Illuminations Bounces Back from Bankruptcy

With a new owner and a new lease on life, Petaluma, CA-based candles cataloger/retailer Illuminations is back in the mail.

The company, which filed for Chapter 11 bankruptcy protection in January 2004, was bought in May by Madeleine LLC, a Petaluma-based investment firm created to save Illuminations. The new owners provided working capital through a $25 million credit facility, which enabled Illuminations to relaunch the catalog. The book had not mailed since December 2003.

Illuminations dropped 600,000 copies of the catalog on Sept. 7; a second book, with a Halloween theme, mailed on Sept. 27 to 500,000 names. Both books mailed only to existing customers. Illuminations increased the number of scented candles it carries from 20 to 30 and doubled its line of decorative candles to 24 SKUs. For the holiday the cataloger will offer nearly 800 SKUs; last year’s catalog contained less than 600 SKUs.

Filing Chapter 11 enabled Illuminations to take several critical steps to improve its fiscal situation. For one, the company was able to break its lease and shut its 400,000-sq.-ft. fulfillment center, which was roughly four times as large as the business required. Illuminations has since turned to a third-party fulfillment provider, Napa, CA-based New Vine Logistics. In addition, Illuminations closed 30 unprofitable stores from mid-January through April, bringing its store count down to 43.

Supplier demands

Chapter 11 also enabled Illuminations to break a sourcing contract with its primary candle vendor. The contract “constrained us from going out in the marketplace and sourcing more globally,” says Brian Laliberte, who has been the company’s president since July 16 and was previously chief operating officer.

Under the contract, Illuminations agreed to purchase a set amount of merchandise from the vendor. To try to meet that quota of product, Illuminations kept its unprofitable stores open. “We couldn’t have closed the 30 stores and still met the manufacturing agreement,” Laliberte says. “The agreement called for penalties if we didn’t meet the minimum purchase levels.”

Even so, lack of demand ultimately prevented the company from meeting the quota. And without fulfilling the quota, Illuminations couldn’t introduce new products from other vendors.

Laliberte says a new arrangement with the vendor gives Illuminations greater flexibility. While the supplier remains the company’s primary domestic vendor, with the new deal “we can now be competitive and selective in the marketplace, allowing for better pricing, competition, and innovation,” Laliberte says.

Illuminations’ sales peaked at $75 million last year and will just exceed $50 million this year. Catalog/Internet sales, which previously made up 15% of its overall business, will account for 20% this year.

The company expects to mail more than 3 million catalogs this year in four drops. In 2005 Illuminations plans to resume mailing the book seven or eight times a year with a circulation of more than 6 million, Laliberte says.

As the company looks to revamp its catalog business the rest of this year, Laliberte hopes the real growth will come next year. “We’ll stabilize it this year and turn things around,” he says. “Next year we’ll grow.”