What Warren Buffett sees in Oriental Trading
November 12, 2012 04:41 PM
Now that Oriental Trading Co. is coming under new ownership by Berkshire Hathaway Inc., the diversified retail, manufacturing, transportation, publishing and financial services conglomerate owned by billionaire Warren Buffett, the direct marketer of party supplies and related merchandise will have a lot more flexibility to grow its e-commerce business, CEO Sam Taylor tells Internet Retailer.
Oriental Trading announced Nov. 2 that Berkshire Hathaway, which owns companies as diverse as the Burlington Northern Santa Fe rail system and GEICO Insurance, would acquire the company from New York investment banking firm Kohlberg Kravis Roberts & Co. and other financial institutions. Terms of the deal weren’t disclosed, but the transaction is expected to be finalized within the next 30 days, Taylor says.
The agreement came together fairly quickly, Taylor says. “Berkshire Hathaway and Warren Buffett like to invest in companies that are in a leadership market position, have a strong management team, have strong business fundamentals and have an opportunity for growth,” he says. “We made sure we could meet all those goals before we approached Berkshire Hathaway, and when our chief financial officer called his counterpart at Berkshire Hathaway on a Friday afternoon, Warren personally called our CFO back in a few hours and said he liked the deal and to send over the paperwork and supporting financial documents. We then had the tentative deal done in about three days.”
When the deal is complete Oriental Trading, which now generates about 70% of its sales online, will operate as a stand-alone entity, Taylor says. “Warren wants companies to have strong management in place and likes to give them a lot of autonomy to run the business,” Taylor says.
With Berkshire Hathaway as its new parent company, Oriental Trading will have the flexibility to develop more private-label merchandise, which now account for about 50% of the company’s current inventory of 40,000 products, and develop new product lines for specialty events such as proms and party merchandise such as men’s Hawaiian shirts, Taylor says. “You have to have unique products because if you don’t you can’t compete against Amazon.com, Walmart.com and other big players,” Taylor says.
More important, having a stable owner, especially one that’s also based in the same home town of Omaha, gives Oriental Trading stability, Taylor says. The company, which has been a direct marketer of party supplies, arts and crafts, toys and novelties, school supplies, home décor, and giftware since 1932, in recent years has been owned by a series of investment banking firms. In February 2011 Oriental Trading emerged from bankruptcy as a streamlined company after restructuring about $500 million in debt. “It’s going to be nice to get off the private equity treadmill,” Taylor says. “Having to be put up for sale every four years to five years takes a toll, especially on employees.”
The revolving ownership combined with the recession that began in 2008 and big price increases from several of its chief suppliers in Asia hurt Oriental Trading’s financial performance, Taylor says. But with its debt restructured and a solid management group in place, Oriental Trading is profitable, Taylor says, though he refuses to disclose specific numbers.
To grow its business, Oriental Trading will look for new ways to better target shopers in its database of 20 million names, Taylor says. “We look for more ways to drive organic growth, especially with our customers of women 30 to 45,” Taylor says. “That’s a great demographic.”
Oriental Trading, No. 77 in the Internet Retailer Top 500 guide, also will look for new ways to leverage its internally developed e-commerce platform and advanced fulfillment center in Omaha, which can house over 100 million items, contains more than four miles of conveyors and processes over 40,000 units per hour. “We are the largest direct marketer in our business and we have the technology, fulfillment and supply chain infrastructure to grow,” Taylor says. “We have some big opportunity ahead, especially now that we are about to become a part of Berkshire Hathaway.”
Berkshire Hathaway’s diversified retail holdings includes owning all of or having a substantial investment in home furnishing retailers such as Nebraska Furniture Mart, R.C. Willey Home Furnishings, Star Furniture and Jordan’s Furniture, and jewelry store brands the likes of Borsheims, Helzberg Diamond Shops and Ben Bridge Jeweler. Berkshire Hathaway also owns Pampered Chef, a direct seller of high-quality kitchen tools. It’s unlikely that Oriental Trading will become the e-commerce hub for all Berkshire Hathaway retailing brands, Taylor says. “Everyone’s pretty autonomous,” Taylor says.
For now Oriental Trading will concentrate on growing its business, including possible acquisitions, although Taylor didn’t mention any specifics. “We have developed the infrastructure and platform for selling direct in our space and we are going to build on that advantage,” Taylor says.