The tough times continued at A.T. Cross Co. in October as it reported a $2.4 million loss in the third quarter, bringing losses for the first nine months of its fiscal year to $10.3 million. The continued losses hit as the Lincoln-based company’s stock languishes at less than $5 per share, down from near $14 per share last summer. Meanwhile, the company president and chief executive officer for many years, Russell A. Boss is preparing to hand over the reigns of Cross to an as-yet-unnamed outsider for the first time in the 153-year-old company’s history.
But the luxury pen maker hopes a move into contract manufacturing, innovative products and a slick Internet site can combine to dry up the red ink in the company’s financial pen and replace it with a fresh black refill for the coming century.
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“We aren’t sitting still,” assures Robin Boss Dorman, daughter of the outgoing CEO and head of the company’s sales and marketing efforts in North America. “We’ve really opened up our thinking here at Cross, and we have looked at a wide variety of ways we can start to rebuild the business.”
This isn’t the first time Cross has tried to reinvent itself, and the outlook for the luxury pen manufacturing industry remains shaky. The spread of computers and the improving quality of disposable pens have hurt high-end pen makers like Cross. And it seems even fashion has conspired to erode the market for fine writing instruments by favoring casual wear.
“Now men are wearing a golf shirt or a turtle neck, and there’s no sort of established place for them to stick a pen,” Boss Dorman said.
But observers are hopeful that the combination of new blood and some fresh ideas at Cross can succeed in turning around the troubled company.
Analyst David Leibowitz, who tracks Cross as a managing director at Burnham Securities in New York, sounds cautiously encouraged in discussing the company’s prospects.
“There is a new CEO soon to be named,” Leibowitz said, “and the opportunities for regeneration here are perceived by the industry as strong possibilities.”
The skinny on Cross
Market research completed by Cross late last year confirmed what company officials already knew, that the company is a victim of its own success. Researchers found Americans strongly associate Cross with the thin gold pens–a graduation present staple–the company has made for more than 50 years.
“That’s what people know us for,” Boss Dorman said. Some marketers might sacrifice a limb to achieve such a firm brand identity, but Boss Dorman fears consumers have pigeon-holed Cross as the classic, but straitlaced, “skinny metal pen company.”
In truth, Cross makes about 130 pens, including some that are downright fat and flashy. The Townsend, for example, is available in hand-polished lacquer finishes or even jade flecked with 22-karat gold. One reason consumers aren’t familiar with Cross’s more modern lines, Boss Dorman asserted, is that many retailers only have enough display space to carry a dozen or so Cross pens.
The proprietors of two Providence retailers, Norm’s Jewelry on North Main Street and Tazi’s gift shop on Westminster Street, agree that Cross pens haven’t been selling as well as they used to at their stores.
But the manager of Penfields gift shop in the Providence Biltmore hotel said sales of Cross pens at his store have been decent, and some of Cross’s newer pens have begun to catch on with customers.
“The Centurys, those are the thin ones, they have done pretty well, but, actually, lately the Townsends seem to be the ones that have done well,” said Penfields’ manager Jonathan Swicker. “They have all the nice finishes, the lacquer, the titanium.”
Hoping to get more customers to notice its newer lines of pens, Cross has turned to the Internet to showcase its full line of products. It’s something of an ironic twist given that computer use is blamed in part for undercutting the market in luxury pens.
Plugging in to Customers
Cross quietly launched an e-commerce site last month that offers its full line of products for sale online and steers potential customers to Cross retailers in their area. The site already has logged tens of thousands of hits and about 300 orders, mainly for $2 refills, although the company has done little to promote it, Boss Dorman said.
Cross turned to Primix Solutions Inc. of Watertown, Mass., to get its online storefront up and running in a blistering 90 days.
“Based on what our research confirmed,” she said, “we did feel a sense of urgency to get a site up that conveyed the entire Cross line to people and really focuses on some of the newer products in our line so we could start pecking away at that consumer perception of us being the skinny metal pen company.”
Boss Dorman said the objective of the site is to serve as a resource for customers, not to become the Amazon.com of writing instruments.
“The reason we sell online is purely for convenience,” she said, adding that Cross charges full manufacturer’s suggested retail price for online purchases, while most retailers sell the company’s pens at a discount. “There’s friction out there between retailers and manufacturers that do sell direct. If you are a retailer, you typically are going to view a supplier that’s selling direct as somebody that’s competing with you.”
Cross understandably doesn’t want to antagonize its retailers around the world, but Boss Dorman expressed hope that the Internet site punches some holes in its image as an old-fashioned company.
“Cross has had a corporate culture that’s been somewhat conservative for a long time,” she conceded. “We’ve really made a concerted effort to make sure we change that perception.”
Its image aside, Cross isn’t the only high-end pen maker suffering as the turn of the millennium approaches.
Boston-based Gillette Co., for one, disclosed this summer that soft sales of its Parker line of pens caused its stationery products division’s profits to slip to $15 million in the second quarter compared to $34 million during the same period last year.
Burnham Securities’ Leibowitz sees an upside to Cross’ third quarter results despite the continued losses. The company’s writing instruments revenue jumped nearly 15 percent to $30.2 million. On the bottom line, the writing instrument division posted earnings before taxes of $2.1 million compared to a loss of $2.4 million in the third quarter of last year.
“The writing instruments side of the equation performed at least as well as hoped for, perhaps a tad better,” Leibowitz said. “The Pen Computing Group and watches are stories unto themselves.”
A New Focus on Private Labeling
Cross had billed its line of watches and a computer products division as the saviors of the company in an earlier attempt to reinvent itself.
But Cross grew cold on the watch line, deciding in September to farm the operation out to a New Jersey manufacturer. Meanwhile, sustained losses in its Pen Computing Group led the company’s board of directors in July to begin considering selling or discontinuing its CrossPad product, an electronic writing tablet that allows users to store handwritten notes in memory or transfer them to a computer.
The company says it wants to continue manufacturing CrossPad for a partner that would handle sales and marketing of the product in some form of contract manufacturing, or private labeling, arrangement. Leibowitz pointed out that CrossPad, while ultimately unsuccessful as a Cross product, proved that the company is capable of building technologically advanced products.
“I would just suggest that the company is hopeful that additional products may flow from their capabilities and that other technology companies may look to Cross to provide them with basic technologies or capabilities,” he said.
And Cross’s ability to make traditional pens may prove equally valuable.
Boss Dorman said the company’s core writing instruments business also will take in manufacturing work for other companies and license other brand names under which it could sell Cross-made pens. Cross currently is negotiating a private labeling contract with a company that Boss would only describe as “a well-known luxury goods retailer.”
Cross bought some assets of C&J Jewelry Company Inc. in July for $5.2 million to use in manufacturing pens for the unnamed retailer, according to Cross financial reports filed with the Securities and Exchange Commission in Washington, D.C.
“There are probably a few other companies that fill this niche as well, which Cross might be able to acquire,” Leibowitz said. “Certainly this is a new aspect to the company, and it will be interesting to watch how it develops going forward.”
Cross also hopes cutting-edge products like its new $50 Cross Morph pen, which features an adjustable grip that transforms from circular to triangular as a dial is turned, will pump up sales and further dispel its stodgy image.
In this case, Cross may actually be ahead of its time, not behind. The manager of Penfields says he hasn’t seen many space age pens like the Morph yet.
“Most of the people that come in here have a Mont Blanc in their pocket or a Waterman or a Cross,” Swicker said. “The pens that are the classics are still kind of the trendy ones.”
