brand in 2000, and has renewed the license, typically for three-year periods, since that time.
HUMAN CAPITAL
The Company aspires to hire and retain the best and brightest employees. At December 31, 2020, the Company had approximately 1,350 full-time employees, of whom 150 were located in Asia, 280 were located in Europe and 920 were located in the United States and Puerto Rico. The Company also hires seasonal workers at its distribution centers through temporary staffing agencies. None of the Company’s employees are represented by a labor union or subject to collective bargaining agreements, except as required by local law.
The Company believes in the importance of the retention, growth and development of our employees. We believe we offer competitive compensation and benefits packages to our employees. Further, we offer professional development opportunities to cultivate talent throughout the Company. We are focused on employee health and safety initiatives and have implemented protocols during the COVID-19 pandemic to enhance workplace safety. The Company also values diversity and inclusion and is striving to create a more diverse workforce and inclusive community.
REGULATORY MATTERS
The Company and its affiliates are subject to significant regulation by various governmental, regulatory and other administrative authorities.
As a manufacturer and distributor of consumer products, the Company is subject to the Consumer Products Safety Act in the United States and the Consumer Protection Act in the U.K. Additionally, laws regulating certain consumer products exist in some cities and states, as well as in other countries in which the Company or its subsidiaries and affiliates sell products.
The Company’s spice filling operation and other certain scale products are regulated by the U.S. Food and Drug Administration.
The Company’s operations are also subject to national, state and local environmental and health and safety laws and regulations, including those that impose workplace standards and regulate the discharge of pollutants into the environment and establish standards for the handling, generation, emission, release, discharge, treatment, storage and disposal of materials and substances including solid and hazardous wastes.
The Company is subject to risks and uncertainties associated with economic and political conditions around the world, including but not limited to, foreign government regulations, taxes including value-added taxes, import and export duties/tariffs and quotas, anti-dumping regulations, incidents and fears involving security, man-made or natural disasters, health epidemics, terrorism and wars, political unrest and other restrictions on trade and travel.
SEASONALITY
The Company’s business and working capital needs are highly seasonal, with a majority of sales occurring in the third and fourth quarters. In 2020, net sales in the third and fourth quarters accounted for 62% of total annual net sales. In 2020, the Company's inventory levels did not significantly decrease during the fourth quarter. The higher inventory levels at December 31, 2020, were a result of increased inventory purchases to meet higher expected demand in 2021 due in part to the effects on demand from the COVID-19 pandemic.
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RESTRUCTURING
During the years ended December 31, 2019 and 2018, the Company's U.S. segment incurred $0.7 million and $2.1 million, respectively, of restructuring expense related to the integration of Filament.
During the year ended December 31, 2020, the Company's International segment incurred $0.2 million of restructuring expenses related to severance associated with the strategic reorganization of the International segment’s product development and sales workforce. The strategic reorganization was the result of the Company's efforts for product development efficiencies and an international sales approach tailored to countries. During the years ended December 31, 2019, and 2018, the Company's international segment incurred $0.7 million and $0.2 million, respectively, of restructuring expense primarily related to the integration of its legal entities operating in Europe.
The Company does not expect to incur any additional restructuring charges for these efforts.
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