Barnett Inc.

3333 Lenox Avenue
Jacksonville, Florida 32254
U.S.A.
(904)384-6530
Fax: (904) 388-4566
Web site: http://www.bntt.com

Public Company
Incorporated : 1958 as Barnett Tube Fitting and Valve Company
Employees : 657
Sales : $199.6 million (1998)
Stock Exchanges : NASDAQ
Ticker Symbol : BNTT
NAIC : 421720 Plumbing Equipment Wholesaling; 421710 Hardware (Except Motor Vehicle) Wholesaling

Barnett Inc. is a worldwide provider of plumbing, electrical, and hardware products distributing its goods to professional contractors, independent hardware stores, and maintenance managers. Through its six distinct comprehensive catalogs, and its wholly owned subsidiary, U.S. Lock Corporation, Barnett sells more than 12,000 brand name and private label brands, including Barnett (electrical), ProPlus (plumbing), Premier (plumbing and electrical), and Legend (hardware) to approximately 72,700 total active customers. The sales are supported by a nationwide network of 37 distribution centers and a sophisticated telemarketing staff of more than 100 people. The company’s products are produced by more than 400 suppliers worldwide.

Tubes and Valves in the Beginning

The business was founded as a catalog distributor in 1958 by the Barnett family in Jacksonville, Florida. In the beginning the company was known as Barnett Tube Fitting and Valve Company and it supplied copper tubing to its customers. At that time Barnett served a specific market niche but as time passed, the family recognized the increased need for a wider variety of plumbing supplies and fixtures. As the company diversified over the years, they changed its name as well; in 1972 the company became known as Barnett Brass & Copper Inc.

As the number of products it offered grew, Barnett developed a business plan that included regional distribution centers so that customers could get faster turnaround on their orders. To be competitive, Barnett realized that a quick response time to their customers’ needs would be critical. Waiting for parts or plumbing supplies meant holdups and cost excesses during construction. Consequently, in 1978 Barnett built its first remote distribution center, with more in the planning stages.

The Waxman Connection: The Mid-1980s Through Mid-1990s

In 1984 Barnett Brass & Copper, Inc. was purchased by Waxman Industries, Inc., a building supplies company, for $12.5 million. The acquisition brought Waxman new distribution outlets, such as hardware cooperatives and supermarkets, and allowed it to enter the mail-order market. Barnett’s mail-order products line doubled when it added Waxman products to its offerings. By 1989 Barnett reached the $50 million mark in sales and had expanded its national distribution center network to ten warehouses. In 1993 Waxman formed Barnett Inc. to take the company public, but held out on the initial public offering (IPO) until 1996. Barnett immediately expanded its operations by introducing its second catalog for maintenance professionals, an offering of more than 7,000 products, and further expanded its distribution center network, which now numbered 25 warehouses.

In 1995 Barnett Inc. reached $100 million in sales for the first time and, in addition to its professional and maintenance catalogs, introduced a third catalog directed to its hardware customers. Numbers of products sold by the company were increasing rapidly and sales were reflecting a solid base of committed customers. In April 1996 Barnett Inc. completed its IPO, marking the start of a new era for the growing company. For the five years prior to the IPO, the company had experienced a 15 percent yearly growth. After its IPO, Barnett managed to nearly double its catalog mailings from 2.5 million to 4.5 million, resulting in a growth of its customer base from 13,000 to nearly 51,000 in just one year. This turned out to be only the beginning for Barnett.

Acquisitions and Growth in the Mid-1990s

In 1997 Barnett Inc. purchased LeRan Gas Products from Waxman Industries. LeRan was a direct marketer of liquid propane gas products. In the same year the company added warehouse locations in Bayamon, Puerto Rico, and Milwaukee, Wisconsin, bringing the number of warehouse outlets to 32. In 1997 Barnett also added 1,800 new items to its product line, hired more telesales support staff, and stepped up its mailings from 2.5 million flyers in 1996 to 4.5 million in 1997. The company’s success did not go without notice. On November 3, 1997 Forbes magazine ranked Barnett as 60th in its list of the “Top 200 Best Small Companies in America.” The following spring, the magazine Catalog Age listed Barnett as one of the “100 Largest Business-to-Business Companies in the Nation.” CEO William R. Pray attributed Barnett’s success to the talent and dedication of its employees and to a simple strategy: “All the expansion is from our cash flow. We have no debt.”

By 1998 Barnett boasted a customer base of 65,000 customers and Pray had aggressive goals of increasing the number of its mailings to seven million. Barnett also was making plans to expand dramatically into such new markets as hotels, hospitals, and schools. Effective telesales had proven to be an important aspect of Barnett’s strategy. All of its telesalespersons were required to go through extensive product and skills training over a period of several months and then were assigned a specific customer database with whom to develop positive service-oriented relationships. This, coupled with Barnett’s distribution center network, gave it the ability to respond personally and quickly to every customer need. The commitment to customer service resulted in a high customer retention rate of 84 percent for Barnett as compared with the 65 percent overall average in the direct mail industry.

The year 1998 proved to be the strongest ever for Barnett as it positioned itself for future growth. It moved into its new 39,000-square-foot international headquarters and call center on Jacksonville, Florida’s west side in the LaVilla district. Barnett also expanded product lines by ten percent and recorded a net sales gain of 24.7 percent. By this time the company had a product line of more than 11,900 items being distributed to countries throughout North America, South America, and the Caribbean. “Barnett is a highly energetic, highly focused company,” said Jeffrey Germanotta, an analyst with Robert W. Baird in Milwaukee. In 1998 he forecasted Barnett’s earnings to rise from 87 cents a share to $1.10 in fiscal 1999 and $1.37 in fiscal 2000.

For the Home and the World: 1998 and Beyond

Barnett entered into a strategic alliance with the Hechinger Company, a leading retailer of products and services in the care, repair, remodeling, and maintenance of the home and garden. In 1998 Hechinger operated more than 200 stores under the names of Hechinger, Home Quarters Warehouse, and Builder’s Square. With the combined catalog and telemarketing strength of Barnett and the outside sales force of Hechinger, customers would experience a full line of products along with next day delivery service to nearly 95 percent of the U.S. market.

By year’s end 1998, Barnett also purchased all of the assets of U.S. Lock from Waxman Industries, Inc. for approximately $33 million. U.S. Lock was a leading distributor of security hardware to locksmiths and other security hardware installers, distributing more than 8,500 national brand name and private label products through its telesales operations, catalogs, and monthly promotional flyers throughout the United States. At the time of the acquisition, William Pray stated: “We believe the acquisition of U.S. Lock is a good strategic fit for Barnett, combining two direct mail, telesales businesses that have similar business models. We are excited about the opportunity to fortify U.S. Lock’s solid growth strategies. With the continued leadership of Michael Gene Merber as President of U.S. Lock, together with his strong management team and infrastructure currently in place, we believe U.S. Lock is competitively positioned for continued sales and profit growth. This transaction will be a credit to our earnings and there are many synergistic opportunities for the businesses.”

Success would not be limited to the home front, however. Barnett began to broaden its business plan and expand overseas. In 1997 international sales were at six percent. By 1998 the company saw an increase in worldwide sales to ten percent of its business.

As the millennium came to a close, Barnett was stronger than ever. Net sales for the nine months that ended March 31, 1999 totaled $174.4 million compared with $148.0 million in the prior year period, an increase of 17.8 percent. The company’s net income totaled $11.3 million, an increase of 8.9 percent over the same period the previous year.

Company Perspectives

Barnett has maintained its high level of success by adhering to its unique and proven marketing formula, and creating an entrepreneurial atmosphere in which its management and employees continue to thrive. We intend to pursue our strategy aggressively and we are confident that it will lead Barnett to continued success and to increased value for our stockholders.

Commenting on the company’s progress, Pray said, “The third quarter of our fiscal year generated a very impressive revenue increase in excess of 29 percent and once again reached record levels, however, our revenue growth did not meet our expectations. A slower than anticipated rate of new product introductions in the quarter, coupled with a disappointing rollout of the Hechinger program were the primary reasons for our lower than expected performance. We are very encouraged by our internal growth rate versus our core growth rate indicating that we are getting increased market share. Our U.S. Lock subsidiary performance was very impressive and met our expectations.”

During 1999 Barnett also had plans to add about 2,000 new products to its line and continue expansion overseas. The company also was continuing to develop more cost-effective direct mailing techniques to ensure the highest possible return on the millions of direct mail pieces sent annually. Its six separate catalogs targeted specific groups such as contractors, hardware stores, multifamily lodgings, LP gas dealers, and export/international customers. The catalogs averaged 900 pages in length and were being sent out two or three times a year. In addition to the catalogs, monthly promotional flyers were being sent out to existing and potential customers. Barnett also continued its strategy of establishing regional distribution centers. The company opened its 34th distribution center in Parsippany, New Jersey, and U.S. Lock opened its sixth distribution center in Dallas, Texas, and had plans to open new centers in Orlando, Florida, and Phoenix, Arizona, by the fall of 1999.