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<h1>For Steuben's Craftsmen, a Fragile Future</h1>
After decades of taking a loss on the high-end glassmaker, Corning has
sold Steuben Glass to private equity firm Schottenstein
<a href="http://www.businessweek.com/bios/Avi_Salzman.htm">Avi Salzman</a>
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<p>On July 23, Corning (<a
executives called a 1:30 p.m. meeting in an auditorium near the
glassblowing shop in Corning, N.Y., where Steuben Glass artisans have
crafted crystal for more than 50 years. The Wednesday morning shift had
just let out, and the workers were still warm from the glowing glass
furnaces as they filed in and sat down at round tables spread out as in
a dining room.
<p>There was reason to be anxious. Steuben, a division of Corning, had
been unprofitable for years. Cost cutting at the corporate parent had
taken on new urgency, after Corning extricated itself from a series of
disastrous bets on fiber-optic technology that <a
sank the company</a>
(BusinessWeek.com, 10/18/04) in 2002. Corning executives had
sounded Steuben's death knell a few months before. If they couldn't
sell the 105-year-old company, it would be shut down. "There were
rumors going around," says Max Erlacher, an engraver who first started
working at Steuben 50 years ago. "Some people said: 'Maybe they're
gonna sell us, maybe they're gonna ship us to China.' "
<h3>Reassurance from New Owner</h3>
<p>A manufacturing company in the red. The economy in the tank. It's a
familiar story today, and the outcome is predictable: Time to get out
those résumés. At the meeting, Corning officials confirmed they had
found a buyer, a private equity firm from Ohio called <a
As these things go, though, the news was reassuring: Schottenstein
Stores executives said they weren't looking to liquidate Steuben's
crystal or to send the plant to China.
<p>Still, the sale takes Steuben away from Corning Inc., which had
acted for decades like a benevolent but vaguely disinterested parent.
And even though the sale to Schottenstein Stores is complete, Steuben
employees remain on edge. The Schottenstein family, after all, made its
money as liquidators, buying up bankrupt companies and either selling
their inventories or trying to turn them around.
<p>In this case, Schottenstein Stores says it hopes to boost sales by
opening new stores and exposing Steuben to newly rich consumers in
countries such as China, Russia, and the United Arab Emirates. But if
the marketing plan doesn't pan out or if the new owners eventually
decide that the work can be done much less expensively
overseas—Steuben's 84 unionized workers (of 150 total employees at the
division) make nearly $30 an hour after including benefits—those
workers could be looking for new jobs in a field with about as much
growth potential as the typewriter industry.
<h3>How Steuben Became Deadweight</h3>
<p>How had Steuben—whose glassmakers' work was once so exalted that
U.S. Presidents would present it to other world leaders to smooth over
such nasty disagreements as the Cuban Missile Crisis—lost its parent's
affection? A better question, perhaps, is how it managed to hang in for
In recent years, Steuben's crystal objects, which sell for anywhere
from $125 for holiday ornaments to <a
onclick="popup(this.href,770,600);return false;" target="popup">tens
of thousands of dollars for specialty pieces</a>,
had become anachronisms, sitting untouched for months on counters at
Neiman Marcus stores. Even the presidential gifts became less ornate;
when asked what sort of glass had been sent to the White House
recently, Steuben President Marie McKee says President George W. Bush
<p>Steuben has lost of some of its former glory. But it nonetheless
occupies a unique niche. Here in the town of Corning there's a sense of
hand-crafted workmanship—and corporate paternalism—that's nearly
extinct in today's globalized, Web-connected world.
<p>Corning (population 10,842) is located just south of the Finger
Lakes in western New York. It has long been known as the Crystal City;
there is, indeed, no getting away from the stuff. At least a half-dozen
shops on Market Street sell art glass, and they call downtown the
"gaffer district," after the workers who shape the glass. Among other
activities, tourists can blow their own glass at the Corning Museum of
Glass or visit the Little Joe Tower, where workers used to stretch hot
glass 196 feet and cut it to make thermometers. "If a city has a heart,
Steuben is Corning's," wrote master gaffer Jeffrey Babcock in a letter
to Corning's local paper, <cite>The Leader</cite>, in April.
At Steuben, the danger and difficulty of creating art out of molten
glass fosters deep camaraderie. Workers with an average of about 30
years experience with Corning rush through the plant with 1,200-degree
glass drooping off of steel poles. Heating the glass too long or
cooling it too quickly can mean the difference between a $10,000 piece
of art and a worthless, distorted glob.<br>
<p>Steuben is named after the county where it is located. Founded there
1903 by Thomas Hawkes, who owned a glass engraving company, and
Frederick Carder, an English glassmaker, the company was sold to
Corning Glass Works in 1918. Carder had become famous for making
colored glass pieces in every shade from green to gold, but Corning
changed the mixture, pouring and blowing lead-infused glass into
crystal stemware and ornamental pieces. The result was a flawless clear
glass that appeared to create its own light from within.
<p>Steuben glass became a popular high-end gift for departing
executives and visiting dignitaries, and the company started to gain a
reputation for artistic excellence. Artists such as Henri Matisse,
Georgia O'Keeffe, and Salvador Dali designed pieces for a glass
exhibition Steuben put on in 1940. Steuben pieces delight in whimsy;
One famous piece depicts an ice fisherman plunging a spear into a
crystal frosted over to look like ice; beneath the ice, the spear
reappears in the clear crystal water, its points just inches away
from two fish swimming by.
<h3>Marginalized at Corning</h3>
<p>But for all its prestige, Steuben was never central to Corning's
profits. Steuben's revenues of $26 million last year still made up less
than one-half of 1% of Corning's overall $5.8 billion net sales. Still,
back in the post-World War II era Steuben at least fit into its
parent's core business. Corning had always focused on finding
innovative uses for glass: It developed the bulbs for Edison's light
bulb, parts of the tubes for televisions, and Pyrex baking dishes.
Corning also invented a hearty ceramic-glass mixture that could survive
the stove and the broiler and in 1958 launched a brand called
<p>In the 1970s and 1980s the company began pushing into new
technologies, albeit ones that still utilized glass. It developed
optical fiber and liquid-crystal-display technologies that would
transform the company once again. In 1998, Corning sold its housewares
business, including Corningware, to an affiliate of Borden.
<p>Steuben increasingly seemed like an anomaly. There was also tension
at the time between the sometimes abstract artistic vision of the
designers and Corning's corporate mission. Arthur Houghton Jr., a
former Corning chairman, wrote a letter to the head of Steuben's design
department in 1984 reminding him that the Steuben designers were
"employed as designers, not as artists" and needed to take their
direction from the top, according to the book, <cite>Steuben Glass: An
American Tradition in Crystal</cite>, by Mary Jean Madigan. He wanted
them to focus more on pleasing customers and less on expressing
Corning, which had invested heavily in a field called photonics during
the 1990s, rose with the telecom boom and then nearly died with the
bust. By 2002 its stock had plunged nearly 95%, and half the workers
were laid off. With the company looking to regain its balance and
remove deadweight, Steuben's future looked bleak.
<h3>Cutting the Cord</h3>
<p>Steuben lost money in 17 of the past 20 years, says James Flaws,
Corning's chief financial officer. Over the past five years, it had
lost $30 million. (Corning says Steuben is not big enough to warrant
breaking out its own financial results.) The 2007 sales were stronger
than usual but not enough to reverse the decline.
<p>McKee, Steuben's president, a Corning veteran who had come to
Steuben from the human resources department, had tried to get Corning
to invest more money in the unit. She successfully persuaded executives
to nearly double the advertising budget and to sell crystal on the
Internet, but her pleas for new stores—Steuben has only one shop in
which its glass is sold exclusively, on Madison Avenue in
<p>Corning hired McKinsey & Co. in the spring of 2007 to evaluate
Steuben. The consultants concluded Corning would have to make a big
investment to turn the division around. "We asked ourselves, 'Why are
we doing this, other than this is a nice part of our history?' " Flaws
says. "You can't stay around losing money forever."
In March, Corning announced that it planned to sell Steuben, and if it
could not find buyers it would close the division down.
<p>Several companies showed an interest in Steuben, but not all were a
good fit, Flaws says. Some were considering moving the division out of
the town, an option Corning's executives wanted to avoid. So they were
pleasantly surprised when they sat down with Schottenstein Stores. The
company's CEO, Jay Schottenstein, was a Steuben collector. Among the
Schottensteins' biggest successes was American Eagle Outfitters (<a
rel="ticker">AEO</a>), which they purchased when it was struggling in
the 1980s and took public in 1994.
Now they wanted to move into the luxury market. In the past year they
had bought Judith Lieber, which makes designer clothes, handbags, and
jewelry, and Italian designer label Shiro, which specializes in
handbags. Steuben would join those brands in the Schottenstein Luxury
<p>Schottenstein Stores executives walked into a meeting at Corning's
New York City offices in early April carrying shopping bags loaded with
their luxury goods and spread them out on the table. Jay Schottenstein
and his deputies spent half of the meeting trying to pitch Corning on
why they were the best company to buy Steuben; other companies had
spent most of their time listening to Corning's pitch. McKee recalls:
"He said: 'I want to tell you why we believe we should be considered to
buy Steuben.' It was fascinating because we were supposed to be telling
them why they should buy us."
<p>Corning announced the sale on July 23, but didn't disclose the sale
price. Flaws says Corning, which will continue to hold a 19.9% stake in
Steuben, sold the division at a slight loss to its book value.
<h3>Staying Put, For Now</h3>
<p>Workers didn't know what to expect when they heard that
Schottenstein would be their new boss. Besides being highly paid,
Steuben workers also have a certain amount of security. The union,
Local 1000 of the United Steelworkers, negotiated a three-year deal
with Schottenstein Stores that will bump up salaries by 3% a year and
maintain benefits over that period. Beyond that, it's hard to tell what
the future holds.
<p>Partly that's because Schottenstein Stores is so intensely private.
Its various companies employ more than 20,000 people, yet it doesn't
even have a Web site. A spokesman would not talk about the company's
revenues or profits and warned prior to an interview that it would
"irritate" Jay Schottenstein if he was asked to discuss them.
<p>The Schottensteins are known for buying well-known brands that have
fallen on hard times and turning them around or selling their
merchandise off. One Schottenstein Stores affiliate is SB Capital
Group, which operates "special event sales, and store closings or
relocations," according to the company's Web site. But when
Schottenstein Stores executives came to Corning to meet the Steuben
workers a few days after the announcement, they offered some
reassurance. Workers say they were left with the impression that the
new owners knew glass and seemed to have a vision for the company. When
Jay Schottenstein finished speaking, they gave him a standing ovation,
says Robert Misuraca, the Steelworkers' chief negotiator at Steuben.
"A lot of times, executives show a bit of aloofness and condescension,"
Babcock says. "I didn't get any of that."
<p>Milton Pedraza, the CEO of the New York-based Luxury Institute,
which researches luxury products for high-end consumers, says he thinks
the Schottensteins can bring their savvy with low-end retailing to the
luxury market. "Unlike with other private equity firms that buy private
equity companies, these guys are retailers and marketers," he says.
<p>And Steuben still has cachet. It was rated the third-most recognized
glass brand among U.S. consumers, after Waterford and Baccarat, in a
2006 survey by the Luxury Institute.
<p>But will Steuben jobs follow the glass sales overseas, to a plant
where the workers and maintenance cost less than they do in Corning?
"Like everyone else, if he thinks he can produce it overseas at a
better rate, I'm not sure he would hesitate to do it," says Harvey
Miller, a partner at Weil Gotshal who specializes in bankruptcy law and
is familiar with the Schottensteins' operations.
<p>Jay Schottenstein says that won't happen. "I've made a commitment to
grow Steuben and to keep Steuben in Corning," he says in a brief phone
interview. "We have the best glass workers in the world."
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