Lillian Vernon Profits Down, President Leaves

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Although national catalog circulation for the Lillian Vernon Corp., Rye, NY, increased last year, overall sales hit a slump and is prompting the leading specialty merchandiser to make adjustments in the number of books it mails and to abandon $1.4 million worth of new customer service and sales order entry technology in favor of retooling an existing inhouse system.


In addition, the company also recently released a printed statement saying, "the Board of Directors has decided not to renew the contract of Howard Goldberg, president, chief operating officer and director, who will be leaving the company to pursue other interests."


Whether Lillian Vernon's sales and circulation challenges were directly related to the decision to replace Goldberg is unclear, but the company has announced this month that Jonah Gitlitz, former president of the Direct Marketing Association, will take over the day-to-day operations of the company.


Revenue for Lillian Vernon's third quarter of fiscal 1999, which ended Nov. 28, increased to $107.9 million compared to $106.3 million last year. However, net income was $7.6 million compared to $9.6 million for the same period the previous year. The reduction in the quarter's net income was said to be a result of lower per-catalog sales combined with increased circulation expenses.


Revenue for the nine-month period rose to $179.4 million compared to $171.3 million for the same period last year, on a 14 percent increase in catalog circulation. Net income for the nine-month period was $3.1 million compared to $6.8 million the previous year.


"We increased our circulation, obviously, to boost business" said David C. Hochberg, vice president of public affairs at Lillian Vernon, "but in the end, the response rate was less than anticipated."


Hochberg would not say by what percentage the company plans to cut its overall catalog mailing efforts, but said it's "safe to say that we will be reducing circulation sufficiently."


As many direct marketers have learned, a number of dynamics -- both good and bad -- can be set in motion when a decision is made to increase general distribution of a catalog or DM campaign in hopes of increasing the overall sales response.


Hochberg acknowledged that when most direct marketers decide to adjust circulation, they inevitably involve themselves with a certain amount of risk that is unavoidable.


"You know your best customers are more predictable than newer ones," he said. "I think it is a very thin line. When you mail more heavily into your customer file, there is always less guarantee of getting a certain response. It's always been a tricky science. We have over 20 million names. It does get more complicated."


Presumably, an immediate revisiting of the company's direct marketing strategies regarding those 20 million names is eminent.


Chairwoman/CEO Lillian Vernon was quoted as saying, "We welcome the extensive direct marketing and management experience that Jonah Gitlitz will bring to our company as interim president." Vernon also noted that the company's new interactive Web site was being met with an enthusiastic response and affirming that the Internet will be playing "an increasingly important role in the future of our company."


Hochberg, who has been with the company since 1978, agreed that the revamped Web site is "exciting for many reasons." But he also said, "We are a realistic company. You read a lot of hype about e-commerce. E -commerce is important, but it is also a long-term, slow-building process we believe is good for building sales -- which, of course, is always good -- but it is also an important investor relations tool for Wall Street. It's important for our recruiting efforts, and for our wholesale divisions."


Lillian Vernon's presence on the Internet began with its first site in 1995. A new more technologically-sophisticated site was launched in November to prepare the company for its anticipated online growth.


Regular quarterly cash dividends of 8 cents per share for Lillian Vernon stockholders of record as of Feb. 15 will be payable March 1.
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