Lillian Vernon Corp. working to put pieces back together

VIRGINIA BEACH

Three months after acquiring bankrupt direct retailer Lillian Vernon Corp., Current USA Inc. expects to return the iconic company to profitability this year.

Tim Arland, the president of Current USA who took over as Lillian Vernon's president, said his goal is to run it as a smaller, profitable company.

"We weren't as concerned about making it as big or bigger than it was," Arland said Thursday at Lillian Vernon's offices along International Parkway. "We just wanted to do it right."

Lillian Vernon, which sells low-cost personalized gifts and gadgets via catalogs and its Web site, had not posted a profit since 2000. It filed for Chapter 11 bankruptcy protection in February amid a weak retail environment.

Colorado Springs, Colo.-based Current USA, which sells stationery and gifts through catalog brands such as Current, acquired Lillian Vernon in a bankruptcy auction in April. Current USA paid a base price of $15.8 million, before adjusting for inventory. Arland said that price is pretty close to the final price, but declined to be specific.

Current USA is part of Taylor Corp., a Minnesota-based conglomerate that had sales of $1.7 billion and 15,000 employees in 2006, according to Hoover's business information Web site.

The company is Lillian Vernon's fourth owner in five years. It most recently was owned by Sun Capital Partners Inc., a Boca Raton, Fla.-based private investment group that reportedly bought Lillian Vernon for $12 million in May 2006.

The retailer was founded in the kitchen of a New York housewife in 1951, and grew over ensuing decades into one of the best-known brands in direct retailing. It built a distribution center off International Parkway in 1988, and moved its headquarters there in 2006.

Current USA's task now is rebuilding the company in time for the upcoming holiday season. In the midst of Lillian Vernon's financial woes earlier this year, the company stopped mailing catalogs and paying vendors, halting deliveries of new merchandise.

Arland said Lillian Vernon will distribute 30 percent fewer catalogs this year as it rebuilds.

"We're trying to build the brand back up to better than what it ever was," he said.

Arland said he acquired Lillian Vernon because he saw various synergies between it and Current USA that can increase efficiencies. For example, he said one of Lillian Vernon's top-selling products is a calendar. Current USA manufactures calendars, and can lend its expertise in selling such stationery products, he said.

The deal also will allow Lillian Vernon and Current to expand their offerings. Some Current products will be sold through Lillian Vernon's catalogs and Web site, and vice versa, he said.

Lillian Vernon's strength in product personalization also was appealing, Arland said. Lillian Vernon personalizes about half the products it sells, compared with 15 to 20 percent for Current, he said. Personalization is a direct-marketing strength, he said, because consumers increasingly want it and most retail stores are not equipped to do it.

"When you look at the two brands combined, it's a powerhouse in personalized products," Arland said.

Slowing sales over the past decade and increasing costs such as "significant" rent payments for its 870,000-square-foot distribution center led to the bankruptcy, Lillian Vernon said in a court filing.

To reduce costs, Arland said, Lillian Vernon will give up some warehouse and office space. He said an agreement on a five-year lease has been reached in principle with its landlord. It should be final within a month, he said.

Arland declined to project actual revenue for the retailer, but said sales volume would be about 30 percent lower this year. Michael D. Muoio, Lillian Vernon's former chief executive officer, said previously the company had $156.7 million in sales in the fiscal year that ended June 2007.

With reduced sales expected this holiday season, Lillian Vernon plans to hire 1,000 to 1,500 temporary workers, Arland said. Last season, about 2,200 seasonal positions were filled, said Paul Andersen, Current's vice president of human resources.

Lillian Vernon has 252 employees, Andersen said. That's about 60 more than it had when Current USA bought it, following several rounds of layoffs under the previous owners. A small number of jobs were shifted recently to Current USA's Colorado headquarters

Arland said he's optimistic about Lillian Vernon's future.

"We're excited about the brand," he said. "Probably even more so than when we bought it because to some extent when you buy it you don't know. There is that unknown. It's just nice when you get through the steps when you can say, 'Wow, I feel better about this than ever.' "

Gregory Richards, (757) 446-2599, gregory.richards@pilotonline.com