Cash Crunch for Blue Sky Brands

Many catalogers are feeling the pain of slowing sales and rising costs these days, and multititle mailer BlueSky Brands is one of them. The parent company of catalogers Paragon Gifts, Bits and Pieces, Bits and Pieces U.K., National Wildlife Direct, and Wintherthur, is facing such severe cash-flow problems that it hasn’t paid some of its merchandise vendors in months.

What’s more, the company’s CEO Rich Hebert abruptly resigned on Jan. 4 “to pursue other interests.” Robert Pulciani, who took over as CEO of BlueSky Brands, could not be reached for comment.

“Cash is tight” for North Kingstown, RI-based BlueSky Brands, confirms Ed Coleman, president of National Wildlife Direct. Vendor payments have been stretched, he says, as BlueSky is “examining additional funding options. We’re in the process as we speak.”

What’s behind BlueSky Brands’ financial troubles? Coleman says that holiday results for the catalogs didn’t match company expectations. But according to some of the vendors that supply the company’s Paragon Gifts catalog, problems started well before the holiday season.

A July letter from Paragon Gifts president Brad Bishop told vendors “The Paragon is in a temporary cash crunch, which has made it difficult for us to make timely payments to you.”

While the letter acknowledged a few causes for the cash crunch, it said “the pressure is most acute right now as we come out of our ‘slow’ season and approach our peak season (September to December) when Paragon generates approximately 70% of its sales and earns 100% of its profits.”

BlueSky Brands was created in March 2005 when Chicago-based private equity firm Reliant Equity Investors acquired The Paragon Gift Holdings, parent of gifts titles The Paragon and Bits and Pieces, from a group of private investors. Reliant named Hebert, an investor in BlueSky and a direct marketing veteran, as BlueSky’s CEO.

A year later, BlueSky acquired McLean, VA-based third-party fulfillment provider AB&C Group. The company in November 2006 bought the catalog and Internet merchandising businesses for not-for-profit books Wintherthur and the National Wildlife Federation.

Bishop in the letter attributes the money problems to the corporation’s “success and fast growth.” But “fueling this growth has required substantial cash. As a result, we have paid vendors at a much slower pace than planned.”

The letter said the company expected to have a “substantial cash surplus” by the end of November, and that it is in “the final stages of a process to refinance BlueSky Brands with a much larger equity firm capable of properly supporting both our acquisition growth plans as well as the operations and working capital needs of our companies.” The financing has yet to materialize.

BlueSky Brands on Jan. 31 announced plans to shut down Paragon’s Westerly, RI-based warehouse/call center facility as of March 31 and move it to a Martinsburg, WV, facility it owns– laying off about 120 full-time employees. But the move is not part of the company’s cash-flow woes.

Coleman says the decision to shift those operations south had been planned “for quite sometime. The building was sold last year and leased back for the holiday selling season.”

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