Licensing Moves Ahead as Lillian Vernon Looks Back

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Plans to license the Lillian Vernon name are heating up with a study by a "well-known national licensing company" expected by June.


Leading the effort is company founder/CEO Lillian Vernon. In February, the 75-year-old catalog legend asked Lillian Vernon Corp.'s board of directors to find a CEO to replace her so she could lead the licensing venture.


"I believe that licensing is a promising way to grow our company and our brand by capitalizing on our merchandising expertise," she said. "Pursuing a licensing venture is a major undertaking that requires much time and commitment."


Securities analyst Ken Gassman of brokerage house Davenport & Co., Richmond, VA, who has followed the firm since the 1980s, agrees that licensing holds tremendous potential for the company.


"The Lillian Vernon name is so well known, and that is a valuable asset that can be further leveraged by licensing," he said. "I don't know that she'll become another Martha Stewart, but the name has a lot of cachet among female shoppers. They tend to be over 40 and they tend to have slightly lower-than-average income levels."


Children's furniture, children's clothing and cosmetics are among the most promising product categories being considered for licensing, said David Hochberg, the company's vice president of public affairs and Vernon's son.


Vernon, who owns 28.3 percent of the company's stock, said once licensing agreements are in place, the company will begin a major advertising campaign that includes print advertisements in leading consumer magazines and television ads.


"In addition to an advertising campaign, we can increase brand recognition through a syndicated newspaper column and radio features," she said.


Vernon will remain CEO until a replacement is selected, though Gassman questions whether she will ever relinquish daily control.


"Is she really leaving?" he asked. "This is her baby. She has tried to turn over the day-to-day management of this company to any number of presidents over the years. The presidents at Lillian Vernon don't stay very long. And CFOs don't stay long as well. But her chief merchants seem to stay around. There seems to be unusually high turnover among top management at Lillian Vernon Corp. She keeps trying to turn the company over to these folks, but something turns sour, and she is back in there."


Vernon started the company in 1951 when she used $2,000 in wedding gift money to place a $495 ad for a personalized handbag and belt in Seventeen magazine. She received $32,000 in orders and the rest, as they say, is history. The company shipped more than 5.6 million packages and had revenues of $287.1 million in fiscal 2001.


"I was young and newly married at the time -- and like other women my age, I knew instinctively what would appeal to them," she said. "I also sensed that women wanted to wear items that would make them feel unique, so I offered free personalization and it became a popular service. Personalization is still the trademark of our company."


Despite the company's rags-to-riches history, the licensing effort comes as sales have slumped. Revenue during the 2001 third quarter, which ended last November, was $87 million, down from $104.1 million during the previous year. The company attributed the decline to a 13.7 percent reduction in catalogs mailed because of the recession, the effects of Sept. 11 and a downturn in consumer spending. In addition, the company mailed its November catalogs later in the quarter compared to the prior year, thereby shifting revenue from the third quarter to the fourth quarter. Net income during the third quarter was $2.6 million, down from $5.1 million during the 2001 third quarter. The company implemented a work force and salary reduction plan during the quarter.


"It's a well-recognized brand that stands for value at its price points that are generally fairly low," Gassman said. "The core catalog is the catalog that is doing so well. The other Lillian Vernon catalogs, the spinoffs, have been disappointing."


Despite slowing sales, the company's online business has been growing steadily.


"The Internet is the most promising channel of our multichannel business, but it will never completely replace our print catalogs," Vernon said. "Our Web site accounts for 15 percent of our company's annual sales. This past Christmas season, our Web sales increased 33 percent from the prior year."


Still, printed catalogs will remain the company's bread and butter business for some time to come, Vernon said.


"The majority of our customers still prefer to shop by catalog," she said. "The portability of print catalogs has a mass appeal that I don't believe will change. There are also issues regarding the Internet that prevent a total shift to the Web. Many people do not have a computer at home and most don't have high-speed Internet access."


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