F&G Couldn't Overcome Lost Sweeps Business

The consumer and government backlash against sweepstakes that has hurt magazine publishers was largely responsible for cataloger Foster & Gallagher's Chapter 11 bankruptcy filing this week, the company said.

“Until 1998, we had employed sweepstakes as a marketing approach, but we were negatively impacted with all the coverage surrounding sweepstakes,” company spokesman Doug Morris said. “We changed our marketing approach but were still affected by the coverage. The company [had] been in discussion with its bank lenders looking at alternatives to address its financial challenges. It was determined that [filing for Chapter 11] would be the best move.”

The 50-year-old company laid off nearly all its work force last month and filed for bankruptcy protection in U.S. Bankruptcy Court for the District of Delaware. The privately held Foster & Gallagher, Peoria, IL, listed more than $100 million in assets and more than $100 million in debt, according to the court petition. The company will liquidate its Spring Hill Group, Michigan Bulb Group, Gurney's Group and all of their subsidiaries. It has arranged for short-term financing to assist in closing and liquidation and has put up for sale the Gift Group, which includes Walter Drake and The Home Marketplace catalogs.

Michigan Bulb was among six companies mentioned by Michigan Attorney General Jennifer Granholm in 1998 as using misleading sweepstakes practices. Also that year, Sen. Carl Levin, D-MI, said sweepstakes were unethical because they intimated that recipients of sweepstakes mailings were winners. F&G canceled its sweepstakes efforts in 1999. Revenue, which had hit $476 million in 1997, fell to $337 million last year.

“Foster & Gallagher was a pretty diversified company but it got too reliant on its sweepstakes business and couldn't respond quickly enough to it going south to save its better business units,” said Mark Swendlund, partner of catalog consultancy W.A. Dean & Associates, San Francisco. Swendlund was senior vice president of catalog and development at F&G from 1990 to 1997.

The company had sent sweepstakes packages not only to its house file, but also to prospects that were proven sweepstakes buyers. The Michigan Bulb sweepstakes offered cash prizes. The beauty of this marketing practice, Swendlund said, was that customers who purchased from the Michigan Bulb catalog often moved on to buy from F&G's high-end brands.

The company tried to regain its footing by selling a few of its titles, including The Popcorn Factory to Wand Partners in 1999 and The Children's Group catalogs to 1-800-Flowers.com last month. Company officials had hoped the sale of The Children's Group would allow it to continue, but they realized the company was too deeply in debt to hang on, Morris said. Inquiries have been made for the Gift Group, he said, though he would not reveal potential buyers or an asking price.

Michigan Bulb president Job Holmquist resigned June 1, followed two weeks later by F&G CEO Robert Ostertag.

Coy Clement, president of ClementDirect, East Greenwich, RI, a catalog and direct marketing consultancy, said it seemed F&G was selling units to try to focus more on its core brands. Its departure is a blow to the industry, he said, since The Michigan Bulb list was widely used within the horticulture industry.

“I thought there would be other parts of the business that could have been saved,” Clement said. “It's disturbing to see one of the great old names in the business go down this way.”

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