Sharper Image returns, sort of

Private equity firms are hoping to make a killing by buying up defunct brands - such as Linens 'N Things and Polaroid - and marketing products with their names.

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NEW YORK (CNNMoney.com) -- Even though Sharper Image, Linens 'N Things and Circuit City all failed as retail stores, some savvy investors are betting that they can still squeeze money out of the dead brand names.

Contrary to conventional wisdom, industry insiders say you can still make millions, or even billions, of dollars by resuscitating, rethinking and repositioning a once-extinct brand back into the marketplace.

"All it takes is one brand to take off again and you can make between $500 million to $1 billion," said Love Goel, chairman and CEO of Growth Ventures Group, a private equity firm focused on retailers. "That [successful] brand can pay off many times over for the 10 that failed to be revived."

For example, catalog retailer Fingerhut Companies, once owned by Federated Department Stores and sold in 2002, was scheduled to shutter its stores for good.

But under new ownership, Fingerhut was revived, its business model changed, and the company today has revenue of about $500 million.

"This is a good strategy from a business perspective," said Goel, who admitted that his firm is on the hunt for distressed retail names.

Other private equity firms and direct marketers are also actively trolling the retail landscape, aggressively buying defunct names from their owners.

They're back: Among the most active in recent weeks are joint venture partners Gordon Brothers Brands and Hilco Consumer Capital. The companies now own the Sharper Image, Linens 'N Things, Bombay Company and Polaroid brands.

And Systemax Inc., a direct seller of consumer electronics, acquired the trademark and Internet domain name for Circuit City earlier this month.

"They're probably paying minimum for these names compared to what they could have been paying in a better economy," said Marshal Cohen, chief retail analyst with market research firm NPD Group.

Although acquiring a dead brand is fairly inexpensive right now -- "you can buy 10 brands for under $20 million," said Goel -- making them successful again isn't as easy.

To Goel's point, the new owners of Sharper Image and Linens 'N Things aren't interested in reopening retail stores.

Instead, these firms have bought the intellectual property with the intention of licensing the brand names for products that will sell wholesale, in department and mass merchandise stores, and online.

"Across all these brands were poor business models," said James Salter, CEO of Hilco Consumer Capital. "We're taking the shackles off these brands, rebuilding them and getting them through different channels."

"Sharper Image was a brilliant brand but the business strategy wasn't a good one," said Salter. "So the parts that did work we've kept and we closed the stores."

With Sharper Image, Salter said the strategy is to distribute its popular products such as massage chairs and iPod stations to chain stores.

"From consumers' standpoint, they really liked the Sharper Image brand," he said. "Before they could only buy Sharper Image products in its 200 stores. Now they can buy the products in Macy's (M, Fortune 500), Bed, Bath & Beyond (BBBY, Fortune 500) and Kohl's (KSS, Fortune 500)."

Big upside: The advantage for retailers who stock Sharper Image products is that they add a recognizable brand name to their merchandise mix without investing too much in advertising, Goel said.

Hilco and Gordon Brothers also took a different business approach to Linens 'N Things, previously a retailer of home goods.

They licensed the brand to a partner to create a new Web site called Lnt.com and expanded the merchandise mix. So besides linens and towels, the site also sells products such as pet food, baby products and luggage.

Salter said he's also interested in extending the Polaroid brand into new categories.

"I was just talking to a leading manufacturer of ski equipment. We're thinking about licensing Polaroid for a helmet that you can take videos or pictures with," Salter said.

Extending the brand name into new areas is still risky, said Goel. "You have to stay true to what the brand represented in order to successfully revive it," he said.

Sharper Image represented excitement and innovation in consumer electronics, he said.

"So it's not a good idea to license the Sharper Image brand to a random pair of jeans unless they have a chip in it that tells mom and dad where you are," Goel said.

The risk: Meanwhile, industry analysts are divided about whether all these dead brands names are worth bringing back.

"People are already overwhelmed with plenty of other brands that they can buy," said Stephen Hoch, director of Wharton Business School's Jay H. Baker division of retailing.

Goel says consumers get back a brand that they know and may have liked.

But given the numerous licensing deals and other vendor partnerships for the brands, NPD's Cohen said there's no guarantee the new products bearing the old logos will meet the same level of quality standards as in their previous incarnation.

Of all the dead brands, Sharper Image has the best chances of making a comeback with consumers, said Hoch.

"Sharper Image is seen as a brand and not just a retailer," he said. "That's not the same with Circuit City and Linens 'N Things, which didn't really have their own branded products." To top of page

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