Since the news broke that multititle mailer Orchard Brands is for sale and that parent company Golden Gate Capital hired Moelis & Co. to find a buyer, industry experts are wondering what befell the $1.17 billion catalog business.
Beverly, MA-based Orchard Brands, which sells apparel, accessories and home goods to consumers age 55 and older, reportedly owes more than $700 million to lenders.
The company, #26 on the 2010 MCM 100, includes 17 titles: Appleseed’s, Bedford Fair Lifestyles, Blair, Coward, Drapers & Damon’s, Gold Violin, Haband, Intimate Appeal, Linen Source, Monterey Bay, Norm Thompson, Old Pueblo Traders, Sahalie, Solutions, The Tog Shop, Willow Ridge, and WinterSilks.
Golden Gate’s strategy was to buy a family of established companies serving the mature market, says Craig Battle, managing director at investment bank Tucker Alexander. It’s possible that Golden Gate decided nothing was left to acquire, Battle says, “and growing the business organically in this kind of climate isn’t consistent with their fund goals. There are probably better places to put their money in a shrinking market.”
Battle, who was involved with the company’s acquisition of Blair Corp. in early 2007, notes that Orchard Brands’ plan was to leverage customer files and Blair’s fulfillment and distribution. “It looked good on paper, and they bought these companies and paid pretty good prices for all of them. You could say they got caught in an unfortunate downdraft” before recession kicked in, he says.
It doesn’t help that most of its catalogs specialize in mature women’s apparel companies serving middle and low-end markets, Battle says. Orchard Brands has “really good people and they have the money. But everyone in the retail apparel sector has suffered.”
Sarah Fletcher, president/creative director of catalog consultancy Catalog Design Studios, agrees that it’s a tough time for apparel merchants. What’s more, the Orchard Brands titles don’t really sell hard-to-find or exclusive items, “so they are competing for shrinking wallets with big brick-and-mortar players like Walmart, Target, Kohl’s and Macy’s,” she says.
Catalogers today have to do more to get their customer’s attention, Fletcher says. You can’t just present merchandise, “you have to actively sell it,” she adds. “It isn’t enough to send out catalogs and assume they will be read. You have to really engage the customer.”
You also have to invest in marketing and customer acquisition. Antonia Ness, managing director at investment firm Gruppo, Levey & Co., says catalogers across the board are struggling to maintain their files. Many are not using their marketing dollars effectively, particularly to prospect, she says.
“So the tendency seems to be to mail less, sell less, lose scale, develop overcapacity, and get crushed by fixed costs,” Ness says. “We’ve seen that in a lot of categories in the past two years.”
It’s hard to say who would step up to buy Orchard Brands, but most industry watchers think the company will stay together. One insider speaking on the condition of anonymity says that it’s highly unlikely that the business would be sold off in pieces because of the integration levels.
Indeed, Battle says, the business seems to be performing well, so it’s not a distress sale. “It’s a powerful combination of brands and makes good sense for it to stay together than apart.”