Hanna Andersson Corp.

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Hanna Andersson Corp.

1010 NW Flanders Boulevard
Portland, Oregon 97209
U.S.A.
Telephone: (503) 321-5275
Toll Free: (800) 222-0544
Fax: (503) 321-5289
Web site: http://www.hannaandersson.com

Private Company
Incorporated: 1983
Employees: 250
Sales: $50 million (2001 est.)
NAIC: 454110 Electronic Shopping and Mail-Order Houses; 448140 Family Clothing Stores

Hanna Andersson Corp. specializes in all-cotton children’s clothing of the sort found in Scandinavia. The catalog company, which began marketing all-cotton children’s clothing imported from Sweden and Denmark throughout the United States in 1984, has developed over the years to manufacture 60 percent of its product line domestically. Throughout the 1980s, Hanna was known for being socially, environmentally, and philanthropically progressive, but hard times in the 1990s led to cost-cutting reforms. In the early part of the new century, Hanna was branching out overseas and into the women’s clothing and children’s bedding and home goods markets.

1983–89: Immediate Success As a Catalog Retailer of Children’s Clothes

When Gun Denhart’s second son, Christian, was born in 1980, she searched fruitlessly in New York for the sort of soft, durable, all-cotton clothes she had been used to in Sweden. Reasoning that there was an untapped market for colorful, well-made, natural-fiber clothing in the United States, Gun and her husband, Tom, went to Sweden “and brought back a couple of hundred dollars worth of clothing which [they] gave away to friends.” “Everybody loved the clothes,” according to Tom Denhart in the Portland Business Journal in 1986. “That was our market research.”

Tom Denhart was then a vice-president and creative director for Ogilvy & Mather, a top advertising agency in New York, and yearning for a change. Gun, with a degree in business from the university in Lund, Sweden, was the financial manager of an international chain of language schools. Trusting they would find a niche for their product, the couple left their jobs, packed up their two sons, and moved to Tom’s native Portland for a “simpler life.” There, according to a November 1989 article in Working Woman magazine, using every penny of the $250,000 they had made on the sale of the Greenwich, Connecticut house, they set up business in 1983 “with a telephone, a card file and inventory spread throughout the house.” The new Hanna Andersson Corp. was jointly owned by the couple and by a Swedish apparel manufacturer.

The Denharts returned to Sweden to select manufacturers and produced their first catalog in 14 days; it featured the children of friends wearing Hanna outfits photographed at Gun’s parents’ house in Sweden. It contained inch-square cloth swatches, which the two entrepreneurs cut and glued into it by hand. Advertised in Parents magazine for $1 under the header, “Why Are Swedish Babies So Happy?,” the first Hanna catalog went out to 75,000 addresses. The clothes it featured were moderate to upper range in price, functional, everyday, never gimmicky—“quality, cute, and not too expensive for people who are sick of all of the ‘frou-frou’ in children’s clothes,” according to Denhart in a 1986 Portland Business Journal article. “[I]f it’s hard to wash, no matter how cute it is we’ll never carry it.”

According to observers, the couple made a good business team. Tom handled the graphics, creating “the personality of the catalog, but he couldn’t have done it if she weren’t such a great merchant,” according to the head of Muldoon Direct, Inc. in a 1986 Working Women article. “She’s very methodical and organized, but at the same time she’s warm and caring about the organization,” according to David Smith of Smith & Hawken and SelfCare catalogs in the same Working Women selection. From the start, the Denharts strove to convey a lifestyle image as well as sell children’s clothes; they named their catalog company after Gun’s grandmother, Hanna Andersson, who loved children, “equated waste with sin,” and whose name was “pleasant and Swedish-sounding,” according to a 1994 Direct Marketing article.

The company grossed $300,000 its first year and doubled its sales every year throughout the rest of the 1980s. Business was so good that Hanna moved out of the Denharts’ house in 1986 and into a 9,000-square-foot warehouse that also served as the business’s office and store. Within nine months of this move, Hanna moved again to a facility seven times larger than the last. In 1989, the company bought the adjoining building to create a 100,000-square-foot headquarters for Hanna Andersson Corp. In the summer of 1989, the business doubled its staff from 50 to 100 and mailed 3.5 million catalogs throughout the United States. By November, Hanna had added another 50 workers.

In the early days at Hanna, orders were filled manually by number and date. But the company’s swift growth soon convinced Gun of the need to computerize. By the second half of the 1980s, computer software enabled Hanna to print out completed order forms and shipping tickets while simultaneously keeping track of how many of a specific item had been sold and how many remained in stock. Working with small factories in Sweden and Denmark that airshipped goods weekly, the company maintained a just-in-time inventory system, stocking just enough items to satisfy predicted demand. If something proved popular, these suppliers would immediately make more.

Still, back orders proved to be a constant customer complaint. In an attempt to rectify this situation, Hanna helped her major supplier set up a small factory in Portland where workers stitched together precut garments shipped in bulk from Europe. In 1986, Hanna Andersson also made a foray into wholesaling to retailers, but a lot of stores soon dropped the clothes because their wholesale price was so close to the catalog price. By 1990, the retail store had expanded threefold, and in July the company opened its first discount outlet store. The company also began to manufacture a private-label product line for Bendel’s department store.

Hanna’s wave of growth coincided with a U.S. switch to natural fibers and the parenting years of affluent baby boomers, who could afford to spend a little more on their children’s clothes. Having entered the specialty catalog business just before it took off, the company by 1990 had become a $23 million dollar business with 200 employees. It sold 1.5 million items at prices averaging $20 and took as many as 5,000 calls a day. Recognizing the need for experienced management, the Denharts hired Hanna’s first chief operating officer, Mary Roberts, in 1988. By 1990, Hanna was selling its lifestyle and clothes to its 300,000 customers, drawing in revenues of about $30 million.

The company also established a “Hanna way” in terms of its employee relations and open management style. Unusual benefits included stipends for child care (half the bills up to $3,000 per child), extended parental leave, a “wellness” program of yoga classes, a gourmet cafeteria, and deep discounts on clothes. In fact, as the recession of the early 1990s set in, Hanna continued to expand workplace benefits, leading Working Mother to name it one of the 85 best companies for working parents in 1991. Wages were average, but when sales were good so were bonuses. Even the phone clerks took part in a profit-sharing plan, which paid up to 5 percent of wages. Accommodating the large number of working mothers (approximately 80 percent of its workforce were women), Hanna offered a wide range of part-time schedules, and anyone who worked at least 30 hours per week qualified for benefits. Even those who worked only 20 hours per week received full medical and dental insurance plus sick and vacation leave.

The company also distinguished itself for its charitable donations. The Hannadowns program, instituted in 1985, allowed customers to send back used, outgrown clothing for a 20 percent discount on their next order. Returned items—an average 3,000 items per month—were donated to more than 125 charities nationwide. By 1994, Hanna had issued more than $700,000 in credit on nearly 150,000 pieces of clothing. Hanna also matched any employee donation up to $500 per charity and chose three charities in 1993 where it donated time, clothing, and money. HannaShare, the employee matching program, donated 5 percent of the company’s pretax profits to charities. Beginning in 1994, the firm gave everyone the opportunity to spend eight volunteer hours per year for their favorite charity.

Environmentally, too, Hanna stood apart from other businesses. Gun, concerned about the fact that Hanna’s catalogs used up 500 trees a year, started a reforestation program in the national park near Zigzag, Oregon. To offset the negative environmental consequences of cotton growing and processing, the company purchased its cotton from Peru where fewer chemicals were used and dyed its materials in a Danish mill with unusually strict wastewater controls.

The Early 1990s: Questioning the “Hanna Way”

Through the recession of the early 1990s, the company continued to enjoy double-digit growth: approximately $40 million in sales in 1992, up from $34 million in 1991. The increasingly poor economic climate, however, coupled with changes in the company’s day-to-day management in 1992, led to a situation that called into question the “Hanna way” of doing business.

Company Perspectives

We market clothes to enhance the lives of our customers through quality, functionality, durability, and design. We celebrate our beliefs with integrity. Our culture bears witness to our values. Our participation confirms our responsibility to the larger community.

The Denharts had tired of the everyday aspects of running a large business. Gun Denhart had begun to lecture on socially responsible entrepreneurship and wanted to devote more time to her philanthropic interests. Tom Denhart took a sabbatical to restore boats and spend time with his son, handing over creative management of the catalog to a new director who attempted to put her stamp on it. The innovation proved disastrous. When the revamped catalog appeared, sales took a nosedive. They rebounded once the redesign was shelved, but 1993 revenues were only 8 percent more than those for 1992. Profit margins, too, began to erode in the face of the increased costs of employee health insurance and postage and a market that was increasingly competitive.

Hanna had always calculated a “double bottom line,” tallying both profits and good works. In 1993, however, the company’s benefits and payroll taxes equaled the company’s net earnings. “We became so introspective that we lost sight of what was happening outside the company,” Gun Denhart was quoted in Inc. in 1994.

The company responded by moving the manufacture of 50 percent of its clothes to 15 factories on the West Coast and in North Carolina in 1992. It also moved its distribution center to Kentucky to cut down on shipping times and charges to its East Coast customers and those around the Great Lakes in 1993, the same year Hanna cut its workforce by 10 percent, or 20 employees, 90 percent of whom were eventually rehired.

The Denharts knew they had to cut costs and improve efficiencies further, but they did not want to be the ones to do it. Instead, they placed the company under the control of a committee of four managers. When this committee’s rapport disintegrated in the face of hard-to-decide issues, Gun established the position of Hanna president and Roberts took the job in 1993.

Tom returned to his role as creative director while Gun focused her energies on long-range growth through international sales and retail expansions. It would take Hanna several years to find the balance between social and fiscal responsibility, but the company eventually trimmed its child care subsidy to 40 percent, eliminated reimbursement for parking costs, and closed its gourmet cafeteria. A team of managers designed Hanna’s first three-year plan, which emphasized more rigorous marketing and planning. They contracted with new manufacturers so that 60 percent of Hanna’s clothing was made in the United States, 30 percent in Europe, and 10 percent in the Far East.

The Mid-1990s–2001: New Strategies for Growth

Hanna’s strategy for pursuing growth focused on broadening its domestic retail market and increasing its Japanese mail-order business simultaneously. In 1994, the company targeted its Japanese market, in which it had been dabbling since 1989, when it realized that the average Japanese customer spent twice as much as Americans. It introduced Japanese language catalogs and opened a Japanese-language call center in Tokyo with direct access to an online inventory and order system. As a direct result, Japanese sales tripled to 6.5 percent of overall revenues. Hanna also opened two more full-price stores in New York and Minnesota in 1999, bringing its total number of stores to five, with its original full-price store at its headquarters and two outlet stores in Portland and New Hampshire.

Roberts resigned in 1995 and was replaced by Phillosca, former group president of Lands’ End. The company was still struggling with increased postal rates and paper costs, softening demand, and greater competition. That year, the company did not reach its profit target and did not contribute to employees’ retirement accounts. But management’s cost-cutting measures had begun to turn things around. In 1994, sales stood at $47 million, up only $3 million from the year before. By 1995, Hanna had total sales of $52 million on an annual circulation of 14 million catalogs.

Still, in 1996, the company reduced its annual mailing by about 25 percent and instituted other cost-cutting measures. It eliminated three senior managers and 60 jobs (or 15 percent of its workforce) and scaled back on less popular clothing items. In 1998, the Hannadowns program discontinued issuing credit for returned items and the child care subsidy was diminished to 40 percent.

Hanna still looked overseas for the solution to its weakened revenues despite the fact that the percent of total sales to Japanese customers went from 20 percent in 1997 to around 15 percent in 2000. This slackening was attributed to the decline of the yen and fading popularity of ordering from Western catalogs. In 2000, Hanna set its sights on the United Kingdom and Germany as its first European targets through the Internet. In 1998, it introduced bedding and other home goods for children. In 1999, it focused increased attention on selling to women after women’s clothes accounted for 20 percent of sales, double the level of previous years.

In 2001, a management-led investment group joined by San Francisco-based Dorset Capital and Weston Presidio bought Hanna, which had reached $65 million in revenue for 2000. Gun stayed on with the company as a member of its new board of directors and part owner; however, she also assumed control of the Hanna Andersson Charitable Foundation, a new nonprofit that funded groups directly benefiting children and women. Management’s short-term goal was to continue to develop new products for Hanna and to concentrate on its e-commerce efforts, which in 2001 accounted for 25 percent of sales.

Key Dates

1983:: Gun and Tom Denhart move to Portland, Oregon, and set up Hanna Andersson Corp.
1984:: The company mails out its first catalog.
1986:: Hanna moves into a 9,000-square-foot warehouse that also serves as the business’s office and store, then within a year to a much larger facility.
1988:: Mary Roberts becomes chief operating officer.
1989:: The company buys the adjoining building to create a 100,000-square-foot headquarters.
1992:: The catalog is revamped after Tom Denhart takes a year’s sabbatical.
1993:: The company moves its distribution center to Kentucky and cuts its workforce by 10 percent; Roberts becomes president of Hanna.
1994:: The company targets the Japanese market.
1995:: Phillosca replaces Roberts as president.
1996:: Hanna reduces its annual mailing by about 25 percent and eliminates 15 percent of its workforce.
1999:: Hanna opens two more full-price stores, in White Plains, New York, and Minneapolis, Minnesota.
2001:: A management-led investment group joined by Dorset Capital and Weston Presidio buys Hanna.