Cole National Corporation

1915–1994

Over the course of its more than 50 years in business, Cole National Corporation (CNC) has dabbled in specialty retail ventures ranging from children's toys to cookie-baking to shoe repair and watchbands. Key-cutting services, however, remained a continued aspect of Cole's offerings throughout the decades. Although the company's key-cutting business has diminished in importance over the years (and was downplayed in the mid-1990s), it long formed the backbone of the retail firm operated by the Cole family.

Based in a suburb of Cleveland, Cole National Corporation boasted over 2,200 stores in the early 1990s. the company's retail businesses were about evenly split between the eyewear and giftware markets at that time. The Cole Vision division, which operated under the Sears Optical and Montgomery Ward Vision Center names in the early 1990s, was America's third-largest optical retailer. CNC started marketing managed vision care to large group accounts in the early 1990s. By 1994, this fast-growing operation listed 15.6 million members. CNC's other major retail holding, the Cole Gift division, operated over 1,300 stores in two formats. Its Things Remembered stores were usually located within malls, while Cole Gift Centers were leased shops within department stores. In 1994 CNC emerged from a ten-year period in which it was privately-held with a $60 million initial public offering.

Company namesake and guiding light Joseph E. Cole was born in Cleveland in 1915, the youngest of nine children. He started his retail career with Cleveland's National Key Company in 1935 at the age of twenty. He left National Key nine years later to establish the key division of Curtis Industries, another Cleveland business.

Cole's first key shop was set up in the parking lot of a local Sears, Roebuck & Co. store that same year. By the end of the decade, Cole had built his little sideline into America's second-largest key retailer. The self-made entrepreneur was coronated "king of keys" in 1950, when he acquired National Key and Curtis' key division, the industry's two top players. The newly unified firm took the name of its larger constituent, National Key. (Although National Key was founded in 1932, Cole National claimed 1944 as its inaugural year.)

Joe Cole's key-selling concept was predicated on the idea that keymaking was a highly specialized, service-oriented business. While mass retailers wanted a share of this segment's high profit margins, they did not want to deal with the equally high level of training, service, and inventory control it demanded. Cole leased space from such leading department stores as Sears, Roebuck and Co., Montgomery Ward, and Kresge's. He then installed key-making machines, trained store employees to cut keys, and oversaw the operations' complex 3,000-unit inventory. While Cole neither manufactured keys nor owned stores, Cole found a profitable niche in providing its services to customers and retailers.

In 1994 CNC emerged from a ten-year period in which it was privately-held with a $60 million initial public offering.

1950–1970

A company executive would later characterize Cole's counters as "an oasis of service in a sea of self-service." The tiny selling areas emerged as the most productive areas--in terms of profits per square foot--in some stores. During the 1950s, the company expanded into the manufacture and sale of key chains and jewelry, and launched a while-you-wait shoe repair division.

The explosion of automotive and home sales in the postwar era made expansion of the replacement key industry virtually inevitable. Less than a decade after assuming the helm of National Key, Joe Cole increased sales fourfold, from $2.33 million in 1950 to $10.52 million in 1959. When the firm went public that year, it sold out its entire offering in one day. The Cole family retained a 25 percent stake in their company, which by that time was netting over $635,000 annually.

The company used the proceeds of its initial public offering to fund an acquisition spree in 1960. Over the course of that single year, the firm purchased Fairfield Publishing, a greeting-card company; Shore Manufacturing, a novelty business; and Masco Optical. Having thus diversified from its base in keys--and in recognition of its leader--the company was renamed Cole National Corp. in 1960.

That same year, Cole tested a new concept in optical retailing, establishing an eyewear counter within space leased from a Detroit Montgomery Ward store. This venture was based on the same concept as the company's key business. Company strategists recognized that mass retailers had the traffic, but not the expertise, to run such an operation. Masco Optical became the foundation of a chain of optical counters that numbered over 150 locations by the end of the 1960s. Optical centers had become Cole National's largest division by 1964, contributing about half of annual sales.

Although CNC retained a focus on retailing, it also diversified into manufacturing during the 1960s. It acquired Sterling Industries, a Cleveland manufacturer of aluminum, steel and plastic products in 1961, thereby winning an exclusive contract with Welcome Wagon. In 1966 Cole National merged with Susan Crane, producers of giftwrap, and acquired the Gene Upton Co., manufacturers of self-adhesive metal letters and numbers. Two years later it acquired Manco, Inc., a manufacturer of Topps and Everbest brand watchbands. The Manco purchase included Canadian, British, and Japanese retail outlets. Griffon Cutlery Corp., a marketer of manicure tools, was added to the roster in 1969. These acquisitions more than quadrupled Cole National's sales to over $40 million, but also invited speculation from analysts that the company had over-extended itself. In 1970, in fact, the retail conglomerate's profits declined by half.

1964–1994

The company's acquisitive push also got it into trouble with the Federal Trade Commission in the mid-1960s. Cole National had purchased Independent Lock Co., a 45-year-old manufacturer of locks and key blanks with about $14 million in annual sales, early in 1964. In 1967, however, the government compelled Cole to sell the business, which would have nearly doubled CNC's annual sales.

Although Joseph Cole brought in new presidents to help him run the company beginning in the 1960s, he retained defacto control of his firm as its chairman and chief executive officer. In the face of declining profits in the 1970s, son Jeffrey A. Cole convinced his father to bring a group of young MBAs like himself into upper management. According to a 1980 article in Forbes, the "young turks ... managed to rid the company of its poorer diversifications, prevent Joe Cole from making any more bad moves and get the company back to its special service orientation." Both the Canadian retail operations and a distribution business were put on the auction block. In spite of (or perhaps because of) the divestments, annual revenues rose by nearly 50 percent, from $106 million in 1976 to $158 million in 1980. One survivor of the cutbacks was Things Remembered, the chain of mall-based gift shops that specialized in monogrammed and engraved items. Established in 1967 by Cole National, the chain had expanded to 280 shops in 38 states by 1980.

In 1984 Kohlberg Kravis Roberts and Co., an investment firm, took Cole National Corp. private through a leveraged buyout. The outsiders took a managerial approach typical of the investment-house "reorganizations" of the 1980s. They sold off Cole's Craft Showcase chain in 1984 and the Original Cookie Co. stores in 1985. In 1987 a group led by Jeffrey Cole took on more debt to regain control of the retail conglomerate. They created a holding company, CNC Holding Corp., and kept the firm private until 1994.

During the early 1980s, CNC had made what has been called "its highest-profile deal" with the 1981 acquisition of Child World Inc., which then ranked second only to Toys-R-Us among toy supermarket chains. By 1985, when the parent sold 18 percent of the Child World subsidiary to the public, the chain boasted over 100 stores in 21 states under the Child World and Children's Palace names. But a late 1980s retail slump, combined with intense competition from Toys-R-Us and a $300 million-plus debt load, crippled the subsidiary chain. While Jeffrey Cole struggled to sell off the business--in 1990 a potential acquirer failed to secure financing--Child World incurred a massive $192 million loss on sales of $830 million.

Cole's woes concerning Child World were compounded when the chain was one of seven toy stores named in a 1990 federal lawsuit brought by the Consumer Product Safety Commission. Nonetheless, CNC was finally able to sell the subsidiary to a coalition of former Toys-R-Us executives. Instead of cash, Cole traded $60 million in long-term debt for $30 million in short-term debt. While Cole had been able to negotiate a $157 million price tag for the stores in 1990, it was clearly not in a strong bargaining position by this time. The divestment slashed Cole's annual sales from over $1.25 billion in 1990 to $425 million in 1991. Within a year of the exchange, Child World's new owners were forced to file for bankruptcy and liquidate the entire chain.

1990–2001

That deal left CNC with three retail divisions: Things Remembered gift shops; Cole Key; and Cole Vision. Cole's Vision group, along with much of the eyewear industry, had enjoyed double-digit annual growth in the 1980s. By the early 1990s Cole Vision ranked third among the United States' largest eyewear chains, and its more than 750 outlets contributed about half of the company's sales. Although annual increases in eyewear sales fizzled to just one percent by that time, CNC expressed confidence that aging baby boomers would be buying many pairs of glasses and contacts after the dreary economy reheated in the mid-1990s. In fact, the company expanded its eyecare business into the managed healthcare market in the early years of the decade, establishing benefits contracts with labor unions, insurance companies, health management organizations, and other large groups.

CNC also converted hundreds of its Cole key counters in department stores into "Gift Centers" that resembled the successful Things Remembered shops. The growing emphasis on giftware prompted expansion of the concept into a "superstore" format and the addition of personalized soft goods such as shirts on a test basis.

After incurring back-to-back net losses in 1990 and 1991, Cole National's profits multiplied steadily, from $5.5 million in 1992 to $24.7 million in 1994. Sales increased as well, from $428.1 million to $528.1 million over the same period. Most of that increase came from expansion; same-store sales increased by 8.2 percent in 1993 and 3.5 percent in 1994. An aggressive growth plan fueled the acquisition or establishment of 235 new retail locations in 1994.

That same year, Cole National returned to the public arena with a 6.5 million share offer, the proceeds of which were used to reduce persistent leveraged buyout (LBO) debt. The reborn firm's "first" annual report enumerated several corporate goals, including debt reduction, increased earnings growth, and (re)doubling sales to over $1 billion by 2001.