Good-bye, BlueSky

BlueSky Brands is history. The North Kingstown, RI-based parent company of the Paragon Gifts, Bits and Pieces, Bits and Pieces U.K., National Wildlife Direct, and Winterthur catalogs, which also owns McLean, VA-based third-party fulfillment provider AB&C Group, shut down on March 14.

There were reports that BlueSky Brands was going to file Chapter 11, but there was no record of a filing at press time. Repeated calls to BlueSky Brands CEO Robert Pulciani, Reliant Equity Investors, and all of the catalog titles were not returned.

Most of the catalogs’ staffs had already been thinned by layoffs by March. Jean O. Giesmann, former senior vice president of creative for BlueSky Brands, says that she and Paragon Gifts president Brad Bishop had been laid off on Feb. 29. The rest of the Paragon staff was let go two weeks later, as were the employees of AB&C Group.

BlueSky Brands was created in 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. It bought AB&C Group and the direct businesses for Winterthur and the National Wildlife Federation in 2006.

The company seemed to go down fairly quickly. By early 2008 BlueSky Brands had such severe cash-flow problems that it hadn’t paid some of its merchandise vendors in months. BlueSky’s CEO Rich Hebert abruptly resigned on Jan. 4; Pulciani replaced him.

Ed Coleman, president of National Wildlife Direct, confirmed in late February that “cash is tight.” Vendor payments have been stretched, he said, as BlueSky Brands was “examining additional funding options.”

Coleman said at the time that holiday results didn’t match company expectations. But according to some merchandise vendors for Paragon, problems started well before the holiday season.

A July letter from 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.” The letter also said the company expected to have a “substantial cash surplus” by the end of November, but the financing never materialized.

No cash, no product, no sales Indeed, BlueSky failed to get its next level of financing as early as June 2007, according to Curt Barry, president of operations and fulfillment consulting firm F. Curtis Barry & Co. “After that, many personnel cuts were made — both in senior management and in the work force,” he says.

A key problem, according to some: BlueSky Brands incurred too much debt in its acquisitions. One source who requested anonymity describes the company’s strategy as “a gross mismanagement from the beginning.”

In particular, says the same source, the National Wildlife and Winterthur titles were in debt when BlueSky acquired them in November 2006. The firm did not ever have deep enough pockets to reinvent the business and sustain the loss, the source notes.

Catalogers typically fail for two reasons, says Stuart Rose, managing director for Wellesley, MA-based investment firm Tully & Holland: “They don’t have enough money to finance catalogs, and they don’t have enough inventory.” Mailers get the cash from customers when the merchandise ships, not when it is ordered, so you need product in stock to function, he says.

Reports of BlueSky’s troubles had been brewing for at least six months, “so the cycle has been there for a while,” Rose says.