Is This the End for Red Envelope?

Red Envelope warned in February that it had only enough money to operate the business through June. Now it doesn’t appear the gifts cataloger will last through April.

Or for that matter, is Red Envelope already in the past tense?

A reporter tried to reach Frank Buettner, Red Envelope’s president and chief operating officer, but a voice message was not returned.

Lee Helman, managing director of New York-based investment bank Finaco, said he had heard that Red Envelope had already fired its entire staff and will be liquidated.

According to a March 31 regulatory filing, the San Francisco-based merchant’s CEO, John Pound, resigned abruptly on March 30. The filing also said that Wells Fargo Retail Finance had withdrawn Red Envelope’s credit line. As such, the mailer claims it has insufficient funds to continue operations.

Red Envelope states in its filing that it has been in talks with two potential buyers, however, it doesn’t look like an acquisition will happen in a timely fashion. Chances are if it isn’t sold quickly, the cataloger will be forced to cease operations.

“It is a shame, but I do believe that the intellectual property has some real value to a buyer who can capitalize on the name and customer file and start over with a clean slate in merchandising,” said Stuart Rose, managing partner for Wellesley, MA-based investment bank Tully & Holland.

For its fiscal third quarter ended Dec. 30, Red Envelope reported a loss of $4.3 million, compared with a net income of $5.3 million for the same period last year. Revenue fell to $45.2 million, from $57 million a year ago.

Founded in 1997 as 911 Gifts, the company, which changed its name to Red Envelope in 1999, has had its share of ups and downs. It seemed to be on an upswing in 2007, with revenue for the fiscal year up 7.1%, to $121.3 million, up from $113.2 million for the prior year. The company trimmed its net loss for the fiscal year to $3.5 million, compared with a net loss of $5.6 million in the previous fiscal year, according to its financials.

It re-launched its Website and catalog last year just before the fall. But the company said it failed to achieve its goals for the holiday season.

According to Market Snapshot, a service of New York-based media brokerage services firm ParadyszMatera, RedEnvelope had a universe of just under 882,000 names in the fourth quarter, and an average sale of $92.

Helman said he isn’t surprised that the merchant is in a bind.

“Red Envelope never had a real profit model and struggled with merchandising over the years,” he said. “It doesn’t surprise me that it has met its maker.”

Helman also thinks the company was unable to convert its one-time buyers into multibuyers, and that has not helped its business grow.

“This is in part because the experience wasn’t the greatest, and the products tended to disappoint,” he said. “The price/value equation didn’t work.”

Rose said the company has not been a moneymaker. But he doesn’t think it has anything to do with gifts merchants having a rough time in this economy.

“It has nothing to do with the category, but everything to do with understanding and building a business,” he said. “They thought scale would save them when it’s merchandising and smart circulation, and cost controls. They should have perfected the model first, then build for scale.”

In February, gifts merchant Lillian Vernon and gadgets and gizmos title The Sharper Image both filed for Chapter 11. And last month, Blue Sky Brands shuttered its four gift catalogs: Paragon Gifts, Bits and Pieces, Bits and Pieces U.K., National Wildlife Direct, and Wintherthur.

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