STRATEGIES

Ross-Simons gets investment Freeman Spogli takes a majority share With an eye on speedier growth and richer resources, on July 25, jewelry, gifts, and tabletop cataloger/retailer Ross-Simons sold a majority interest to private merchant bank Freeman Spogli & Co. for an undisclosed amount. Ross-Simons chairman/CEO Darrell Ross, the son of founder Sidney Ross, will have control of the $250 million Cranston, RI-based marketer’s day-to-day operations, and remains the largest individual investor in the company.

Ross says that no operational or personnel changes are planned: “Freeman Spogli isn’t an operator; it’s an investor that will be active at the board level but not in the day-to-day operations.” In addition to giving Ross-Simons the funding to buy other catalogs down the road, the investment will also help the company boost the circulation of its Geary’s catalog division and grow its sales from $30 million this year to $45 million by the end of next year. Ross-Simons bought the upscale jewelry and gifts cataloger/retailer nearly three years ago.

“We also gain the opportunity to enter into partnerships, alliances, and joint ventures, all facilitated through Freeman’s network of contacts and its information flow,” Ross says, referring to Freeman’s ability to keep abreast of merger and acquisition activity in the catalog industry. “If opportunities come by, we have the infrastructure to consider appropriate acquisitions for mail order, retail, or Internet.”

Mike Petsky, CEO of New York-based investment firm Winterberry Group, says that selling a majority share to Freeman Spogli will help the Ross family “get some liquidity” while bringing in a smart financial group to position the company for future exit opportunities. “A lot of times,” Petsky says, “private companies don’t get the opportunity for exit plans.”

In addition, Petsky says the presence and funds of Freeman Spogli “will enable Ross-Simons to invest money in things such as technology and equipment, as well as buy other companies and spin off catalogs to make the company more valuable. “In all likelihood,” he conjectures, “Freeman Spogli will hold on to Ross-Simons for three to seven years, then look for an appropriate exit opportunity – be it an initial public offering or a sale to a larger company.”

Ross-Simons does 67% of its business through its catalogs, 25% through its 11 stores, and 8% via the Internet. The company will grow to nearly $300 million by year’s end, Ross predicts, continuing recent annual growth levels of 12%-16%.

Ross-Simons may also work with Freeman Spogli’s other catalog, retail, and Internet clients. The New York-based firm is now working with Internet start-up MVP.com; an online sporting goods site launched by retired sports legends Michael Jordan, John Elway, and Wayne Gretzky; car parts Website PartsAmerica.com; and Miadora.com, which sells jewelry. During the past 17 years, Freeman Spogli has invested more than $1.7 billion in 33 companies.

Having seen its annual net income plunge nearly 77% in 1999, general merchandise cataloger/retailer J.C. Penney has named Allen Questrom (below) chairman/CEO. He succeeds James Oesterreicher, who will retire on Sept. 15.

Chairman/CEO of retailer Barneys New York since May ’99, Questrom spent most of his career with Federated Department Stores. He was chairman/CEO from 1990 to ’97, including the period a decade ago when Federated was in Chapter 11.

“I’m very excited about the appointment,” says Walter Loeb, president of New York-based investment firm Loeb Associates. “He’s a great merchant and a terrific motivator of people.”

Questrom should lead J.C. Penney toward some positive changes, Loeb says, particularly in the face of mounting retail competition from such midrange store chains as Kohl’s, Target, and Old Navy. For instance, Loeb speculates that Questrom will try to move Penney into more higher-quality private-label apparel. But Loeb doubts that Questrom will make any significant changes to Penney’s catalog and Internet divisions.

Indeed, Questrom won’t comment on specifics, but he tells Catalog Age that he’s most concerned with carving out an overall strategy. “That’s the only way a big company can be successful against younger upstarts,” Questrom says. “We have the strongest mail order and dot-com businesses. We’re miles ahead of Federated when I was there, because we were unable to put the catalog together in enough mass to make the dot-com division happen. Without a really strong catalog, it’s impossible to maximize and take advantage of the dot-com business.”

At $102 million, Internet sales accounted for 2.6% of Penney’s $3.93 billion in 1999 catalog sales, which were virtually flat from catalog sales the year before. Penney expects Internet sales to triple by the end of this year. Total company sales rose 6.7% for the year.

On Aug. 8, USA Interactive Entertainment, the online division of cable-TV giant USA Networks, acquired a minority interest in Brainstorms Internet Marketing, which includes the Brainstorms and 800-Trekker catalogs and Websites, which sell novelty gifts and science-fiction products. As part of the deal, USA has an option to buy out Brainstorms from majority owner/president/CEO David Blaise, a move that senior vice president of USA Interactive Ben Tatta hints is likely.

Brainstorms will handle the marketing, merchandising, and order fulfillment for USA’s Scifi.com Website, which is associated with USA’s Sci-Fi Channel cable network.

For Brainstorms, the deal “helps to strengthen our whole sci-fi presence and build upon what USA has done in that market,” Blaise says. “USA is very good at content; we feel we’re excellent at e-commerce. So you put the two together, and it’s a great fit.”

As for USA, “we made the initial investment in Brainstorms to allow for a more aggressive approach in e-commerce,” Tatta says, “and now we have the basis to make a broader investment in Brainstorms.”

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