The Long Perspective

Thirty-five years ago, it was pretty easy to get into the gift business, according to Dick Firestone. All you really needed was a kitchen table and about $8. You could then take a prototype of your product to a trade show or a sales rep, and get started writing orders. Over the past three decades, a lot of great companies grew from such humble beginnings, led by entrepreneurs with talent and ambition.

Firestone, of course, saw it all firsthand as principal of Firestone Associates, the Los Angeles-based rep firm he founded in 1970, and from which he retired last December. One phenomenon he was influential in was the concept of turning items with no intrinsic value into hot sellers through packaging and marketing. In his case, it was the Pet Rock, which “rocked” the country in 1975.

Sales volume was unreal for seven months, Firestone told G&DA in a 2000 interview celebrating his firm's 30th anniversary. “On December 24, 1975, it was the hottest thing in the country. And the day after Christmas, we couldn't sell a single piece.” Such an experience taught Firestone the value of broadening the number of categories his firm would represent, rather than relying on a single big seller.

As Firestone Associates grew, the industry was in constant transition, Dick says. But transition is a slow process, and one can adapt fairly easily. Today, however, the industry is changing abruptly, a situation that is much more difficult to adjust to. Change is affecting the relationship among manufacturers, rep agencies, and retailers, says Firestone. The three are interdependent, and each has a function that ensures the survival of all.

But how is the industry changing? To begin with, many of those great companies founded 30 years ago have been bought by outside interests, such as private equity firms, and the results have ranged from disastrous to mixed. Their entrepreneurial spirit was replaced with a bottom line mentality — bean-counting over product development.

The increased cost of doing business is another big change. Mid-size and small manufacturers have to absorb increased costs for raw materials, gasoline, and so on. Retailers are also hit with higher rents, insurance premiums, and other expenses.

But it's the rep agencies that Dick Firestone sees putting problems on the back burner. “The commission structure goes back to the 1800s,” he says. “Manufacturers don't realize how much agency costs have gone up. And if you work hard enough, and smart enough, a factory will eventually even cut your commission.”

In addition, the cost of operating a permanent showroom has gone up so drastically (especially considering it's used just four weeks out of the year) that Firestone now describes them as “a necessary evil.” The economics for an agency operating a booth at a temporary trade show can be equally gloomy. Renting a 10'x10' booth requires about $4,600, including $2,700 for the booth, set-up and knock-down costs, drayage, temp help, and miscellaneous expenses. The average medium-size rep firm writes about $50,000 in orders during a five-day show; 20 percent of that won't be shipped due to bad credit, out-of-stock and discontinued items, and so on. That leaves $40,000, for which the rep receives a 15 percent commission, or $6,000. And 60 percent ($3,600) of that goes to the agency's road reps, leaving the house (the agency) just $2,400.

Fortunately, the manufacturers being represented help defray some of the booth cost (anywhere from $900 to $4,000, depending on the show, according to Firestone). Still, the agency has spent $4,600 per booth, and netted $2,400; it will need the manufacturers' participation just to break even. Of course, a large agency rents many booths, and the dollar amounts multiply, but the net results are the same.

So how does the rep agency make a profit in today's market? “On the road,” says Firestone. On the road, and by keeping overhead as low as possible.

But he also sees today's reps working a lot smarter than ever before, and technology has been a big help. In the days before computers, bar scanners, and other devices, a really good rep had no life. After visiting retailers all day, he or she got home and had to spend five hours writing up orders. For agencies to survive today, they have to be different and adapt, says Dick.

It's been seven months since Dick Firestone hung up his order pad for good. One thing he's relished in that time is being able to sleep in. The work of Firestone & Associates is carried on by his son Marc and Alison Hess, who formed Firestone Marketing Group at the beginning of the year. The agency recently moved back to the L.A. Mart.

Dick Firestone still goes to the office “every once in a while,” and visits trade shows in the U.S., as well as Birmingham, England, and Frankfurt, Germany. He's also working with a couple of vendors to introduce new products. One is a line of cards for stepfamilies, the other is a line of polyresin “bad taste” bears from the U.K., complete with expressions that are anything but cute.

Sounds a lot like a guy with a kitchen table and a few bucks to invest.