Hanover Management Shuffle

Some industry observers question whether Hanover’s changes are too little too late

Is Hanover Direct a victim of its management team’s `low-end’ mentality?

A month after announcing a $14.8 million third-quarter loss, multititle cataloger Hanover Direct replaced president/CEO Rakesh Kaul with former Barneys and Macy’s turnaround specialist Tom Shull. At the same time, Hanover replaced longtime board chairman Alan Quasha with Richemont S.A. executive director Eloy Michotte, though Quasha remains on the Hanover board. The Zug, Switzerland-based Richemont, which owns Cartier, Alfred Dunhill, and other luxury brands, is the largest shareholder of Hanover.

The moves came on Dec. 5, following Hanover’s Nov. 8 report stating that for the 39 weeks ended Sept. 23, it had a net loss of $41.9 million, more than triple the net loss of $12.7 million it posted for the comparable period of 1999. The soaring loss came despite a nearly 9% rise in net revenue for the period, from $380.6 million the previous year to $413.9 million.

Hanover, whose titles include Gump’s, International Male, and The Company Store, blamed the loss on costs related to Erizon, a division that provides third-party e-commerce transactions. Kaul had championed the division, which launched in 1999.

Time for a change Quasha, the president of New York-based investment firm Quadrant Management, says the executive shakeup represents “a time for change. The board supports Tom, and there’s a recognition that the cost structure has changed at Hanover,” Quasha says. “Rakesh did a good job, but…the board believed there was a different direction the company should be pursuing.”

While at upscale retailer Barneys, Shull was responsible for an EBITDA improvement of more than $20 million in 20 months on a $350 million sales base. Also during those 20 months, comparable-store sales rose more than 12%, driving Barneys successful emergence from bankruptcy in January 1999.

Several sources contacted by Catalog Age expect more tumult in the Hanover executive suite down the road. “Hiring Shull simply reflects the realization that losses need to be cut and expansion is done,” says one source familiar with the company. “Expect more personnel cuts and sales of assets that are not returning value. In the long run, these are positives.”

But some wonder if the company’s changes are too little, too late. “Is Hanover salvageable?” asks retail analyst Ken Gassman, of Richmond, VA-based investment firm Davenport & Co. “Sometimes these problems wind up spiraling into a financial abyss from which there’s no return.”

“One of the mysteries about Hanover is that it’s had a march-through of some of the greatest minds in direct marketing,” says consultant Al Schmidt, president of Manasquan, NJ-based Schmidt Group International, who himself had worked at Hanover more than 25 years ago. Industry veterans Coy Clement, Pat Connolly, Katie Muldoon, Ted Pamperin, and Jack Rosenfeld are Hanover alumni as well. But the company has been unable to harness the talent of its management team, Schmidt says. “I don’t know if it’s a case of Hanover management just not bringing out the best of the talented people who work there, or that it’s just putting a yoke around its people’s necks.”

Another of Hanover’s ongoing ills has been what Schmidt refers to as a “low-end mentality,” which keeps the company focused on its more downscale titles, such as home goods book Domestications, which generate lower average order sizes.

“Even when Hanover brought in more competent people to raise those average order values and evolve the brand, the management was still keyed to the low-end strategy,” Schmidt says. He cites the recent closing of the high-end home goods catalog Turiya as an example. – Additional reporting by Mark Del Franco and Moira Cotlier.

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