A Bit of History Repeating

Lately, it seems that each week brings news of a well-known gift company having financial difficulties. Enesco declares Chapter 11; Silvestri is acquired by another vendor; Pacific Rim enters receivership. Each of these developments sent ripples of concern through the relatively small gift community. After all, if such well-established companies are in jeopardy, what does it mean for the rest of the industry?

However, this is hardly the first time that the gift industry has weathered the tempests of the business cycle. On the contrary, the recent round of dire financial news seemed strangely familiar. Though Pacific Rim is a new player on the stage, Enesco and Silvestri are both old hands, and many other major brands such as Towle and Fitz & Floyd have "been there, done that…" and survived to tell the tale.

In the 1980s, it was the ups and downs of silverware vendor Towle Manufacturing Co. that rattled the industry. Towle's troubles began around 1984, when, after years of healthy growth under the leadership of chief executive Leonard Florence, the company began to experience serious financial losses.

Declining demand for high-end silver, coupled with an ambitious program of acquisitions including several tabletop and housewares manufacturers, had left Towle in financial straits. By late 1985, the company reported expected losses of $27–$29 million. Towle enlisted the help of financial consultants Booz-Allen & Hamilton to reduce its outstanding debt, and initiated "sweeping managerial and organizational changes," including naming Paul Dunphy president and CEO. Florence, who had taken the company to great heights, was forced to resign, as Gifts & Decorative Accessories reported in January 1986.

In early 1986, Towle entered Chapter 11 proceedings, and began restructuring to concentrate on its core business, entertaining offers for its properties from Blythe Industries and even former CEO Florence. By December, Towle had reduced its debt, selling off non-core business divisions and reorganizing operations with a view toward emerging from Chapter 11 by mid-1987. And by the spring of '87, the outlook was once again bright: Towle was acquired by The First Republic Corp. of America, which provided funding for the company to emerge from Chapter 11.

But that wasn't the end of the story. By October 1989, Towle filed for Chapter 11 protection once again. "Since emerging from Chapter 11 two years ago, the company has failed to generate enough capital to fund both its debt and company expansion," said bankruptcy specialist Lee Daniels. The company subsequently missed several payments arranged under its reorganization plan, as well as a loan payment to Chemical Bank.

By the summer of 1990, Leonard Florence re-entered the picture, making a bid for the company through Syratech, the company he purchased in 1986 after resigning from Towle. The acquisition was approved in late summer, and under Syratech, Towle's fortunes turned around. Today, the company is a part of Lifetime Brands, which purchased Syratech in 2006.

Garden decor vendor Silvestri has been tossed on the churning seas of mergers and acquisitions for the past 20 years. Yet like a cork, the company always rises above the waves.

Silvestri was privately owned until 1986, when it was purchased by Alco Standard's Gift and Glassware division. But by mid-1987, Alco (which was looking to concentrate on its paper distribution and conversion business) announced a divestiture strategy that included Silvestri, along with Ebeling & Reuss and Toscany. In August 1987, G&DA reported that "Alco Standard has expressed its desire to sell the gift and glassware division as a group. It will, however, accept the sale of the individual companies if it becomes necessary."

But the decision to sell was not made for lack of performance. Edward Jay Phillips, Alco Gift & Glassware's group president, noted in the article that "the spectacular recent growth of Silvestri [places the company] in an ideal position to capitalize on industry opportunities." Late that year, the Silvestri management team, headed by Steve Berkowitz, bought the company back from Alco.

In 1993, Silvestri once again changed hands, as Fitz & Floyd — known for hand-painted ceramic tabletop, giftware and collectibles — purchased the company as part of its expansion. But by 1995, Fitz & Floyd was having difficulties of its own: G&DA reported in May of that year that it was seeking a financing package from CIT Group/Business Credit.

With too much inventory and not enough cash flow, Fitz & Floyd/Silvestri Co. (FFSC) filed for Chapter 11 in the spring of 1996. As part of the reorganization process, Ken Marvel, CEO of FFSC, explained, "Silvestri will be spun off to Syratech."

There it remained until April 2005, when Syratech itself entered Chapter 11 proceedings. As part of the company's reorganization, Syratech sold Silvestri at auction to Gift Acquisition LLC, a division of investment firm The D.E. Shaw Group. With the sale, Silvestri became a wholly owned subsidiary of eToys.com. In January 2007, eToys.com resold the Silvestri brand — this time to Demdaco.

The 1980s were a time of great expansion for a number of key companies in the gift industry, including Enesco. In fact, the company's growth was so extensive that in 1986, Enesco decided to separate the firm into three divisions.

"Because of Enesco's growth to a line of almost 7,000 items, no salesperson can do justice to every item," said Robert Nathan, Enesco's then-vice president of operations. "By creating three divisions, better time and attention can be given to all items."

"Our motive is to ultimately simplify our customer's selection and buying task, which is critical to continued success," added vice president of sales Robert Ricciardi. A fourth division followed in January 1987.

From 1988–1992, Enesco continued to expand thanks in large part to the strength of its collectibles lines, especially Precious Moments. Along the way, the company acquired complementary giftware lines such as Tomorrow-Today, Via Vermont and Sports Impressions. As The Enesco Worldwide Giftware Group, it became a force in the international marketplace, expanding its brand into Canada, the United Kingdom, Germany and Australia.

The first dip in Enesco's fortunes came in early 1993, when the company eliminated one division and restructured its sales organization. Still, it forged ahead, acquiring Otagiri in late '94, and continuing to weather regular storms through the end of the '90s. It was the gradual decline of the collectibles market that finally swamped Enesco domestically.

Looking to new leadership for a fresh outlook, in March 2001 Enesco appointed an industry outsider, Daniel DalleMolle, as CEO. DalleMolle proceeded to make major cuts in the company's U.S. workforce. And though sales continued to fall in the beginning of 2002, it looked as if aggressive restructuring had stemmed the tide, as sales remained level for the rest of the year.

Yet in 2003, the company was once again losing money due to contraction in U.S. card and gift distribution channels. Said DalleMolle, "For 2003, we will focus on growing our mass and niche market business and pursuing strategic acquisitions." The company aggressively pursued new products, from a license for the Bratz characters to candles to Nachtmann Crystal. It also pursued overseas growth, buying enamel vendor Bilston and Battersea, opening a Hong Kong unit and purchasing Dartington Crystal (only to divest the company again in 2006, at a pre-tax loss of $2.4 million).

The strategy didn't work. Further decline was chalked up to a decrease in mass market promotional sales, as well as "the sluggish global economy and this spring's SARS epidemic (2003)," www.giftsanddec.com reported.

DalleMolle died unexpectedly in 2004, and was eventually replaced by Cynthia Passmore-McLaughlin. Not long thereafter, Eugene Freedman, the company's founding chairman, retired. With Passmore-McLaughlin at the helm, Enesco gave up the Precious Moments license, and drastically cut other product lines — the survivors representing about 90 percent of the company's U.S. sales.

Passmore-McLaughlin remarked, "This is an important, positive step for Enesco because it allows us to focus on our future growth in our gift and home and garden decor business." But even though Passmore-McLaughlin predicted, "seeing gradual improvements in our performance over the course of 2006," it didn't work out that way. She resigned in May of 2006.

Under the new leadership of Basil Elliott, former vice president of the company's Canadian subsidiary, Enesco's fortunes continued to flag. In June, the New York Stock Exchange suspended Enesco trading; that was followed by a credit default, and in January 2007, a filing for voluntary bankruptcy. In February of this year, despite an objection by an ad hoc committee of stakeholders, an affiliate of Tinicum Capital Partners II LP purchased the business by forgiving the company's roughly $60 million debt; shareholders got nothing.

But the brand plays on … The acquiring affiliate, EGI Acquisition LLC, will go by "Enesco LLC," and Elliott is now president and CEO of the new organization. He said, in a statement, "We are confident that with our new partnership with Tinicum and with our dedicated employees, we are poised for growth and will once again become the leader within the giftware industry."

Of course, the overall fate of major vendors is impacted by a complex interplay of internal and external factors. Some are specific to the company, such as mismanagement, inventory decisions and supply chain problems. Others are specific to the gift industry, such as changing product trends or retail consolidation. And still other factors are specific to the era, such as war or peace, recession or economic surges — like the dot-com years. Even demographic shifts such as the baby boom and its echo boom influence trends in retail. Only the latter factors are constant across the industry. And even those interact with quirks of location and business and management choices in ways that are impossible to predict.

So the next time we hear rumors of a vendor that's on its last legs, remember that doesn't mean gloom for the industry as a whole. Such misfortunes are an inevitable part of the business cycle, and can actually act as a canary in the coal mine, warning of dangers that may lie ahead for the rest of the industry, while leaving time to avoid the worst. Indeed, misfortunes may not even spell the end for an afflicted company; history teaches that many a gift brand that looked to be down for the count has reinvented itself and gone on to decades more success.