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The turnaround artists
By Andrew Haeg
Minnesota Public Radio
March 5, 2002
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Peter Lytle's Business Development Group will likely announce this week whether they will acquire Fingerhut. Lytle's group specializes in reviving troubled companies. The Minnetonka-based catalog retailer may be the most challenging turnaround to date for Lytle's group. A look at one of Lytle's past turnaround efforts shows the potential risks and rewards of resurrecting failing companies, and the strategies Lytle is likely to use.

Faribo has been producing wool blankets for more than 130 years.
(MPR Photo/Andrew Haeg)

Peter Lytle is new to the catalog retailing business. But his interest Fingerhut fits a pattern he's already established.

"One of things we look at whenever we get involved with a company, is the history behind it," he said at a recent press conference. "If you take a look at some of our previous transactions, we tended to go into companies that had a very strong brand identity or a very strong basis where they had an established customer base, they had models that worked well."

Fingerhut had a long record of success before Federated Department Stores acquired it three years ago and the company's struggles began.

That story is similar to another of Lytle's turnaround candidates. The Faribo Woolen Mills is Minnesota's oldest private company. The mill sits in a modest brick building beside a waterfall, in Faribault, Minnesota.

In 1865, a man named Carl Klemer became one of the most highly respected brand names in textiles.

CEO Michael Harris walks on to the factory floor where workers take dirty wool, wash it, dry it, dye it, spin it into yarn and weave the yarn into Faribo's trademark blankets.

Faribo CEO Michael Harris, left, and Alan Woodside, director of marketing, are helping manage Faribo into better times.
(MPR Photo/Andrew Haeg)

In 1997, the company was close to shutting these machines down for good, and laying off about 120 workers.

Faribo Woolen Mills thrived during much of the 1990s. Retailers Land's End and the Pottery Barn were selling lots of Faribo's blankets under their brand names. Airlines kept Faribo's machines humming with constant demand for wool blankets.

But the company lost vital business when the airlines started buying cheaper cotton and acrylic blankets instead of Faribo's more expensive wool ones. They were selling fewer blankets and, soon, workers were idling machines.

CEO Michael Harris, who is also a partner in the Business Development Group, says the company started faltering. "Without faulting the prior management, I think they got put into an economic and industry change that they either didn't know how to react to, didn't have the resources to react to, or to fight. Or they did not have the necessary business skills to understand itm" he says.

Harris says loss of the airlines' business, coupled with rising imports, costly new projects that reaped little revenue, and an industry-wide shift toward more powerful retailers was too much for the former management team.

"Unless you adapt and figure out what your niche is, you will face your own degree of armageddon, which is what this company faced," according to Harris.

In 1997, bankers threatened to shut down the mill. Lytle took control in early 1998. Plant Manager Brenda Shepherd says Lytle's group gave employees the responsibility for making the company a leaner, more efficient operation.

The Faribo Mill now employs 10 fewer people than it did when Lytle's group acquired it. And Lytle says Fingerhut will have to shrink before it can grow.
(MPR Photo/Andrew Haeg)

"By us learning to work slim, I think it's something that a lot of other manufacturing facilities can't do. And that's why they're shutting down and laying off all these people. And we just did it smart. And it worked," says Shepherd.

But under Lytle's group Faribo trimmed jobs. One of those laid off was a member of one of the founding families. David Klemer worked at the mill until last year. Klemer says Lytle saved the company, but he says Lytle has yet to deliver on the big promises he made when he bought the company.

"When he came in, he said 'this company, we're going to turn it around and I'm going to make you all millionaires, just like I did with the pasta company.' Well I'm still waiting for my check," Klemer says.

Klemer says Lytle's group doesn't understand the intricacies of running a textile mill. "There's things that you do that doesn't seem right, but for that company it's right, and it's the only way you're going to make money. They didn't understand some of the nuances of being a textile mill," he says.

Lytle was not available for comment, as he's studying a potential purchase of Fingerhut.

Lytle's past efforts have brought him to several different industries. In 1998, Lytle's group bought a courier service, United Shipping and Technology. They renamed it Velocity Express, and in two years boosted sales from $1.5 million in sales to $660 million.

Two years ago, he helped buy out a pasta company in North Dakota and later sold it for a healthy profit.

Now, Lytle is pursuing an offer for the nation's second-largest catalog retailer.

Peter Tourtellot, chairman of the Turnaround Management Association, says turnaround specialists can be successful even if they lack direct experience in the industry they're moving into.

"Profit is profit, inventory is inventory, too little cash is too little cash, and we haven't yet talked about the product. What we find is that there are people inside these companies that know their industries very, very well. What they're lacking is the business leadership that the turnaround professional can bring," according to Tourtellot.

Tourtellot says it takes a rare sort of businesperson to turn around a company. "Not every manager who operates a successful enterprise can do a turnaround," he says.

In particular, Tourtellot says, it takes someone who relishes intellectual challenges and who doesn't mind working under extreme pressure. And, Tourtellot says, it takes someone who's focused less on profit than on the satisfaction that comes with saving a failing business.

"If you can go into a company that is financially sick and broken, and people are about ready to lose their jobs, and you can walk away from that company where you have kept the jobs intact, you have restored the company to financial health, it's so exhilirating, I can't tell you," says Tourtellot.

Federated Department stores has said it would shut down Fingerhut unless a buyer emerges. But even if Lytle's group buys Fingerhut, some pain is likely.

The Faribo Mill now employs 10 fewer people than it did when Lytle's group acquired it. And Lytle says Fingerhut will have to shrink before it can grow.

"It will likely be smaller, as virtually every company is today smaller. But if it's well positioned and its well financed, it should grow back to where it was in a very short period of time," he says.

But, perhaps unlike Faribo, Lytle says Fingerhut should rebound quickly if and when his group acquires it. He says Federated has already taken many steps needed to revive Fingerhut.

"Fingerhut has already gone a tremendous distance in correcting their problems. So this probably for us is going to be, although a difficult task, one that should go relatively quickly."

Peter Lytle has said he'll likely announce this week whether he'll buy Fingerhut.