For frequent flyers and road warriors, two wheels may not be
The latest luggage being hauled behind weary business
travelers in Heathrow, LaGuardia or LAX is perched up on four
wheels. And those bags, of course, are constructed of
ballistic-grade nylon, able to stop just about anything a baggage
handler could throw at it.
) is bringing high-tech engineering and product innovation to the
staid world of luggage.
But just because its bags are as sturdy as a bulletproof vest,
they don't have to look like one. Tumi is now adding splashes of
color to some of its bags and rolling out new fashionable
accessories to both ride the rebound in global corporate travel,
and lure more women and other new customers.
"One of the keys to their success has been their ability to
broaden their product line and customer base without alienating
their core customers," said Amy Noblin, an analyst with William
Blair & Co.
Tumi was founded in 1975 by a former Peace Corps volunteer,
Charlie Clifford, and named after a ceremonial knife used by the
Incas and early culture in pre-colonial Peru. His company
originally imported rough leather bags from Latin America. In the
early 1980s it developed its signature product lines of black
ballistic nylon bags for business travelers and other frequent
flyers willing to pay more for high-quality, rugged gear.
It built a loyal following from customers who liked the sturdy
designs, and the company's repair work when a zipper or wheel
didn't hold up.
"When something is 'design fixed,' it means that it's ready
for production. Our products were never completely design fixed,"
Clifford said in a 2011
interview with Inc. magazine
"We'd constantly make changes and tweaks: better handles, more
pockets, stronger screws to hold the piece together. We never
copied other companies, but we were never afraid to borrow good
concepts and then interpret them as our own."
London private equity firm Doughty Hanson & Co. bought
Tumi for $276 million in 2004. Clifford left the company shortly
Sales have grown at a compounded annual rate of 13% between
2005 and the end of last year. Tumi's bags and other products
were on shelves at 1,700 retail locations at the end of last
year, up 40% since 2006.
"They are one of the strongest brands in the global luggage
space, which is a market that's growing at a healthy clip and
looks to be consolidating," said Christian Buss, an analyst with
Credit Suisse, which was one of the underwriters of Tumi's April
But investors have given Tumi mixed reviews. Shares surged 47%
on its first day, but tumbled soon after.
Shares have taken several whacks, too, as Doughty Hanson
continues to sell its stake with large follow-on offerings in
November and in March. The private equity fund still holds 25% of
the shares, so more large offerings are possible.
The risk from secondary offerings isn't unique to Tumi. Fellow
high-flying lifestyle brand IPOMichael Kors (
) has issued three secondary offerings in the past 16 months,
dampening investor enthusiasm.
But an expanding product line and growing net sales could help
the market digest more Tumi offerings.
The company's travel bags, mostly those wheeled carry-on-sized
luggage and soft-sided totes, made up 45% of sales last year.
Brief-cases, messenger bags and other business items made up
The rest of sales came from its accessories line, launched in
2008. Sales of those wallets, business card holders, sunglasses
and other goods were up 46% in the most recent first quarter.
Now, the company is focusing more on the form of its highly
functional bags, in a bid to attract more women. Slightly more
than half of its customers are men, it said.
"The brand heritage is outstanding, and our customers are
highly loyal," CEO Jerome Griffith said in a May conference call
with analysts. "We believe that these two factors will be crucial
in enabling us to successfully expand into new categories while
also continuing to create high-quality innovative travel goods
for our existing consumers."
The company added new colors last quarter to its Tegra-Lite
line of lightweight, hard-shell wheeled bags that retail for
about $800. It's Ticon line of leather satchels and bags, which
sell for up to $1,500, have a pocket with a special lining that
shields credit cards, ID cards and other data-chip devices from
scanners that crooks can use to steel information.
Faye Landes, an analyst with Cowen & Co., credits the
management team for delivering innovative products.
"Their level of understanding of their consumer and the
analysis that goes into it, and their level of understanding on
the product is just terrific," Landes said. "That's what makes
this tick. A great management team makes it look easy."
But its latest guidance is modest compared with the Street's
expectations. The company guided sales growth of 18% to 20%, with
diluted earnings per share of between 82 to 86 cents. Analysts
collectively expect sales to climb 19.9% to $477.7 million this
year, with EPS at 87 cents.
And Tumi's hit turbulence in the past. Sales plummeted after
the Sept. 11, 2001, terrorist attacks, which devastated the
travel industry. The SARS outbreak a few years later also sent
ripples through the industry again.
While Tumi is diversifying with its accessories, the company
remains susceptible to travel disruptions.
There's also strong competition in each of the markets it
serves. In its core luggage market, it goes up against
well-established brands, including Samsonite International (which
reportedly made a bid for Tumi before it came public) and German
luggage maker Rimowa. Its expanding accessories business brings
it up against leather goods makerCoach (
), Michael Kors and others.
Tumi will need to keep an eye on quality control as it
High-end yoga clothierLululemon Athletica (
) in March spent millions recalling a batch of its stretchy
pants, and slashed guidance after noticing the sheer fabric was
just a little too revealing.
But William Blair's Noblin says Tumi hasn't fallen into that
"They're not trying to do this radically overnight. It's a
very controlled evolution of the brand, and I think that has led
to their success," she said. "Oftentime retailers move too