Incorporated: 1951 as Vernon Specialties
NAIC: 454110 Electronic Shopping and Mail-Order Houses
The Lillian Vernon Corporation is a leading national catalog and online retailer specializing in household, organizational, children's, and fashion accessory items. Personalizing these items for free has been one of the company's trademarks since the beginning. A pioneer in direct marketing and personalized merchandise, Lillian Vernon publishes three catalog titles: Lillian Vernon, Lilly's Kids, and The Big Sale Catalog. The catalogs have become a fixture in American popular culture.
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 1934 and emigrated to America in 1937. In 1951, Lilly Menasche Hochberg was 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.
Growing the Business: 1956-70
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 16 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 into 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, "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 within a few years, over 75 million ornaments would be sold.
More Explosive Growth: 1970-84
Annual sales in 1970 hit $1 million. By 1984, the company had sales of $115 million. 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 potholders. 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.
Expanding a Public Company: 1987-89
By 1987, Lillian Vernon was mailing out 80 million catalogs a year. The company went public that year, becoming the first public listing on the American Stock Exchange of a firm founded by a woman. Proceeds for the initial offering of 1.9 million shares 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.
Specialty Catalogs and New Sales Channels: 1990-95
In 1990, 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.
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 were inevitable. Company management regarded increased specialization and diversification of its catalogs as essential to success in the 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' 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.
The company launched another specialized catalog in February 1995 offering cookware, 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.
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 numerous competitors, after all. When Vernon and Hochberg would not consent to lower the agreed-upon 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.
More Catalogs: 1994-2000
In the fiscal year ending 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 had 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 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 Wedgwood 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 50th 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.
New Owners Take Company Private
However, in the early 2000s, the company faced significant challenges. The catalog retail environment had grown increasingly competitive, with many clothing and home furnishing retailers expanding their catalogs to include household and gift items similar to those offered by Lillian Vernon. The company also had to contend with the impact of the September 11, 2001, terrorist attacks against the United States, as well as the move by customers from catalogs to online shopping. A study of catalog use found that over a 3-month period in early 2002, usage dropped to 32 percent compared to 42 percent in 2000. Over the same period, online shopping more than doubled, from 10 percent to 24 percent. Even though Lillian Vernon's web site was accounting for 15 percent of annual sales, the company found it more difficult to differentiate its goods from those offered by thousands of other catalogs and web sites.
The company found itself with falling sales and increasing losses, even after reducing catalog circulation and laying off employees in 2001. In 2002, Vernon stepped down as CEO, although she remained chairman of the board. That same year, the company's web site was named one of the "Top 25 Retail Web Sites," and the company began exploring licensing of the Lillian Vernon name. However, sales continued to drop, declining by 9 percent in fiscal 2002, with losses of $9.1 million. Despite those financials, several companies expressed interest in buying Lillian Vernon, primarily because of the strength of the brand name.
In July 2003, Vernon and the board accepted an offer of $60 million in cash and turned the company over to the investment firm ZelnickMedia, which was backed by private equity fund Ripplewood Holdings LLC. Vernon, who owned about 5 percent of the new company, assumed the positions of nonexecutive chairman and corporate spokesperson. Strauss Zelnick was the head of ZelnickMedia. The former president of 20th Century Fox and BMG Entertainment named himself chairman of Lillian Vernon, assumed the day-to-day management, and took the company private.
In December, ZelnickMedia bought Time Life, Inc., a direct marketer of books, music, and videos, from Time Warner's magazine division. Lillian Vernon's huge distribution center in Virginia Beach, Virginia, provided call center and distribution services to Time Life. In 2004, Zelnick created Direct Holdings Worldwide LLC, as the parent company of Lillian Vernon and Time Life, and moved headquarters from Rye to White Plains, New York.
Zelnick admitted there was little catalog experience in the new management when they took over Lillian Vernon. However, Zelnick told Catalog Age, "We see direct marketing as media," and envisioned opportunities in TV home shopping as well as on the Web. The new company established both a corporate gifts business and a home-party business and entered into licensing agreements. It also folded the Rue de France business, redesigned the Lillian Vernon catalog and the web site, and initiated a syndicated column by Lillian Vernon for Scripps Howard News Service. In 2003 it started outsourcing some of its ordering and customer service calls to Asia. It also offered free shipping and handling for orders over $40 and doubled the number of items available for personalization from 1,000 to 2,000. It also began charging for personalization services, and in 2005, it raised prices about 10 percent in total.
Zelnick's efforts failed to turn Lillian Vernon around, though the losses appeared to slow. By 2006, sales had fallen to around $180 million, down from $238 million for fiscal 2003, its last year as a public company.
2006 and Beyond
In May 2006, Direct Holdings Worldwide sold Lillian Vernon for a reported $10 million in cash to Sun Capital Partners, Inc., a private investment firm based in Florida. The new owners named Michael Muoio to be president and CEO, consolidated facilities by moving the company's headquarters from White Plains to Virginia Beach, and asked Vernon herself to take a more active role. "The company is going back to the essence of the brand through merchandising, pricing, and packaging," Muoio told Multichannel Merchant in November 2006.
Muoio came to Lillian Vernon from direct-market retailer Miles Kimball, which he had headed for 14 years. During his tenure there, annual revenues increased from $50 million to $200 million. At Lillian Vernon, he reinstituted free personalization services, dropped prices by 10 percent, cut higher priced and slower-moving items, and began sharing more business information with employees to help them better understand the company's challenges and goals. In 2007, the company closed its call center in Manila, consolidating activities in Virginia Beach. Challenges continued. It lost the Time Life fulfillment business and had to deal with increased postal rates.
Fifty-six years after its establishment, Lillian Vernon Corporation continued to offer a wide range of merchandise, with an average price point of $14.98. Half of its business came from the Lilly's Kids catalog, and half of all items sold were personalized. The plans for building the brand included offering personalized products for pets. After a rocky period, the company appeared to be heading toward a healthier time.
Principal Competitors
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Further Reading
Belton, Beth, "Catalog Queen Has More up Her Sleeve," USA Today, November 29, 1996, p. B7.
Bryan, Marvin, "How a Refugee Created a Mail-Order Empire," Profit, March 2000, pp. 12-21.
Burney, Teresa, "The Matriarch of Mail Order," St. Petersburg Times, December 23, 1996, p. 8.
Byrne, Harlan S., "Lillian Vernon Corp.: Segmentation Builds Catalog Sales," Barron's, June 4, 1990, p. 58.
"Cause of Failed Lillian Vernon Sale Is Disputed," Mergers & Acquisitions Report, September 25, 1995, p. 11.
Coleman, Lisa, "I Went Out and Did It," Forbes, August 17, 1992, p. 102.
Del Franco, Mark, "Efficiencies Enable Lillian Vernon to Shut Manila Contact Center," Direct, March 22, 2007.
Dorich, Alan, "Something for Everyone: Lillian Vernon Corp. Has Positioned Itself at the 'High of the Low End,'" Furniture and Interiors, Summer 2007, p. 48.
"Entrepreneurs and Professional Managers," Management Review, February 1999, p. 13.
Fannin, Rebecca, "Opting Out: The Public Markets Look Better, but There Are Still Plenty of Reasons for CEOs to Take Their Companies Private," Chief Executive (U.S.), May 2004, p. 44.
Furman, Phyllis, "Exec Losses, Wrecked Deal Unhinge Lillian Vernon: Tough Catalog Industry Environment Hinders Efforts to Find a New Buyer," Crain's New York Business, September 25, 1995, p. 39.
Garbato-Stankevich, Debby, "Lillian Vernon's Kitchen Catalog Debuts," HFN, March 20, 1995, p. 41.
------, "Lilly's Red-Hot Love Affair," HFD--The Weekly Home Furnishings Newspaper, June 21, 1993, p. 52.
------, "Vernon, Suitor Ax Buyout Agreement," HFN, September 25, 1995, p. 49.
Gattuso, Greg, "Lillian Vernon Looks to the Future," Direct Marketing, August 1994, p. 33.
Goldbogen, Jessica, "Lillian Vernon's New Green Thumb," HFN, March 9, 1998, p. 26.
Kehoe, Ann-Margaret, "The Profits Are in the Mail," HFN, September 16, 1996, p. 57.
Lesonsky, Rieva, "Living Legend," Entrepreneur, June 2003, p. 12.
Levy, Richard H., "Lillian Vernon Bought by Ripplewood Holdings," Direct, May 1, 2003.
Lisovicz, Susan, and Bill Tucker, "Lillian Vernon, Founder & CEO," Entrepreneurs Only (television program), CNNfn, August 26, 1999.
Mason, Julie Cohen, "Lillian Vernon Focuses on Customers," Management Review, May 1993, p. 22.
Odell, Patricia, "Taking a Bow: Lillian Vernon to Step Down as CEO," Direct, April 2002, p. 1.
Oser, Kris, "Lillian's Way: Lillian Vernon Reflects on a Career in Catalogs," Direct, April 2002, p. 11.
Peltz, James F., "Lillian Vernon Still the Head of Catalog House," Los Angeles Times, June 26, 1995, p. D4.
Richards, Gregory, "Florida Company Buys Lillian Vernon," Virginian-Pilot, May 31, 2006, p. D1.
------, "In Need of Delivery," Virginian-Pilot, December 24, 2006, p. D1.
------, "Lillian Vernon to Lay Off 230 After Losing Business," Virginian-Pilot, March 30, 2007.
Simeone, Lisa, "Lillian Vernon Talks About Her Mail Order Business," Weekend All Things Considered (PBS radio interview), December 9, 2001.
Simon, Virginia, "A Marketing Maestro Orchestrates," Target Marketing, October 1992, p. 16.
Sinha, Vandana, "Catalog Retailer Lillian Vernon Expands Virginia Beach, Va. Clearance," Norfolk Virginian-Pilot, August 8, 1998.
------, "Seasonal Help Scarce at Virginia Beach, Va. Catalog Call Center," Norfolk Virginian-Pilot, December 22, 1998.
Thau, Barbara, "Lillian's Kitchen: Cataloger Taps E-Commerce, Innovative Products for Growth," HFN, August 9, 1999, p. 51.
Tierney, Jim, "New Life for Lillian," Multichannel Merchant, November 1, 2006.
Vernon, Lillian, An Eye for Winners: How I Built One of America's Greatest Direct-Mail Businesses, New York: HarperCollins, 1996.
— Maura Troester; Updated by Frederick C. Ingram, Ellen Wernick
