Steve Heyer, the new chief executive officer of Harry & David Holdings Inc., says the company's future remains in the Rogue Valley but its success will depend on national and global innovations to make the company 'new, contemporized and relevant.' - Bob Pennell

The new face of Harry & David

Steve Heyer says he found an untended garden when he assumed leadership of the Rogue Valley's largest non-medical employer last winter.

In the six months since Wasserstein & Co. appointed him chairman and chief executive officer, Heyer has pruned, weeded and fertilized Harry & David Holdings Inc. with an eye on stemming the tide of annual losses.

Heyer's resume includes top executive stints with Starwood Hotels and Resorts Worldwide, Coca-Cola Co. and Turner Broadcasting System. In none of those previous stops did he find such systemic woes only worsened by a troubled economy.

"There are few brands with this kind of brand power that have underperformed to this degree," Heyer said Monday at the company's headquarters along South Pacific Highway in Medford. "There's a limit to what people will pay for a thing, but not for an experience."

Although his residence remains in Atlanta, Heyer made it clear Harry & David's future remains in the Rogue Valley, although its success requires national and global efforts.

"We're not moving the company," Heyer said. "I'm amazed by the rumor that we would. (The Wasserstein & Co. board) has never discussed or considered closing Harry & David. It would be wildly silly to walk away from the facilities, and you just can't walk away from the orchards. You couldn't find a business system elsewhere to support the orchards. That's not to say we shouldn't have merchants in Manhattan, China and Los Angeles and a sales force across the country."

Heyer reduced the number of executive vice president roles and increased outside sales managers. The bloodletting this spring didn't have the impact broad-based rank-and-file salary and benefit cuts did in past years. The total payroll, excluding temporary employees, this year is $95 million, compared to $96 million last year.

"Every company has its share of underperformers and we had more than our fair share in the senior executive ranks," Heyer said. "We've streamlined and upgraded the talent structure in our business. Have we decimated payroll? I don't think so. I can save $40 million without taking it out of paychecks. I can buy ribbon for our gifts in Manhattan for less than what we were paying vendors. We have duplications and multiple systems that were very expensive. Nobody looked and nobody tried to find new ways to do old things."

Case in point: A catalog with a picture on the cover of a product the company didn't even sell.

"The front page is precious real estate," Heyer said. "Control of everything was vertical. There was no communication between marketing and merchandising, no joint problem solving."

The company has 4,578 salaried and hourly permanent employees and is advertising another 40 staff positions. Beth Lindsay, vice president of talent management, said 700 of the anticipated 5,000 holiday seasonal workers already have been hired.

The new CEO was puzzled over Harry & David's lack of Advertising Specialty Institute representation, meaning the company was losing out on sales opportunities. ASI has 10,000 distributors, accounting for $19 billion in annual sales. Food accounted for $177 million, he said, and Harry & David's share was $1 million.

"We've developed between 30 and 40 relationships, and we're marketing aggressively," Heyer said. "I wasn't happy with our level at all.

"There has been no shortage of baskets, but there has been a shortage of innovation," Heyer said. "That's fundamental to making a company new, contemporized and relevant."

The company lost just under $40 million in the fiscal year ending June 26. Its debt, which costs $20 million in annual interest, has been an issue and has raised eyebrows in bond-rating and academic circles.

"Debt is often an appropriate part of the capital situation," he said. "If you are making payments, there is nothing inherently evil about it. But you have to have the performance to support that debt. Instead of just a Christmas gift company, we want to be a four-quarter company, making the debt manageable, and long-term have an IPO (stock offering). Leveraging with other people's money has been around for a long time. If you are growing cash, you don't need debt. But if an opportunity comes along, you should lever up. When companies pay dividends, it is the result of not growing fast enough to put cash to work."

The company's financial support for local entities ranging from Kids Unlimited to Southern Oregon University had also fallen behind. Heyer said there was only one thing to do: "Write a check."

Heyer brought in Ike Ahmed from Atlanta to run the company's call center. He promptly reorganized training routines and gave operators the ability to customize orders right down to the inscription on cakes.

"There was no training beyond the call center and very little training budget," Heyer said. "(Seasonal employees) coming back are coming back to a different company."

Among the initiatives aimed to create a "wow" response both within and outside the company are orchard-themed pop-up stores, which will soon appear in major metropolitan areas beginning in San Francisco.

"Imagine an orchard on Fifth Avenue," said Heyer, walking into a mock-up above the call center once dedicated to executive suites. Orchard scenes are splashed on the wall with harvest ladders propping up displays and live pear trees inside and out.

Customers at the locations scattered from Boston and New York to Chicago, Houston, Denver, Los Angeles and Seattle will be entered into the company's database. In the past, anyone wanting to ship a product from a Harry & David store was asked to order online. That's no longer the case.

"Retail is impulse," Ahmed said. "When you don't have the ability to ship from the store, your pocket share is gone."

Harry & David's looks and selections have widened and even its 1934 start-up date is honored with products priced at $19.34.

"I'm not going to snap my fingers and the world will be different for our investors, employees and the economy," Heyer said. "We've had to work on so many fronts. It was a garden that was untended and now we have a whole team tending it. Feedback is important in finding out what works. We can lead, but if they don't follow, we have to adjust."

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