Three years ago, Madison, WI-based fine arts and jewelry purveyor Guild.com was emblematic of the Internet highfliers. An outgrowth of The Guild, an art publishing company founded in 1985, Guild.com had received $40 million from venture capitalists and was primed to make millions via a public offering. Then the market collapsed.
“My investors [who owned about 25% of the company] started to think about getting some kind of return on their investment,” says Guild.com founder Toni Sikes. “And the best way to do that was to merge with Ashford.com.” Houston-based Ashford, a Web-only marketer of jewelry and other luxury goods, acquired Guild.com in a January 2001 stock swap worth about $4.1 million.
But problems plagued the deal almost from the onset. Ashford was faced with its own gaggle of anxious investors. When Ashford acquired Guild, the stock price was $0.56 a share, down from $13.00 a share a year earlier.
Then came the challenges of marrying the businesses, which were run entirely differently. For one thing, Guild has a print catalog as well as its Website. Ashford, meanwhile, had no experience with direct mail. For another, Guild has no physical inventory. Instead, it relies on its stable of 1,000 artists to store and ship the product for customers. Guild.com forecasts with each artist to keep stock available in advance of catalog mailings. Conversely, “Ashford’s method was having inventory on hand with fast turnaround times,” Sikes says.
To improve its financial numbers, Ashford slashed expenses and began emphasizing product discounts. Then CEO Kenneth Kurtzman departed in April 2001.
“We ran into a situation where we wanted to focus on those businesses that were going to be cash-positive by the end of the year,” says David Gow, who replaced Kurtzman as CEO. And Guild.com was not going to meet those parameters.
In July, just seven months after selling Guild.com, Sikes began inquiring about buying the company back. A month later, Ashford spun off 95% of Guild.com to Sikes and her investor group (worth $400,000 in cash), retaining a 5% stake. “We’re still a partner, but this deal does take its operational losses off our books,” Gow says.
The deal also allows Guild.com to use Ashford’s hardware and proprietary software, which Sikes says does the work of dozens of staffers. Guild had 82 workers when it was sold to Ashford, but now it employs just 33.
Guild.com has brought in Scott Treadwell as executive vice president of retail (which includes catalog operations) to examine circulation and clean up its house file. “We’re projecting less revenue this year, but with a smaller staff and lower overhead,” Sikes says, “the company is a lot closer to profitability.”