Even value brands are vulnerable in an economic downturn.
Case in point is Jane Cosmetics, which on Feb. 28 alerted suppliers via a letter to its “major cash liquidity crisis,” and how it “is unable to meet its current payment obligations.” The problems stem from three contributing factors, the letter said, including a number of discrepancies with a “major mass retailer,” late payments from retailers as well as an aggressive December new product launch.
The letter, which circulated throughout the beauty industry this week, explained that the firm is continuing to seek financial assistance.
“The board members, management team and the existing shareholders have been working very hard over the past several weeks on various scenarios to try to save the company and maximize the value to the creditors. In addition, our shareholders have continued to support the company in the short term and invest money to finance the immediate minimal obligations of the company (e.g., payroll) in order to buy time to form a restructuring plan. The only other alternative would be an immediate liquidation of the company, which would likely yield nothing for many of the creditors,” the letter said.
A database search did not unveil a bankruptcy filing from the company, which is based in Baltimore. Jane, said one source, also has been up for sale.
In the letter, Jane attributed much of its current condition to one of its vendors. According to the letter, Jane “had a multimillion-dollar receivable balance with a particular mass retailer that was due in December. The company believed that [it] would be able to collect the majority of that balance, but recognized that there were certain advertising and promotional discounts that would be taken against this balance as a chargeback. The company was unprepared for the small check that arrived and the large amount of deductions against the invoices. Jane is currently auditing the chargeback deduction data to confirm accuracy. In addition, after committing to a 2009 full-year plan-o-gram chainwide, a mass retailer subsequently asked to return millions of dollars of merchandise to Jane as part of a company-wide inventory reduction program (not specific to Jane). Jane refused to participate in this inventory reduction program since we had already ordered large quantities of merchandise in support of this retailer’s 2009 plan-o-gram projections and were already overstocked.”
Jane, the letter said, is currently trying to negotiate “a reasonable settlement” with the chain, including commitments the beauty firm had made in reliance of their commitments for backup inventory, fixturing and media promotions.
The letter also highlighted positive company news.
“The good news is that the product launch of Aguaceuticals went well and the product has been very well received by the consumers. For those suppliers that were involved in this launch, you should be proud of its success in the marketplace.”
The Jane letter was signed by John Matise, who joined the company in early February as acting chairman. Matise, along with Lisa Yarnell, chief executive officer of Jane, and Drew McManigle, an industry expert who was brought in to work with the company, said in an e-mail that they were busy in meetings and would be able to speak on the company’s status next week.
Jane was spun off from its parent, the Estée Lauder Cos. Inc., in 2004 when it had less than $20 million in sales. It was purchased by Yarnell and investors later that year, and in 2005 it launched to the mass market, repositioned from a teen brand to a value line tailored to women 19 to 39 years old. In 2006, Jane Cosmetics received a cash infusion from two private equity groups, Stone Canyon Venture Partners and The Walnut Group. At last year’s National Association of Chain Drug Stores Annual Meeting in April, Yarnell talked about how the company had just received a cash infusion and could carry out 2008 plans. The brand is housed in 2-foot to 3-foot displays in roughly 15,000 doors, including Walgreens, Wal-Mart and Rite Aid, and generates about $50 million in sales.
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