And Then There Were Three??

Recently Newell-Rubbermaid (a.ka. Sanford Brands when it comes to writing instruments) announced the planned closure of it's Lewisburg, TN pencil manufacturing facility. This was part of a general restructuring involving at least 4 of Sanford's US manufacturing facilities in Tennessee including also the towns of Shelbyville, Manchester and Maryville. Thier announcement to suppliers states:

"Manchester will become our global center of excellence for ink manufacturing. We started construction in October on this state-of-the-art facility, which will be the largest writing ink plant in the world."

"We will move manufacturing operations from Shelbyville to Maryville by the end of 2009. Maryville will become the center of manufacturing excellence for markers, highlighters and dry erase products under the Sharpie®, Expo® and other brands. Additionally, we will construct a new specialty packaging facility adjacent to our Shelbyville distribution center. This packaging center of excellence will incorporate best in class packaging processes that will allow us to better meet and exceed customer requirements."

and ...

"We will close our Lewisburg facility by the end of Q3 2009. Production will be moved to other Newell Rubbermaid facilities, including Maryville."

However, it has not been formally announced what their specific plans are for wood-cased pencil manufacturing. There is some speculation all wood cased pencil production will move to other Newell (Sanford) facilities outside of the US, specifically Mexicali, Mexico (graphite) and to Bogota, Columbia where color pencils are now produced for the Latin America market. Perhaps reserving just packaging operations for US facilities. So there is a chance this development would leave the US with just three remaining wood-cased pencil manufacturing facilities serving the traditional writing and art pencil market: General Pencil Co. (Jersey City, NJ) , Musgrave Pencil Co. (Shelbyville, TN) and MegaBrand's RoseMoon facility (formerly RoseArt and Moon Pencil/Products in Lewisburg, TN). Currently Megabrands Stationery and Activity business which includes the RoseMoon facility is on the market so who knows what teh future holds for this facility.

Note that my definitition of wood-cased manufacturers specifically excludes promotional or advertising pencil operations or other "finishing" operations where the milling of the slats into pencil is not performed. There are still a number of these finishers who take either raw or painted blanks and complete assembly, finishing and packaging. My definitition also excludes cosmetic pencil manufacturing of which there is one remaining facility, Cosmolab also located in Lewisburg, TN.

With the shuttering of the Shelbyville & Lewisburg facilities Newell brings down the closing curtain on two more factory sites of historical importance to the US Pencil industry. The Shelbyville facility (located formerly on Pencil St. and now renamed Sharpie Way) was the site of the Empire-Berol facility which resulted from the consolidation of these two companies in the 1980s. Mirado and Prismacolor brands were produced at this facility before relocating to Lewisberg soon after Newell's acquisition of Berol in the mid 1990s. The Lewisburg plant, part of Newells acquisition of Faber-Castell USA (which excluded the Faber-Castell brand name rights) just a year before the Berol purchase, had a long history of swallowing up production of newly acquired pencil competitors regardless of the owner of this facility. An appropriate discussion of the Lewisburg facilities production and brand range history alone would require a separate post though I have posted on this topic before, see Mongolized. Perhaps I'll work on a more thorough history of the Lewisburg facility for a futre post timed with the actual plant closure next year.

Adding the former Empire Pencil plastic extruded pencil facility in Shelbyville this brings to a total of three the number of US pencil factories shuttered by Newell over a 15 year period in the name of building global centers of manufacturing excellence. All the while thier wood/plastic cased pencil prodction in the US has declined by about 2/3 vs total production of those facilities at the time of each acquisition. This has been accompanied by the elimination of a corresponding proportion of pencil brand names. Whether these new centers of excellence in the US will really include wood cased pencil production remains to be seen. Newell and Sanford's slogan these days is "Brands that Matter" and clearly they have been deciding for some time that most of the pencil brands they acquired just don't matter. Other than Prismacolor and now Papermate which both include a whole host of other similarly "umbrella" branded complementary products there has really been no specific marketing support to Sanford's pencil brands here in the USA.

Perhaps all this is simply a natural progression of the pencil industry where there are over 200 pencil factories in China alone battling it out and more and more US and European production is being relocated or outsourced. Pencil industry margins are very thin due to this commodity efffect and Newell's focus is clearly on higher margin businesses. It's clear Lewisburg as a stand alone pencil factory in the US produced a majority of mass market and commodity oriented products that could no longer afford the overhead of this large older and inneficient facility. Perhaps co-locating a smaller wood-cased pencil operation in a modern facility with other products in the Sanford family will result in "excellence" if they do indeed go this route vs. moving off-shore. A stronger long term commitment to creatively marketing and developing new innovative products in wood-cased pencils may have made an impact on this trend. Who knows? Though a comparison to an industry innovator such as Faber-Castell who have indeed made such a commitment does give some clue. Will Sanford now decide their remaining wood-cased pencils products are indeed Brands that Matter?

Not just another Pencil Industry Merger

The trend of pencil industry consolidation continues and this time it’s a notable first from my perspective.

German pencil manufacturer Johann Froescheis Lyra Bleistift Fabrik GmbH (LYRA), a company remaining independently owned for just over 200 years has sold to the Italian Based FILA Group several generations younger at just around 80 years. While I could not find any posts yet on either company’s website I have posted an excerpt from the supplier announcement letter received today from Lyra on the Indutry News page of our Pencils.com site. A phone call to FILA owners today confirms the transaction closed on July 27, 2008.

This is the first major German pencil company that I know of to sell it’s German based pencil business to a foreign owned company. This is a separate phenomenon in my mind to German pencil companies that had established foreign subsidiaries or joint ventures in the U.S. or elsewhere many years ago some of which have since been sold off to non-German owners.

A notable example of such prior transitions include Faber-Castell USA, which was originally a German- U.S. joint venture that was eventually sold to Newell’s Sanford Group in the 1990s (Faber-Castell brand name rights reverted to Faber-Castell in Germany after a few years and now Faber-Castell USA is re-establsiehd and owned by it's German parent company, but has no pencil manufacturing base in the US). Also the Eberhard Faber USA business which also had Mexican subsidiary was eventually purchased by Faber-Castell USA before it was sold to Sanford. The Eberhard Faber USA joint ventures in Venezuela was eventually sold to local partners and subsequently acquired by Sanford once again.

LYRA is headquartered in Nürnburg, Germany, the epicenter of German pencil industry and has a rich history dating back to 1806 having just celebrated their bicentennial two years ago. LYRA products represent a leading brand in the school market in Germany with strong market presence in Austria, the Scandinavian countries, Eastern Europe and also sales companies in Singapore and China to serve the Asia market. Some LYRA products are exported to North America, but the brand does not have a big presence here. The products have a very high quality image and are characterized by some specialized shapes and sizes. Lyra was one of the early companies to actively promote triangular shaped pencils of different sizes for their ergonomic benefits particularly to children as learning pencils. They still produce most of their high end product in ther Nürnburg facility, but many more basic coloring and writing pencils are purchased from Indonesia (see prior post “170 years of Made in Germany”).

The fit with FILA Group from a product range and sales channel as well as from a complementary regional distribution standpoint is a strong one. FILA’s Giotto brands have long been the market leader in school and art supply in Italy with strong distribution in Spain and via it’s purchase many years ago of Omyacolor (the main chalk producer in the world) FILA group has good French distribution as well. In 2004 FILA acquired Dixon Ticonderoga Company which had both UK distribution and strong manufacturing and marketing presence in North & Central America plus China based slat and pencil manufacturing operations. The newly enlarged FILA Group of Companies will have much stronger European market coverage, the ability to select certain products from “cousin” brands within the FILA, Dixon and LYRA ranges for introduction into new markets under the selected brand, plus the ability to further rationalize manufacturing of certain products globally across manufacturing operations, based in Germany, Italy, China & Mexico.

So will a German-Italian marriage work in the pencil industry? I know this is a match that the FILA & LYRA ownership groups have been mulling over for several years, so it’s not being jumped into on a whim. FILA have a good track record of integrating its acquisitions in other countries though not without certain cultural challenges at times. Both FILA and LYRA communications indicate that LYRA senior management will stay in place and if that can work that’s a good thing from my perspective. Certainly the LYRA management team knows and understand their geographic markets and customers much better than FILA owners and significant changes in product, brand strategy and personel would likely make more traditionally conservative German customers wary. If FILA can bring some new products to expand LYRA brand range and simple and logical manufacturing integration without damaging quality performance and perceptions then this will have a positive impact. I suspect the largest cultural challenge will be addressing differences in financing, capital allocation, accounting and management control systems and policies.

Check back in a few days when I'll have a follow-up post comparing and contrasting market branding and manufacturing strategies of the four key companies (including the FILA Group) that I consider to be the leading "Global Branded Pencil Companies".

170 Years of Made in Germany

I have just completed a new post in the Pencils.com Collectors Corner Resources page that discusses an interesting point about country of origin marking. This relates to a press release I recently read from Staedtler on the 170th anniversary of thier produciton of pencils in Germany. You can link direct to this post here.

Note that there is no intent to disparage Staedtler's reputation here just to use this post to point out a seeming global disparity in country of origin marking regulations. In Mexico the rule is different than both European Union and in the US and reliyes on % of value added content in Mexico, while US's rule is based on theory of substantial transformation.

The Myth of the Yellow Pencil

With the recent 150th anniversary of the patent of the eraser tipped pencil, I have seen several new references around the web about pencils and a few indicating that 75% of pencils sold in the United States are painted yellow. At our Pencils.com site we explain the history of why so many pencils are painted yellow in the US. It's not clear to me where this estimate of 75% comes from however. Our site simply states that a majority of basic graphite writing pencils sold in the US are painted yellow and given today's market that may be generous. I have not checked Henry Petroski's book as it certainly has a reference to the genesis of painting pencils yellow although I can't recall if there is some figure stated for proportionof market as yellow painted pencils. Even so that book is now roughly 20 years old and market conditions have changed dramatically over that time. So perhaps it's time for a new look at this old story and the trends in the US pencil market that impact this.

My approach is first to view the US pencil market by it's key product category components & sub-components which include:

• graphite pencils for office, school & home use
• color pencils for school, home or artist use
• carpenter pencils
• cosmetic make-up pencils

Of these the last two groups are relatively small segments on a unit volume basis. Based on my knowledge of the industry I've estimated these two segments would not be much more than 5-7% of the annual unit volume of pencils sold in the US. Although with a higher average sales value per unit than graphite or color pencils it may be perhaps 8-10% of the wholesale sales value. Virtually none of these pencils are painted yellow though some proportion of carpenter pencils may be yellow the most comon colors are white, red, blue and orange. So a conservative estimate removes 5% of all US pencil consumption from being painted yellow.

The next challenge is to break out color vs. graphite pencils. Historically there has been an approximate ratio of 20% color pencils to 80% graphite writing pencils. I conducted a reasonably thorough review for 2005 of US production sources and import sources of pencils. By dividing each country of origin and US producer out into known and/or my best estimate figures for color vs. graphite pencils I calculated a weighted average of 28.7% for color pencils for 2005. Of particular interest is that only a very small small portion of US pencil production is color pencils. My estimate is just 5%. With about 1/3 of today's pencils being produced domestically in the US and a full 2/3 imported from overseas this means that about 39% of the imported pencils are color pencils.

This data supports the growth of color pencil consumption in the US over the past 15 years or so. This has been driven initially by the entry of Crayola into marketing color wood cased pencils in the early 1990s. These pencils are all produced in Brazil or Costa Rica by Faber-Castell. Following the lead of Crayola many other. Of particular interest is that in Europe the ratio of color to graphite pencil consumption is more or less reversed from the US trend as historically color pencils have been the vast majority of pencils produced and sold inthe European market where pens are more frequently used for writing purposes.

Given that color pencils are usually painted the color of the core for each color in general color pencils have a very low proportion of yellow painted pencils. We could either simply discount this group entirely (as non-graphite pencils) or assume that about 1/12 of these pencils on average are painted a yellowish hue given that yellow is a primary color and as pencils are generally sold in multiples of dozen packs this proportion should hold about true as the color pallet expands for 24, 36, 72 and 100+ count boxes of color pencils. Thus at best 2 to 3% of US pencils are color pencils that are painted some form of yellowish hue.

Thus my analysis indicates that perhaps only 66-67% (100% less 5% carpneter/cosmetic less 28-29% color pencils) or approximately 2.9 billion graphite pencils per year are sold in the US today. So even if 100% of graphite pencils were painted yellow only 2/3 of US pencil consumption would be yellow pencils. Adding 2-3% yellow coloring pencils still doesn't get us to 75%. However there are several major sub-categories of graphite pencils including:

• advertising specialty pencils for custom imprint purposes (hexagonal and round shapes)
• golf pencils (hexagonal and round)
• designer theme pencils (includes licensed character/sports pencils, holiday themes, and other decorative themes ( generally round)
• artist quality graphite drawing and sketching pencils
• standard branded writing pencils (mostly all hexagonal shaped painted a single color)

It is really just this last group of more standard branded writing pencils that have traditionally had a very high proportion of yellow painted pencils. And frankly it's likely this last group of pencils that the average person is probably thinking about when saying 75% of US pencils are painted yellow. Certainly it may be historically true that 75% of branded hexagonal graphite pencils in the US were painted yellow and it may even still be true today of this sub-segment. However as with the growth in the color pencil market the advertising specialty, golf pencil and designer theme pencils have been the key growth sub-categories of the graphite pencil market over the past 10+ years. My quick estimate is that something in the range of 50 to 70% of graphite pencils would fall within this last group in the current market and if 75% of those are painted yellow then at the upper end we are looking at just 35% (= 67% graphite x 70% to 75%) graphite yellow painted pencils as a proportion of the total US pencil market. This is a far cry from 75% and even if significantly more than 75% are painted yellow would not get much higher than 40% of all US pencil consumption . Thus it's probably not even technically correct any longer to say that the majority of pencils sold in the US are yellow painted pencils.

In fact within the pencil industry the historical intent of painting a pencil yellow as a reflection of high quality is considered out of date and yellow pencils are increasingly viewed as a low value commodity segment. Certainly some important high quality brands such as Dixon's Ticonderoga , the Mirado (originally the Eagle Mirado now Sanford's Papermate Mirado), to some extent the Mongol (though now discontinued in the US by Sanford) and a few other minor brands have a good quality reputation and retain yellow as the primary lacquer color. Some of these have offered additional paint color options within their brand range. The reality is that today the vast majority of yellow pencils sold in the US are imported low priced pencils. Many of these are private label pencils for the major office supply chains. The Papermate American brand remains one higher volume yellow hex pencil that is still US produced to a large extent, but the quality has been reduced considerably to compete with the imported pencils. Alternate species woods have reduced sharpenability performance, lower standards on lacquer finish reduce the look and feel of the pencil, ferule and eraser quality reductions and graphite smoothness inconsistency, are today unfortunately often the case with common yellow pencils.

While all this means more affordable pencils for general writing needs it's also changed the perception of the yellow pencil over time. Today's standard commodity yellow pencils cost about $0.10 per pencil at retail which is surprisingly the same as the price of a Ticonderoga, a Mirado and other high end brands 40, 50, 60 and even 70 years ago now. When you consider the value of the dollar today vs. it's value over those time periods you'll see common yellow pencils are effectively much cheaper in real dollar terms than they ever were. I'm not sure what milk, gasoline and many other common consumer goods cost that long ago relative to today's prices, but I'm guessing the relative value retention for the yellow pencil has been quite good although the qualtiy on average is just not what it once was and may or may not compare favorably with quality performance of other common goods that have had relatively more infalated values over time on a real dollar basis.

Sustainable Forestry

It's been awhile since I've posted much related to forestry and the timebr business here. Last night this segment appeared on NBC Nightly News. It features the sustainable forestry efforts of Collins Pine Company which has had a long relationship with our company. Collins is a an important supplier of FSC Certified Incense-cedar used in our ForestChoice pencils and our FSC certified slats sold to other pencil companies around the world.



I do find Brian William's intro statments like "You can't see the forest, because they're gone!" coupled with the use of images of recent clearcuts rather misleading relative to the actual reality of responsible forestry practice in the Pacific Northwest. Collins is clearly a leader in committing all their timber operations to FSC certification process and in the manner in which they run their operations. I applaud them and am happy to be collaborating with them in bringing sustainable wood products to market. However, they are just one example of numerous companies with good sustainable forestry practices.

Palomino Riders Unite

I’ve been pleased to see the continuing keen interest and even adoration of our Palomino pencils from our customers. As one happy Palomino Rider recently said, "It's the way the lead glides over the paper. Hmmmm...yeah, I know. I've got issues! It's an addiction. But...they really do have a nice feel to them. I'm buying more!."

Despite relatively little formal promotional effort in the past year we clearly seem to have a loyal and devoloping fan base for our product. Thus in order to support this I’m pleased to announce the formation of two new places that Palomino riders can check who else is in the corral and see just how they ride.

I'm talking about the Palomino Riders Group page on our new Pencils.com site as well as a new Facebook Group page as well. Here’s the chance to share your artwork created with the Palominos and show what those Palominos can really do. Whether you ride English, Western or bareback we want to celebrate your unique creative spirit and are sure other riders feel the same.

So we hope you'll register at Pencils.com, join the Palomino Riders group, then create your own Palomino artwork gallery and upload images of some of your favorite artwork using Palomino pencils and post them to the Palomino Riders group. If you're a Facebook member then we'd love to see you there too.

If you haven’t yet experienced the smooth ride, then come and visit these two sets of group pages and I hope this will get you restless as a wild Palomino to jump up in that saddle too.

The New Pencils.com

After several months of work I am pleased to announce we have completed our redesign project and have now re-launched our “Incense Cedar Institute – Pencil Pages” website under the new name Pencils.com. This has been a project some time in gestation even since I first initiated my Timberlines blog a few years back and happily is now up and running as a Beta site which we will continue to work on improving and developing over time.

The new Pencils.com site builds upon the past purpose of the site as an educational resource regarding pencils, Incense-cedar, renewable resources and forestry management but adds to it a broad range of new features designed to help celebrate and share the role of the pencil in our world. If you are a pencil enthusiast, artist, writer, teacher, parent or student the new site has something for you. I hope you will check it out and join what I think will become an active and growing community. In particular we have initiated a Palomino Riders group page which allows you to share and post artwork created with your Palomino pencils or to form other groups and discussion forums on a wide variety of topics related to education, art, writing and even pencil collecting.

In addition to expanded educational content and a host of social networking and related tools on the Pencils.com site one of the key new features will be our Pencils.com Store. This store will supplement our existing Pencil World Creativity Store @ eBay and ForestChoice.com and offers a much more flexible on line shopping tool with quantity discounting, pencil points discounts that you earn through participation in the Pencils.com community as well as other features. We’ve already added an expanded range of new California Republic items not on eBay as well as new items from another pencil manufacturer with more to follow. Over time we’ll be expanding the product range available on the Pencils.com Store, supporting and promoting products produced by our slat customers that supplement and complement our own product range.

A number of readers continue to request more of my in depth posts on industry issues and there have been plenty of issues to write about, although I’ve just been too busy with other business matters in the last year or so and more recently in developing the Pencils.com site for this launch. Looking forward I plan to return to providing somewhat more frequent posts about issues related to Pencil Industry here on Timberlines which will also have a feed to a dedicated Timberlines page at the Pencils.com site. However, posts more focused on news related to our California Republic Stationers product developments and the Pencils.com store offerings will be moved to my WoodChuck blog on the Pencils.com home page. Thus the Pencils.com site will be updating much more frequently than Timberlines going forward.

For more information you can visit Pencils.com or for more historical background of the Incense Cedar Institute and website transition to Pencils.com you can read the CalCedar press release here.