Are the days of buying garden gnomes, orthopedic pet beds and assorted tchachkies from SkyMall, the iconic catalog found in airline seat-back pocket, coming to an end?
SkyMall and its parent company, Xhibit Corp., filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the District of Arizona on Jan. 22.
Xhibit said in a press release that it is petitioning the court for permission to sell the 25-year-old SkyMall, which it acquired in May 2013 for approximately $180 million in common stock.
SkyMall suspended its retail catalog business operations on Jan. 16, and laid-off 47 of its employees, the majority of whom were employed in SkyMall’s call center.
Because SkyMall historically did not narrowly tailor its product offerings, SkyMall faced well-established competitors in every market vertical, as well as competition from significant, broad-based ecommerce providers, such as Amazon.com and eBay.com, Xhibit said in an 8-K filed with the U.S. Securities and Exchange Commission.
Historically, the SkyMall catalog was the sole in-flight option for potential purchasers of products to review while traveling. With the increased use of electronic devices on planes, Xhibit said in the 8-K that fewer people browsed the SkyMall in-flight catalog.
The substantial increase in the number of air carriers which provide internet access, and the U.S. Federal Aviation Administration’s recent decision to allow the use of electronic devices during take-off and landing, resulted in additional competition from e-commerce retailers and additional competition for the attention of passengers, all of which further negatively impacted SkyMall’s catalog sales.
Delta Air Lines terminated its contract with SkyMall effective Nov. 30. On Dec. 10, Southwest Airlines notified SkyMall that it would stop carrying the SkyMall catalog effective April 1.
In light of the changing business environment and increasing business difficulties it confronted, SkyMall determined that its traditional in-flight catalog model was no longer viable or sustainable. Beginning in early 2014, SkyMall attempted to implement a strategy to reduce its dependence on its in-flight catalog business and to reposition SkyMall as a direct retailer in the ecommerce space.
However, Xhibit said it is unknown whether full implementation of this strategy would have been successful, as SkyMall was unable to implement its new business strategy because of the operational and liquidity challenges.
The SkyMall Business, excluding SkyMall Ventures, generated revenue of approximately $33.7 million in 2013 and $15.8 million for the nine months ended September 28, 2014. Xhibit said in the 8-K that the SkyMall catalog accounted for virtually all of Xhibit’s revenues.
The majority of SkyMall’s creditors consist of suppliers, vendors, contract parties, and employees who assert various unsecured claims. Xhibit estimates that aggregate creditor claims against them are approximately $12 million.
Xhibit sold off SkyMall Ventures, a division which provides loyalty solutions for financial services, hospitality and gaming industriy brands, to Connexions Loyalty, a division of Affinion Group, for $24 million, according to the 8-K.