Harry & David sets sights on year-round operations

The company has emerged from its bankruptcy and reorganization ready to become more than a seasonal gift-seller
CEO Craig Johnson holds a peach in a cold storage room piled high with peaches Tuesday at Harry and David in Medford. Mail Tribune / Julia Moore

As Harry & David enters its 80th year of corporate operation, pears remain central to the company's identity, and the vast majority of its revenues still roll in between Thanksgiving and Christmas.

That needs to change and is changing, albeit slowly, says Craig Johnson, the company's chief executive officer.

Harry & David has long been known for its employee and retiree discounts.

When the company adjusted the standards for retiree discounts a few months ago, it created a stir and letters to the editor.

The company didn't end retiree discounts, but it did redefine who qualified for retiree discounts — limiting it to people who had worked 20 years or more with the company.

"The company had not invested in itself for a long time," said CEO Craig Johnson, who took the reins after the company exited bankruptcy in September 2011. "There was a big list of things, raises hadn't been given, in some areas of the company we were out of position in wages and wage scales. Some of the benefits taken away like 401k match hadn't been restored. Things like orchard expansion, parking lots, air conditioners, painting, carpet, on and on.

"There was a big list to invest in, and quite frankly it was more money than we had made in several years. We just couldn't invest in all of it, so we had to start prioritizing."

In reviewing the company's financial position, the 40-percent employee discount for life surfaced, he said.

"In my opinion, it had been mislabeled as a retirement benefit."

He said one letter writer complaining about the loss of the "retiree benefit" had worked for two months in three consecutive years.

"Companies don't do that," he said. "I was the CEO of Musician's Friend. When I left the company, I didn't get a discount. Rob Eastman, the former CEO and founder of Musician's Friend, doesn't have a discount. What we have now is an employee has to work for the company 20 years, and then they'll have the discount."

Ultimately, he said, Harry & David is trying to rebuild benefits for current employees.

Three years after Chapter 11 reorganization, Harry & David, which battles Asante as the area's largest employer, is profitable and is scheduled to report its fiscal 2014 results in a few weeks.

"We went through a 21/2-year period of optimizing the business and getting it back into a solid mode; the financial results will speak to that," Johnson said.

A two-fold challenge remains, however: retaining seasonal employees and attracting year-round buyers. Extending sales beyond peak periods is a critical step to keeping seasonal employees on the payroll, Johnson said.

"It's tough for us, because we get great people to work for us, but we can only employ them for a short time," the CEO said. "That's good for some, but people in today's world people want full-time employment; they don't want to necessarily work for the season. As Medford builds its economy, and new companies come in with new opportunities for people, it gets to be more of a challenge for us to hire and retain people for a short season."

During calendar 2013, Harry & David's payroll included 10,577 people, with 5,652 of them employed in Medford. At present, the company has 2,000 permanent employees, with 1,500 of them located in the Rogue Valley.

"The keys to the kingdom for the company have always been what we can do in that off-season to try to build year-round business," Johnson said.

Over the decades, Harry & David has acquired Jackson & Perkins Rose Co., Northwest Express, Wolferman's and Cushman Fruit Co., in hopes of boosting year-round revenue.

"But we have never quite cracked the code on seasonality," Johnson said. "We've been asking what kind of businesses can we look at or go after to build on seasonality."

To that end, Harry & David has researched many possibilities, including ice cream, frozen desserts and meat. At the same time, its merchandisers have reshaped gift assortments to fuel Valentine's Day and Mother's Day traffic, while the company is expanding popular lines.

"Chocolate has been a big piece of our growth recently," he said. "We're looking at how we can pour chocolate into year-round relevance. The wine business has really been successful, right now we're just constrained by supply. We bring to the table a 15-million-name list of customers. We've got the marketing done; you just need to supply the product."

Prior to producing its wine locally at Pallet Wine Co., Harry & David shipped gifts in conjunction with shipments from Wine.com. Now in many states it can send the wine along with its gift basket.

"It really didn't connect the dots before," he said.

The company's cold storage and delivery system provides plenty of potential.

"If we could find business that leverages our cold chain, that's the home run," Johnson said, adding that Harry & David's fulfillment staff has mastered delivery of perishable goods via its infrastructure.

"It takes a real special capability to figure out how to get refrigeration goods to a customer," he said. "The customer has a specific date ... we have to get the perishable goods to them; to do that is an art."

Customer orders, which once came almost solely via mail and telephone, now stream into the company primarily online.

In 2004, 68.8 percent of the company's order volume came by phone and mail, with 31.2 percent via its website. In 2014, 29.1 percent of orders have been made via telephone and mail, while the website generates 70.9 percent of the orders.

Johnson said the core catalog customer is a 53-year-old female with typically high household income. The Internet has changed that, but has created its own challenges.

"We absolutely don't want to alienate that older customer base," he said. "But we're seeing that age go down as we move the business online."

With an eye on expanding its markets both north to Canada and across the Pacific to Japan, Johnson said the possibilities for extending both the customer base and the sales season are numerous.

"We've been pretty much heads-down for the past 21/2 years, and we feel pretty good about what we've done," he said. "I think we've proven to the world now that even in tough economic times we can easily survive. Now we need to deseasonalize the business."

Reach reporter Greg Stiles at 541-776-4463 or business@mailtribune.com. Follow him on Twitter @GregMTBusiness, friend him on Facebook and read his blog at www.mailtribune.com/Economic Edge.

Correction: The caption on this photo has been corrected to accurately reflect how peaches are stored.

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