Hanover Direct Going for Growth

The numbers continue to look bad for Edgewater, NJ-based multititle cataloger Hanover Direct, but the outlook appears more promising than it’s been in a long time, due to some recent developments.

In May the company hired its one-time chief financial officer Wayne Garten as CEO. Retail veteran Tom Shull, who was brought on in December 2000 to turn Hanover around, resigned as chairman/president/CEO of Hanover on May 6. Most recently at the helm of toiletries cataloger/retailer Caswell-Massey and computer mailer Micro Warehouse, Garten gives Hanover the catalog leadership it lacked for the past four years. During that time, sales dropped from $603 million in 2000 to $415 million last year. Shull did turn around Hanover’s bottom line, though. The company has made steady progress in profitability since 2001, when it posted a $24 million net loss. In 2002, Hanover trimmed its net loss to $432,000, and last year the company reported $6.1 million in net income.

On July 8, the company closed a $20 million term loan facility with hedge fund Chelsey Direct, which will supply Hanover with a much-needed cash infusion. The company will use the funds to rebuild its spotty inventories and boost circulation of its catalogs, which include decor books Domestications and The Company Store, upscale gifts and furnishings title Gump’s by Mail, and apparel catalogs Silhouettes and International Male.

And on July 9, Hanover hired back Charlie Pellenberg, founder of its Domestications bedding catalog, as president of the book. Pellenberg, who founded Domestications in 1983, went on to create rival Brylane Home in 1997 for competitor Redcats USA (formerly known as Brylane). Neither Hanover nor Redcats will reveal the sales of their catalogs, but Garten says that Brylane Home has become the book to catch. Brylane Home has 1.1 million 12-month buyers, compared with Domestications’ 814,860 12-month buyers.

“Domestications used to be the largest business for Hanover,” Garten told shareholders during the company’s annual meeting in East Rutherford, NJ, on Aug. 12. “But it’s been in decline the past eight years, and is clearly a business that’s lost its focus.”

Garten intends to sharpen the focus of Domestications while returning Hanover to growth mode following years of cutbacks. For instance, for the first half of this year, Domestications’ circulation was cut 25%. What’s more, Shull had moved Domestications under The Company Store management. Garten has separated the two again, with Company Store president John DiFrancesco continuing to run that business.

Hanover has been trying since November to sell its noncore catalogs, including Gump’s, the plus-size women’s apparel book Silhouettes, and the men’s apparel catalogs International Male and Under Gear. In the meantime, it has managed to bring down control costs. Although sales have continued to fall this year — to $192 million for the first six months from $207 million for the first half of 2003 — Hanover has posted three consecutive quarters of net income. For the quarter ended June 26, Hanover reported net income applicable to common shareholders of $600,000; for the comparable quarter of last year, it had lost $3.6 million.

Still, a major problem of the past few years has been the company’s lack of liquidity, due to limits on its credit facility and an unwillingness among vendors to extend additional credit. The number of vendors serving the bedding market, for instance, has dwindled in recent years as major textile mills have closed down. As a result, Garten said, “vendors have lower tolerance, and we’ve experienced significant contraction on our credit limits.”

This has left several titles with stock shortages, resulting in backorders and cancellations. Garten said that inventories this year should have had another $14 million-$15 million worth of merchandise than they did. But thanks to the cash infusion from Chelsey, “fill rates are moving up, and we’ll be able to service our holiday business.” With the necessary liquidity, the company has been ramping up Company Store circulation, though Garten would not say by how much.

As for Domestications, Pellenberg tells Catalog Age that “parts of elements in the offerings are out of kilter,” he says. “It’s like a car that needs to be tuned up.” To help with the tune-up, Pellenberg in August brought in Linens & Things senior merchant Karen Zink, whom he had hired as a Company Store buyer 10 years ago. Zink had left Hanover five years ago.

Fred Anderson, president of South Orange, NJ-based consultancy and investment bank Anderson Direct and Hanover’s senior vice president of mergers and acquisitions in the mid-1990s, believes that Hanover has the right management team in place to turn around. Pellenberg “is absolutely the right guy to fix Domestications,” Anderson says. “The merchandise offer is what’s screwing up Domestications, and Charlie will fix it.”

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