Bloom is off Garden Botanika

Jun 01, 1999 9:30 PM  By

It’s not all perfume and roses for Garden Botanika. On April 20, the cosmetics and personal care products cataloger/retailer filed for Chapter 11 bankruptcy protection in the Western District of Washington U.S. bankruptcy court. The Redmond, WA-based Garden Botanika also announced it will close 95 of its 245 stores and lay off 200 full-time and 1,000 part-time employees.

Court papers reported that Garden Botanika had $17.9 million in assets and $8.1 million in debts. The company negotiated $7 million in financing from BankBoston Retail Finance to fund operations during the voluntary reorganization period.

But the financing may not be enough to stem the losses Garden Botanika has experienced. In fiscal 1998, ended Jan. 31, Garden Botanika reported a net loss of $15.6 million, or a $2.20 loss per share, on total sales of $114.6 million. (Its mail order and Internet sales totaled $3.2 million.) In January the Nasdaq stock exchange delisted the company for no longer meeting its market capitalization requirements, and company president/CEO Michael Luce was replaced by senior vice president of marketing Arlee Jenson. And in early February, the company laid off about 50 employees-including 30% of its headquarters staff.

Observers believe that Garden Botanika lost sight of its core customer-women in their 30s with an interest in botanicals-when it aggressively increased its retail expansion in 1996, the same year the company went public. What’s more, pressure from shareholders forced Garden Botanika to make the bottom line, rather than brand building, a priority.

“In the beginning, Garden Botanika had a clear idea of who it was, who its customer was, and how to differentiate itself from competitors by emphasizing its botanical-based products,” says Jeff Haggin, president of The Haggin Group, a Mill Valley, CA-based catalog agency that worked with Garden Botanika in the early ’90s. “But pushing products and low prices became a greater driver than any long-term strategy to keep customers and build its brand.”

In addition, some analysts believe the company was caught off guard by the high costs of opening and operating the stores, and by increased competition from The Limited’s Bath & Body Works and The Gap’s line of personal care products. “Garden Botanika took its eye off the ball and didn’t see the competition coming,” says Patricia Negron, vice president of equity research for Boston-based Adams Harkness & Hill. “When it did start to respond, it was too late. It was way off track in its merchandising by emphasizing price and not ingredients. Its core customer lost interest.”

And Garden Botanika apparently lost interest in its catalog. In fiscal 1998, mail order sales fell 41% after the company slashed its prospecting efforts. “The catalog became [only] a support tool for retail,” Haggin says.

But earlier this year, Garden Botanika insisted that its future rested on catalog and Web sales (see “Garden Botanika refocuses,” April issue). “Garden Botanika is a concept that will work,” Negron says. “But it needs to reevaluate its merchandise and refocus on its core customer.”