‘Odd Couple’ Merger for Lillian Vernon
April, 28 2003
The New York Times, 04.28.03
Strauss Zelnick, a former top executive of both BMG Entertainment and 20th Century Fox, a man who wears black, is fashionably tanned and consorts with the music and movie elite, agreed to pay $60 million earlier this month for Lillian Vernon, the catalog company.
The Lillian Vernon catalog and offshoots like Lilly's Kids and the upscale mail-order Rue de France are mailed to 26 million households every year. Ms. Vernon's most recent Favorites catalog features hundreds of accessories and gadgets, introduced with bold-face descriptions like "Monkey's Tail is a Banana Hanger!" "Hearts Flicker in the Candlelight of Tulip Votive Holders" and "Working Gumball Machine Looks Like Framed Art."
Mr. Zelnick's deal, backed by his financial partner, Ripplewood Holdings, left some analysts scratching their heads. They were puzzled not only because of the "odd couple" partnership of Mr. Zelnick and Ms. Vernon - who is pictured on the cover of one catalog wearing a hat full of feathers and pearls the size of gumballs - but because of the health of the business itself. Sales at the Lillian Vernon Company have declined over the last five years.
But Mr. Zelnick, 45, the chief executive of ZelnickMedia - a private company that owns Columbia Music Entertainment, the largest music label in Japan, and the National Lampoon, among other things - says he and his associates can restore Lillian Vernon's catalog business into the cash cow it once was. To him, Lillian Vernon is a media company, "defining media pretty broadly." "It's a 50-year-old brand name that 50 percent of households recognize, that 80 percent of women know," Mr. Zelnick said.
Mr. Zelnick, who, after helping to run the 20th Century Fox Film Corporation from 1989 to 1993, and who ran Bertelsmann's record company, BMG Entertainment, from 1998 to 2000, said he was an expert on turnarounds. To effect one with Lillian Vernon, he said, the company needs to take another look at its catalogs, which now come in a variety of sizes, their pages bursting with hammocks, gold-colored sconces and Uncle Sam dolls. "There is a certain elegance to some of these things," he said, "and perhaps the catalogs don't do it as well as they might."
And besides, Mr. Zelnick thinks there is nothing wrong with tchotchkes. "I love Middle America," he said. "I don't condescend to Middle America. My tastes are pretty prosaic, actually," he said, sitting in his corner office at 650 Fifth Avenue, at 52nd Street, the city spread out before him like a high-density Monopoly board.
Mr. Zelnick said he liked "the paradigm of Lillian Vernon," which he defined by quoting Forbes magazine: "the mantra for this decade - `living better for less.'" Lillian Vernon, he said, offers small luxuries at a moderate price. "For $20," he added, "you can have a 100 percent wool needlepoint pillow."
Even Tiffany, said Mr. Zelnick, has gone downmarket; Lillian Vernon offers many things that compete directly with Tiffany - "for one-fifth the price." As examples, he mentioned certain pottery vases and mugs, manufactured in Asia instead of Italy.
But both Mr. Zelnick, who will become chairman, and Ms. Vernon, who, at 75, will relinquish day-to-day command but will still be the spokeswoman of the company, said that there was room for improvement.
"Do I think this could be even more stylish?" asked Mr. Zelnick, flipping through last Halloween's edition of Lilly's Kids. "Yes."
Ms. Vernon agreed that the catalogs, particularly, could be improved, although the company already had been moving to unclutter their pages. "We recently hired a new graphics designer." she said, "and had an upsurge in business. Mr. Zelnick particularly liked that."
Lillian Vernon had sales of $260 million in the fiscal year ended Feb. 23, 2002, and has yet to report on the most recent year. Most of the goods it sells are made in Asian and Pacific Rim countries like China, Taiwan, Indonesia, Macau and India.
Making the catalogs more elegant - without losing the core audience of buyers, many of whom write paeans to their purchases - presents "a bit of a challenge," Mr. Zelnick said.
"Lillian and I think this shouldn't be Saks Fifth Avenue." Ms. Vernon said that she planned to be the host of more programs on the QVC home-shopping channel. Other plans call for reducing the number of items offered - and perhaps, the number of suppliers, too, performing some hard negotiations and, eventually enlarging the gross margins.
ZelnickMedia, which expects to close the deal in late July, may also reduce some of the prices, especially those hovering at or over $100. "The key price today is $19.99," he said, "or $29.99."
And how many of these catalog items does Mr. Zelnick have in his own apartment?
"I happen to like a very spare look," he replied.