Lillian Vernon Corporation Business Information, Profile, and History

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History of Lillian Vernon Corporation

The Lillian Vernon Corporation is a mail-order catalog company specializing in household, gardening, and decorative merchandise as well as gifts and children's products. Personalizing these items for free has been one of the company's trademarks since the beginning. Lillian Vernon's catalogs have become a fixture in American popular culture. The company has boasted Hillary Clinton, Tipper Gore, Frank Sinatra, and Loretta Lynn among its clientele.

Over 90 percent of Lillian Vernon's customers are women with an average household income of $53,000. Over half work outside the home and have children living at home. Ninety percent of sales occur during the holidays. The company has one million square feet of warehouse space; more than a dozen outlet stores in the eastern United States help sell $4 million of overstock a year.

Although Lillian Vernon went public in 1987, it remained essentially a family-run company, with its founder Lillian Vernon acting as CEO, and her son David Hochberg acting as vice-president of public affairs. Another son, Fred Hochberg, was president and COO until 1992 when he left, reportedly unwilling to wait for his mother to let loose the reins.

Beginning at Home

Lillian Vernon Corporation was founded in 1951 under the name Vernon Specialties. The name was taken from the founder's adopted home in Mount Vernon, New York; her Jewish family had fled Nazi Germany in 1937, when she was ten years old. At that time, Lilly Menasche Hochberg was 22 years old, recently married, pregnant, and looking for a business she could run from her kitchen table. Hochberg soon changed her first name to the more American-sounding 'Lillian,' and eventually became known as Lillian Vernon. She formally changed her name after a divorce in the 1990s.

Using part of the $2,000 she and her husband had received as wedding gifts, Vernon took out a $495 advertisement in Seventeen magazine offering monogrammed leather handbags and belts for $2.99 and $1.99 each. The leather goods were purchased from Vernon's father, Herman Menasche, who ran a small leather factory. The 24-karat gold monograms were purchased from a distributor and hand-applied on the goods by Vernon herself.

Vernon received $16,000 worth of orders from her first ad. She then used her profits to buy ads in other popular women's magazines. She took in $32,000 for the year; sales grew and, within a few years, the company landed several contracts to manufacture custom-designed products for major corporations, including Max Factor, Elizabeth Arden, Avon, and Revlon. In 1954, Vernon Specialties moved out of Vernon's kitchen and into three facilities in Mount Vernon in order to meet the growing demand for its products.

Two years later, in 1956, Vernon Specialties mailed its first catalog to the 125,000 customers who had responded to the company's magazine ads since 1951. The catalog had sixteen pages of black-and-white photos offering items such as signet rings, combs, cuff links, and blazer buttons--all of which could be personalized through the company's free monogramming service.

In fact, the key to Vernon Specialties' early success in the mail-order business was its offer of free monogramming, which continued as one of the features that distinguished the company from its competitors in the mid-1990s. Within a few years of its debut, the catalog was expanded by Vernon to include products for the home. She personally chose every product featured in her catalogs and had an 'uncanny knack' for judging the needs and desires of middle-class housewives. Based on her own experiences, she knew that housewives required well-built products at reasonable prices. Although products were bought from a variety of manufacturers, most were customized under the Lillian Vernon name. As proof of the quality of its products Lillian Vernon offered a 100 percent money-back guarantee, which stated that 'customers can return a product even ten years after it has been purchased.'

Vernon Specialties' catalog was quite successful in its first decade, and sales continued to increase. In 1965, the company changed its name to Lillian Vernon Corporation. Sales were given an added boost in 1968, when Lillian Vernon introduced personalized Christmas ornaments in its catalogs. This product line would grow so popular that over 75 million ornaments would be sold by 1994. In 1970 the company's annual sales hit $1 million.

Sales continued to grow moderately throughout the 1970s. In 1978, as a response to the growing number of catalog customers interested in retailing Lillian Vernon products in their own stores, the company established its Provender wholesale division. Provender provided retailers with Lillian Vernon's own line of imported toiletries, fancy foods, and kitchen textiles, such as towels, aprons, and pot holders. Around that time, the company also opened The New Company, a wholesale manufacturer of brass products headquartered in Providence, Rhode Island.

In 1982, sales jumped again when the company introduced its first sale catalog offering overstocked merchandise at prices up to 75 percent off the original retail prices. Due largely to the success of its sale catalogs, Lillian Vernon posted record revenues of $75 million in 1983. The following year, Lillian Vernon introduced a line of private-label, exclusively designed home organization products in its catalog, a line that grew to represent 25 percent of business within ten years. In 1985, the company streamlined its operations by incorporating its Provender division into the main wholesale division.

The mail-order industry grew by leaps and bounds in the 1980s, with the number of people ordering merchandise by phone or mail increasing 70 percent between 1982 and 1992. Small, specialty catalogs like Lillian Vernon entered the market in full force, taking sales away from traditional mail-order giants like Sears and Montgomery Ward.

Going Public in 1987

By 1987, Lillian Vernon was mailing out 80 million catalogs a year. The company went public that year, with an initial offering of 1.9 million shares on the American Stock Exchange. Proceeds for the offering were used to construct a state-of-the-art National Distribution Center in Virginia Beach, Virginia. That year, net income totaled $4.4 million on revenues of $115.5 million. The following year, net income grew to $6.9 million on revenues of $126 million.

Expansion continued with the 1989 addition of a computer center at the company's National Distribution Center. That year, Laura Zambano was named to the position of senior vice-president, general merchandise manager, taking over many of the merchandising responsibilities from Vernon. Also that year, the company opened its first outlet store near its Virginia Beach distribution center. The company made an attempt to further diversify its product offerings by introducing a high-end home furnishings catalog, which ultimately was incorporated into the company's other catalogs.

The following year, however, Lillian Vernon introduced the highly successful Lilly's Kids catalogs, specializing in toys, games, and personalized gifts for children. Sales hit $162 million in 1991 with profits of $9.5 million. A new customer service center was opened in Virginia, as were two new outlet stores: one in a suburb of Washington, D.C., and the other in Williamsburg, Virginia.

Lillian Vernon was able to stay on top of the booming catalog industry by constantly introducing new products and by keeping prices reasonable. As the company entered its fourth decade, the average price of a product was $17 and the average customer order totaled $39. In 1992, the company declared its first quarterly dividend of $0.05 per share. That year, it also introduced its Christmas Memories catalog, specializing in Christmas ornaments and holiday decorations for the home. By 1992, Lillian Vernon was adding over 1,000 new products a year to its four catalogs and had three more outlet stores in Virginia and New York state.

In 1993, Lillian Vernon launched its Welcome catalog, offering home organization products and decorative accessories for people who had recently moved to new homes. Net income for 1993 totaled $12.8 million on revenues of $196.3 million. Headquarters were moved from Mount Vernon to New Rochelle, New York.

Although the catalog and direct marketing industry boomed in the 1980s, cyclical downturns are inevitable. Company management regarded increased specialization and diversification of its catalogs as essential to success in this rapidly changing environment. In response to increased competition, Lillian Vernon began test-mailing its catalogs in Canada and also began investigating other foreign markets. The company offered products on television's QVC Shopping Network, and Vernon personally appeared on Joan Rivers's television shopping program in 1994. In another effort to keep on top of trends in the direct marketing industry, Lillian Vernon became one of 39 catalogs to be featured on The Merchant, one of the first CD-ROM shopping discs.

As Lillian Vernon approached its fiftieth anniversary, the company seemed intent on expansion. It launched another specialized catalog in February 1995 offering cookwear, cutlery, table accessories, gourmet gifts, and small electric appliances. Two months later, it launched a special section in its core catalog featuring luggage and travel accessories. The company began selling its products through the Prodigy online service and was also looking into further growth through acquisitions and expansion of its corporate gift, premium, incentive, and gift certificate markets.

A New Outlook in the 1990s

The sudden departure of her son Fred Hochberg from the president's post in 1992 made Lillian Vernon reevaluate her plans for the company. A French company offered to buy it in 1994, and the next spring, a New York-based investment group, Freeman Spogli & Co. offered $190 million for three-quarters of it. To sweeten the deal, both Vernon and her son David Hochberg were to keep their executive positions for five years; they would also control one-quarter of the company's equity.

Although the Lillian Vernon Corporation posted record revenues of $222.2 million for the fiscal year, a postal rate hike was announced in January and the company had seen paper costs rise 50 percent in the preceding 12 months. Freeman Spogli reportedly ran into problems with its financing due to the tough environment; the cataloger did have 10,000 competitors, after all. When Vernon and Hochberg would not agree to lower the agreed price, the deal was called off.

Also in the spring of 1995, the gourmet Lillian Vernon's Kitchen catalog debuted. It was more organized and more brand-oriented than the company's main catalog. The company also began to make its products available over the Internet via an America Online store.

President Stephen Marks left the company in May 1995. His replacement, Howard Goldberg, was not named until the end of March 1996. Goldberg had formerly been in charge of the Macy's catalog.

In the fiscal year February 1996, Lillian Vernon mailed 179 million catalogs to 18 million people. This garnered nearly five million orders. Revenues rose slightly to $238.2 million, although profits were halved due to increased costs. There were more auspicious developments in the rest of the year. HarperCollins published Vernon's autobiography, An Eye for Winners, and paper prices came down.

At the time, Lillian Vernon was producing a new catalog every couple of weeks. It began mailings in Japan and expanded its National Distribution Center in Virginia by 335,000 square feet. A new seasonal telemarketing center opened in New Rochelle, New York. The company also test marketed a membership-based buyer's club.

The Lillian Vernon catalog had long included garden-related products when the company launched its first dedicated gardening catalog in March 1998. With more upscale offerings than the core catalogs, it proved instantly profitable. In the fall of 1998, Lillian Vernon began mailing to U.K. consumers in cooperation with Great Universal Stores PLC.

In August 1998, corporate headquarters moved to a seven-acre site in Rye, Westchester County, New York. The company began buying back its stock, which lost almost 20 percent of its value in one year, in October 1998. After takeover rumors caused it to rise in the mid-1990s, investors doubted the company's prospects, even though it managed to stay virtually free of long term debt. One believer in Lillian Vernon--the woman, that is--was fashionable Manhattan hairstylist Paolo Martino, who married her in 1998.

As Vernon noted in an interview, buyers had become more affluent in the previous decades. More could purchase luxuries like Wedgewood china, for example. They still appreciated bargains, however. The annual clearance sale for the Virginia Beach distribution center became something of a tourist attraction, visited by about 16,000 shoppers. The event grossed half a million dollars in four days.

Employment at Lillian Vernon swelled from 600 to 4,000 in the weeks before Christmas. The company faced increased competition for workers at its Virginia Beach call center due to the opening of other, similar businesses in the area. A new online catalog debuted in December 1998. At the time, Lillian Vernon managed 16 outlet stores and eight catalogs.

Lillian Vernon launched the 'Neat Ideas' catalog in the fall of 1999, featuring kitchenware, a category that accounted for 15 percent of the company's total sales. (Lillian Vernon's Kitchen had been dropped by then.) Lillian Vernon acquired the Rue de France catalog in 2000 and launched a new web site. Revenues for the fiscal year slipped from $255.2 million to $241.8 million as the mailing list was trimmed somewhat to reduce costs: profits doubled to $6.3 million.

As Lillian Vernon prepared to celebrate its fiftieth anniversary in 2001, the company was publishing seven catalog titles: Lillian Vernon, Lilly's Kids, Personalized Gift, Lillian Vernon Gardening, Christmas Memories, Neat Ideas, and Favorites. It had added seasonal call centers in Las Vegas, Nevada, and New Rochelle, New York, and was debuting 3,000 unique products a year.

Principal Subsidiaries:Lillian Vernon International, Ltd.; Lillian Vernon Fulfillment Services, Inc.; Lillian Vernon Retail Corporation.

Principal Competitors:Hanover Direct; Spiegel; Williams-Sonoma.

Chronology

• Key Dates:

• 1951: Lilly Hochberg starts a home-based mail order business.
• 1954: Vernon Specialties moves out of Hochberg's home.
• 1956: First catalog mailed.
• 1965: Name changes to Lillian Vernon Corporation.
• 1982: Company introduces first liquidation catalog.
• 1987: Lillian Vernon lists on the American Stock Exchange.
• 1989: First outlet store opened.
• 1993: President Fred Hochberg, the founder's son, departs suddenly.
• 1995: Offer to buy most of the company falls through; Lillian Vernon goes online.
• 1996: HarperCollins publishes Vernon's autobiography, An Eye for Winners; Lillian Vernon begins mailings to consumers in Japan.
• 1998: Lillian Vernon enters British market.
• 2000: Rue de France acquired.