From Garage to Global: Rainbow Play Systems Weathers a Storm

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From Garage to Global: Rainbow Play Systems Weathers A Storm

Rainbow Play Systems Inc. began the way many late 20th century businesses have: as a disruptive start-up housed in a garage that, in the end, couldn't contain its full potential.

Like other garage to global companies, this Brookings, South Dakota-based maker of swing sets that revolutionized what a backyard play set could look like also grew too fast. Then it invested too much in the cookie-cutter templates of big-box stores and the overseas production that makes really low prices possible.

Today, almost 30 years after Rainbow's founder and chief executive officer Greg Foster built his first swing set in his parents' garage in Minnesota, the company is emerging from tough times.

Fixing the company has meant finding a balance between prefab and homespun, local and global, and between inexpensive swing sets and the rugged, vivid, multistory backyard flagships on which Rainbow made its name.

Chapter One: Chutes and Ladders

An avid woodworker when he was young, Foster conceived of revolutionizing the swing set -- shifting it from the A-frame metal versions, so common in 20th century American backyards, to ones made of wood and with all kinds of options to inspire a child's imagination.

He chose redwood and North American cedar for high-end play sets -- all woods which are insect and weather-resistant.

Then there were the horizontal and vertical add-ons such as slides, climbing walls, and monkey bars. Rainbow's swings also came in all shapes and sizes, including sling-swings, disc-swings, bucket swings, tire swings, and buoy swings.

The play sets sold so well that by the late 1980s, Rainbow employees were working 18 hour days in early spring to make the hundreds of play sets ordered for installation before summer vacation started.

"We could pre-build a little, but we were so desperate for employees my husband would come in and work shifts," recalls purchasing director Cindy Veness, who joined the company in its early years in Minnesota.

To keep up with demand, Foster knew he needed to move from the garage to a more industrial setting.

South Dakota's Office of Economic Development and its Brookings counterpart offered Foster a low-interest half-million-dollar loan, tax incentives, and cheap land on Brookings' western edge. And to deliver a key Rainbow's resource, they added in a dedicated rail spur for lumber shipments. Brookings, a town of 22,000, and home to South Dakota State University, also had a skilled and educated workforce. Students offered a constantly replenished pool of seasonal labor.

The move from Minnesota primed the company to catch the home building boom of the late 1990s.

Nesting Baby Boomers fell in love with Rainbow's new take on the swing sets of their youth. The colorful add-ons meant that every set had a design-your-own allure. Customers could choose from straight or curly slides, child-sized versions of climbing walls with brightly colored plastic "rocks" embedded on them, and add-ons that mimicked tree houses, such as crow's nests and sleeping bays.

By 2004, the company had more than 500 employees. To woo and keep quality workers in Brookings, it offered four-day workweeks with 10-hour shifts. It added a night shift and opened another factory in Albert Lea, Minnesota. Sales topped $100 million that year.

Chapter Two: The China Problem

With business booming, Rainbow decided to make a cheaper version of its play sets to capture more price-conscious customers. Rainbow's play sets started out at about $3,000, but by making play sets with lighter and rougher China fir they could bring the prices down.

this built america south dakota rainbow play systems
Credit: Gavin WiggRainbow's purchasing director, Cindy Veness.
But low prices came at a high cost.

Veness's job became more complex. In addition to marshaling vendors making the kaleidoscope of the non-wood parts that go into Brookings-made sets, she now had to audit Chinese production and component integrity.

"The initial philosophy was, we would hand them a thing and say, 'Copy this,' " she says. "And they'll copy it, and it'll look the same, but it's not."

The company issued recalls in 2000 and 2006. Then, the colored plastic components faded out in a year. Low priced or not, if complaints came back to its network of dealers, they reflected on Rainbow's reputation and the parts had to be fixed.

"We did round after round after round of trial and error till we finally got a non-fading red," Veness says. "To this day, we instruct, we contract, that they have to buy the pigment from this company. They think you're going there for 'cheap,' and you are, but Rainbow means quality and we expect quality."

The cheaper sets did mean Rainbow could go into big-box retailers instead of working only with dealers. The company began selling through Costco (COST) in 2004 and began even more cost cutting, as the retailer's auditors dug through every part of the company's manufacturing process. Rainbow eventually managed to bring in a Chinese-made set at $999.

A race to the bottom began. If Rainbow could make sets in China for that price, so could competitors, including some of Rainbow's own dealers who broke rank and started using Chinese contract manufacturers to produce play sets for themselves.

"Pacific cedar" became competitors' marketing-speak for Chinese fir. Once a brand asset, cedar became synonymous with cheap, to the point that Rainbow switched from using North American cedar to Douglas fir for its made-in-America sets.

The issue actually went to court in 2006 when Rainbow sued Backyard Adventures in U.S. District Court for "deceptive and misleading advertising claims" regarding "counterfeit cedar." Rainbow's public statement warned that if the trend toward using these deceptive claims went unchecked, customers wouldn't get the products they paid for -- the whole industry's reputation would be undermined. But the court's decision was telling: It found Rainbow's claims untenable when, at least in its lower-tier products, it was using the same fir from China as the company it was suing.

Rainbow continued to expand its less expensive lines into more big retailers, even as the mortgage crisis began to ravage the U.S. economy in 2008. In the beginning of 2009, Foster started what Mike Reitz, Rainbow's director of production, calls "the 'we're-going-to-sell-to-everyone' plan."

It signed on with Toys R Us, Home Depot (HD), Walmart (WMT) and Sam's Club. The company stocked up on inventories as sales started to rise. Rainbow even installed a top-of-the-line set on the grounds of the White House for Malia and Sasha Obama.

Foster publicly projected $120 million in revenues in 2009, but the Great Recession was about to hit Rainbow hard. Instead of a major increase in sales for the year, executives were looking into a crater. In April, Rainbow laid off 74 employees. The company's bank weighed in, telling them, "we won't lend you money until you look at your labor,'" says Cindy Kalsbeck, Rainbow's finance director.

"Until you look at everything," adds Kandy Barthel, the company's office director. "Down to how many phone lines we had."

this built america south dakota rainbow play systems
Credit: Gavin Wigg
Rainbow announced more layoffs in August and September. It began plans to shut down the Albert Lea facility. Reitz took over lumber buying with some hard criteria. "You couldn't buy anything," he says, "until you'd used up absolutely everything."

Rainbow got out of big-box retailers altogether and began shoring up its existing dealer network. It also shifted to more trustworthy suppliers closer to home for its non-wood components. Veness says Rainbow now buys 85 percent of those products from North American companies. Different slide models come from companies in Minnesota and Winnipeg, Canada; pipes, chains and "rocks" from Minnesota; colored tarps from Michigan; tires from South Dakota.

But the company has stayed with different price levels for its play sets. While its Brookings-made play sets remain Rainbow's pride and job, executives know that they know the Chinese-made units are a hard necessity.

Rainbow's rough navigation of the global economy showed the company the benefit of working with dealers who know how to sell all its play sets. So the company needs to "give them products at prices that get people in the door, and let their expertise up-sell them on the good stuff," Reitz says.

It's a balancing act, but as Kalsbeck says, Rainbow is doing what it must in China so it can keep doing what it does best in America. The balance seems to be working. By the end of 2014, Rainbow will show its first year-on-year sales growth since 2005.

Chapter Three: Investments in Americans

Reitz never planned on making a career out of manufacturing children's play sets.

He grew up on a ranch outside Fort Pierre, 200 miles west of Brookings. He joined the National Guard to pay for college -- studying sociology and criminal justice at SDSU. But he dreamed of going to Alaska. In 1998, he got a part-time job at Rainbow as a forklift operator to save up for the move.

Six months later, he became a supervisor of the night shift and as Rainbow expanded in the early 2000s Reitz kept moving up in the company. During the 16 years he's been at Rainbow, he's remained loyal through hard times. He, as well as other managers, has gone without annual pay raises because unlike other companies that give loyalty lip service, Reitz has seen it intimately at Rainbow.

On Dec. 26, 2002, the Pentagon put Reitz's National Guard unit on alert. He sent an email to Foster, explaining that he could be gone for up to a year and relayed his plan for delegation of shop-floor duties. Foster replied saying that his job would be waiting for him.

this built america south dakota rainbow play systems
Credit: Gavin WiggRainbow's director of production, Mike Reitz.
On Jan. 3, 2003, his unit was activated. By March, Reitz was in Iraq, serving as a sergeant with a transport company attached to the 1st Marine Expeditionary Force. One day in May, upon returning to base from a mission, his first sergeant said, "Call home." Via satellite phone, he found out his wife, Wendy, had given birth a week earlier to their first child.

After nine months in Iraq, Reitz came home to his newly expanded family and his job. However, his sergeant's pay had been roughly half of what he made at Rainbow, so the company paid the difference for the time he was gone.

These days, Rainbow is down to 125 employees, with Reitz supervising just the one shift. But he's always on the look out for how to keep the company competitive.

A few years after returning from Iraq, some Danish-made machines that reduced wood waste caught Reitz's eye at a trade show. After a trip to Europe to research the system, he sold Foster on buying the machines and Rainbow added the "Opti" line to its saw room in 2007.

Boards run one by one through a "Woodeye" machine that identifies every imperfection and then feeds them into the Opti-cut. The latter takes the readout data of each and, with a lightning fast ripsaw, excises every flawed segment, then sends the pieces down a conveyer.

"I can watch this all day," Reitz says as the odd-sized cutouts get kicked out as another belt takes them across the shop, then outside, to be ground into woodchips and resold.

The rest zoom on to a phalanx of Opti-stack machines, which aggregates them by standard lengths used in Rainbow designs. It was an upgrade, Reitz says, that helps keep the shop humming, even for this scaled-down workforce.

"When things are going good," he says, "it's the reinvestment in what you do that keep you going when things go bad."

For more great Made in the U.S.A. stories, visit This Built America.

10 Financial Land Mines That Can Decimate Your Net Worth
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From Garage to Global: Rainbow Play Systems Weathers a Storm

Managed to get that raise or promotion? Fantastic -- now don't go out there and spend it all immediately. In classic "keeping up with the Joneses" fashion, too many of us see an increase in salary or a sudden windfall (like an inheritance) as an excuse to take our lifestyle up a notch. We buy bigger houses than we need, get the latest gadgets even though ours work just fine,and spring for fancy steak dinners just because we can.

​Instead, whenever your financial situation gets a boost, consider the best ways to put that money to work for you. The truly wealthy are those whose money continues to grow and earn them more, even when they're not actively doing anything with it.

The average American household that carries credit card debt holds a balance of around $15,000. If you're among those who have a credit card balance, you've probably seen the little chart on your monthly statement telling you how much you'll pay in interest over the next several years if you make only the minimum payment. (If you haven't, look at it.) The same chart will also compare that to a "suggested" payment that's slightly higher. 

​Our recommendation? Throw everything you can at paying your balances off as fast as possible. And make sure not to take on any additional debt in the future; if you can't pay for a consumer good out of pocket, don't finance it.
We don't demonize student loan debt the way we do credit card debt because we see an education as an investment -- and higher education often is the difference between one income bracket and another. Similarly, many people justify taking out a car loan by stating that they need a car to get to work.

​That said, debt is still debt, and the longer you take to pay it off, the more interest you'll pay. Once you've freed yourself of credit card debt, paying down your car and student loan balances should be next on your list.

Whether it's to handle an unexpected car repair, a sudden illness or a major plumbing problem, you should always have some money set aside to cover unforeseen expenses. Set up a regular monthly transfer from your checking to your savings account to earmark this money before you're tempted to touch it. If necessary, cut back in another budget category (like eating out or entertainment) to free up the funds to save more.

​Putting aside a little each month could prevent you from getting socked with a hefty bill you can't afford and then need to finance.

No matter your age, you should be adding to your retirement funds -- such as your 401(k) or individual retirement account -- each month. Just setting aside money sporadically won't cut it; you need to identify how much you'll need to live on once you stop working and monitor whether you're on track to reach that amount.

​Here's a quick-and-dirty rule of thumb: multiply your annual spending by 25. This is the amount you'll need in your retirement portfolio, if you assume that you'll withdraw 4 percent per year to live on during your retirement. In other words, you'd need $1 million in your portfolio to live on $40,000 annually. Creating a plan will help you make sure you're able to retire the way you envision.
A home is a big investment, and sometimes that investment doesn't wind up netting you the return you thought it would.

The biggest culprit is having too large a balance on your mortgage, which detracts from your own personal stake in the current market value for your home. The sooner you pay this amount down, the better your home equity will be.

​You also want to be careful when purchasing a new home. Buying in a neighborhood that's on the downward spiral or buying the most expensive home on the block, likely won't net you a good return when it's time to sell. Also take care to stay away from custom renovations (like turning the garage into a recreation room), which could negatively affect your resale value. 

Paying high investment fees eats away at your gains. And since your gains compound over time, this creates a domino effect that can really chip away at your wealth. Take a close look at your investment companies' fees and shop around to make sure they're not taking more of your money than they need to be.

If you don't have a long-term investment vision and are simply playing the market, you could seriously undermine your wealth-building potential. Stop paying attention to market fluctuations, media pundits and the stories of your friends and family. Instead, create your own long-term investment strategy that will maximize your overall returns. Resist the urge it play it ultra-conservative (or fall for get-rich-quick schemes) and educate yourself on the best way to make your dollars work for you.

​If you're having trouble making sense of your options or want a second opinion, seek the help of a trusted financial adviser.
Based on your experience and seniority level, education and industry, you should have a fairly good idea how much you ought to be making at your job. If you don't, check out a site like PayScale to get a ballpark figure.

If you're not making what you're worth, you're doing more than leaving money on the table; you're also losing all the compound growth and investment returns that money could be generating for you. Invest in yourself with professional development and continuing education, make the case for that raise or promotion, or seek out a company who will value you higher.

If you don't have proper insurance coverage, you're taking a very big risk that could come back to bite you. Too many people think the worst can't happen to them, but the hard truth is you can't predict the future, and scrimping on sufficient insurance is never a good idea.

Of all the things we're hesitate to part with our money for, adequate insurance coverage should not be one of them. No matter your age, everyone should be properly covered with:

  • Health insurance.
  • Disability insurance.
  • Homeowner's or renter's insurance.
  • Flood insurance (if you live in a flood-prone area).
  • Umbrella liability insurance (especially if you own a small business).

If a spouse or children relies on you for support, make sure you have a decent term life insurance policy, as well.

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