Doo-Doo Diligence and Buccaneer Businessmen
Last week I did a column on the simultaneous bankruptcies of two famous catalogs—Lillian Vernon and The Sharper Image—and received a long comment from Michael Muoio, president and CEO of Lillian Vernon. (See the image below.)
His comment ran beyond 1,500 characters, and I quickly e-mailed him with effusive thanks for taking the time to write and to ask him to either cut it or finish it so I could run it as two entries with “continued” on the first one.
Muoio e-mailed me back and said, “Wanna do a phone call?”
I e-mailed him back and said sure, and that I would write the thing and let him see it before it ran.
No response. And no phone number to call him.
Finally, Muoio and I connected by phone this week.
My sadness after talking to him was acute.
From 2001 to 2003, sales at Lillian Vernon progressively declined and losses increased. In 2003, the $250-million-a-year company lost $18.6 million. That year—50+ years after founding and running the company, and with no planned line of succession—the iconic Lillian Vernon sold her business for $60.8 million to private equity investors and it came under the umbrella of Ripplewood Holdings.
According to Michael Muoio, Lillian Vernon was essentially bankrupt in 2000. It was saddled with a very expensive “legacy IT system with multiple platforms and IBM-based.”
Lillian Vernon Under Ripplewood
Ripplewood paid $60.8 million, then sold off the building for $40 million, so the net cost was $20.8 million—less than one-tenth annual revenue. Not a bad deal.
Honestly believing they could overcome the hurdles, the new owners planned to combine Lillian Vernon with a Time-Life catalog and expand the corporate gift business. “The strategy was sound,” Muoio said, “but it was a matter of execution.” For example, $7 million was spent trying to bring the IT system into the 21st century. Ripplewood could not make it work and lost $25 million a year over the next three years. This meant negative cash flow after three years was more than $100 million with no positive results.