NOLA L. SARKISIAN

Staff Reporter

Just a few years ago, Right Start Inc. was moving in the wrong direction.

The mail-order baby products company began adding brick-and-mortar stores in 1992 to create a retail mix that performed well. And in 1993, the Westlake Village-based firm acquired Children’s West Digest, an older kids apparel sales catalog.

But soaring paper costs and growing competition eventually led to financial troubles.

Now, after bringing in an experienced retail management team from Brookstone and Discovery Channel stores and scaling back catalog circulation by 49 percent, the company is starting to turn around. Wall Street is responding to the changes; in the past eight months, Right Start shares have jumped from $1 to $8.13 as of June 8.

Fueling the activity is the launch by the end of the month of an e-commerce Web site. In addition, there are plans to add up to 24 stores this year in Chicago, Detroit, New York and California and 40 more stores each year through 2002 in new territories including Texas and Florida.

“Clearly, investors are sitting up and taking notice of the company’s plans, especially since the magic word on Wall Street is the Internet and e-commerce,” said David Leibowitz, a managing partner at Burnham Securities in New York.

But Right Start will have to challenge companies already doing business online, such as BabyCenterInc. and iBaby.com.

“They’re facing some tough competition from places like Baby’s R Us and even eToys that have worked their way into parents’ hearts. Content is what will help carve out their own identity,” said Evie Black Dykema, an analyst at Forrester Research.

Jerry Welch, Right Start’s president and chief executive, is also the managing director and partner of Kayne Anderson Investment Management, which became a 63 percent owner of the company after buying out American Recreation Centers Inc. in 1995.

The new management team includes Gerald Mitchell, vice president of merchandising, who held a similar role at Discovery and Natural Wonder stores; and Marilyn Platfoot, senior vice president of retail operations and human resources who was investor retail manager of Brookstone.

Welch plans to spend about $1 million on the Web site. He figures that the company can differentiate itself through brand loyalty and Web-site articles about baby care that will be tied into products for sale. He also plans heavy in-house promotion.

Meanwhile, new brick-and-mortar stores are being designed as street locations rather than for inclusion in malls. The new outlets will each cost $225,000 to build, equip and fill with inventory, a savings of more than $75,000 compared to previous stores.

“They realized they were doing better at stand-alone stores,” said Richard Giss, a partner in the business consumer group of Deloitte & Touche LLP. “Their typical customer often comes with children in tow, which makes it difficult to buy larger items and carry them to the car.”

For the first quarter ended May 1, the company reported net income of $11,000 (44 cents per share), compared with a loss of $1.2 million (64 cents) for the like period a year ago. Revenue was $10.7 million vs. $9 million.

For the year ended Jan. 30, the company reported a net loss of $5.7 million ($1.13) compared with a loss of $9.2 million ($2.01) a year earlier. Revenue was $36.6 million vs. $38.5 million.

Founded in 1985 by Stan Fridstein and Lenny Targon, Right Start sells items for infants and toddlers up to age 4. Its catalog and stores offer more than 2,000 products that aren’t necessarily cheap, such as First Sounds Listening Kits that sell for $40 and Glider Rockers for $310.

The merchandise, which doesn’t include kids clothing, is geared to attract upscale, 25- to 44-year-old mothers to stores that often serve as sites for baby showers and lectures.

By ramping up with more stores, Giss said, the company is better able to cash in on the booming juvenile product market. In 1997, consumers spent $4.4 billion on everything from infant car seats to bedding, a 400 percent increase since 1980, according to the Juvenile Products Manufacturers Association.

“For the past few years, we’ve been transitioning from catalog to retail, which isn’t easy,” Welch says. “We would rather have done it in the private world, but we’re a public company We haven’t been spending time focused on Wall Street, just Main Street.”