Choosing a company as a suitable long-term investment is both about downside protection and upside potential. Lifetime Brands (NASDAQ:LCUT), a provider of branded kitchenware, tableware, and other products used in the home, is a good investment choice. Its downside is protected by the stable demand of housewares, and investors can enjoy the potential upside from domestic market-share expansion, new markets, and new product innovations.
Sales of kitchenware and tableware tend to be relatively stable and parallel growth in U.S. consumer spending. Two factors are at play here:
- The replacement cycle for housewares such as cutlery, cookware, dinnerware, and glassware is usually shorter than that of electric appliances like washing machines and freezers. Moreover, some of these items come in sets, so there is a strong likelihood of replacing damaged or broken glassware with matching ones from the same seller.
- The ultimate buyers of housewares are typically less price-sensitive with respect to this product category. One reason is that purchases of housewares are less frequent than groceries, so the tendency to bargain-hunt is reduced to a certain extent. Another reason is that housewares tend to be small-ticket items, compared to big-ticket items such as furniture.
It is also possible to draw comparisons here with Libbey (NYSEMKT:LBY), North America's largest glass tableware seller. Approximately 90% of its glassware sales to food-service operators are replacement in nature, validating the predictability and stability of such product sales. Restaurant operators also tend to be less price-sensitive. This is because beverages are typically the highest-margin items on the menu, so paying a little more for glasses hurts less.
Revenue growth potential
More important, the housewares market is large and growing, and Lifetime Brands has leading market positions in certain product categories. For example, Lifetime Brands is the market leader in kitchen tools and gadgets, cutlery, cutting boards, and shears products within the $6.8 billion U.S. kitchenware market. In fact, Lifetime Brands has been in the business of selling cutlery, cutting boards, and shears since 1945.
Lifetime Brands also adopts a dual strategy of simultaneously growing its market share in U.S. and expanding its international presence in countries such as Mexico, China, and Brazil. It acquired equity interests in leading housewares distributors in Mexico and Brazil in 2007 and 2011, respectively, and entered into a joint venture with a Chinese partner in 2012.
Commitment to innovation
Due to changing consumer preferences, the resilient nature of the demand for housewares is irrelevant unless there is also a robust pipeline of new products to meet customers' needs.
Lifetime Brands has a strong culture of innovation. It generated two-thirds of its revenues from new products launched in the past three years. It launched 3,500 new or redesigned products in 2013, and its 2014 target is more than 4,000 such new innovations. Examples include Savora, a premium line of food preparation tools and gadgets, and a Guy Fieri-branded line of kitchenware. Guy Fieri is a star chef on Food Network's shows and his celebrity status will drive the sales of the new product line.
Helen of Troy (NASDAQ:HELE), a distributor of housewares and personal care products, is similarly committed to product innovation. Helen of Troy's housewares brand OXO has always designed products with customer ease of use in mind. For example, its OXO measuring cup comes with a capacity-adjustment knob mechanism and a built-in plunger to ensure easy and correct measurements of ingredients.
Helen of Troy's product pipeline remains healthy, with 300 new innovations expected to be launched in 2014, compared with 293 in 2013. The focus of 2014 will be water bottles, baking and food storage, and toddler and infant products in the housewares segment.
Foolish final thoughts
Most companies are either monopolies in low- or zero-growth markets or operate in high-growth markets with intense competition. Lifetime Brands seems to enjoy the best of both worlds, owning leading market positions in its domestic market with potential for market-share expansion and growth from new markets and new products.