The Stationers Guild

Swoozie’s, the gift  and stationery store chain, filed for bankruptcy on March 3.   Citing their ill-considered acquisition of 13 Blue Tulip stores in the northeast as a contributing factor to their demise, the Atlanta-based chain reportedly owns 43 stores in 15 states.

The bankruptcy of Swoozie’s is just another example of how venture capitalists have failed to understand the dynamics of the personalized stationery business.   Why Swoozie’s acquired the failed Blue Tulip stores (also in bankruptcy) last year remains a  mystery.  Nevertheless, I suspect that there was some form of finacial chicanery or tax play involved since both companies are owned by private equity firms.   As the financial crisis has taught us all: greedy financial wizardry lasts as long as the merry-go-round continues to go round.  I for one extend my heartfelt sympathy to each and everyone of the 350 Swoozie’s employees who have  lost their job.

The fine stationery industry is in a crisis:  there is simply too much product chasing a finite market.    Companies who seek to extend their distribution channels either physically or digitally will only compound the problem and most will fail.   I don’t have the answer, but what I see happening doesn’t augur well for the future of our industry.  It takes very bold leadership to back the “slow stationery” movement and continue to produce beautiful papers while other others are compromising standards to remain price-competitive.    Frankly, I don’t see much value in chasing the The Taylor companies down the price chain.  They are even beginning to make “Made in China” look good. 

Richard May
Founding Member Stationers Guild

The recent bankruptcy of Blue Tulip has prompted Connecticut Attorney General Richard Blumenthal to warn consumers to redeem gift cards before they become worthless at the end of this month.  While the bankruptcy is no doubt a traumatic experience to most Blue Tulip employees, it does raise some interesting questions about the value of gift cards.

At Therese Saint Clair, we have always resisted promoting gift cards.  In effect, it constitutes an interest-free loan to the store for merchandise that may be purchased in the future.  Processing companies that promote gift cards will tell you that on average between 8% and 10% of the face value of gift cards will not be redeemed.  While this might be considered a “good deal” for the card issuer, it does seem rather unfair to the consumer.  One way stores can redistribute these “unredeemed dollars” is to sell gift cards at a discount.  For instance, if on average 10% of gift card sales go unredeemed, a store can redistribute those dollars to their gift card holders by selling a $100 gift card for $90.  Personally, I think that this is only the fair thing to do.

More importantly, I fail to see the appeal of single-store gift cards.  Isn’t just another piece of plastic?  With already over-crowded purses and wallets, why do we need another payment option?  While promotional gift cards to encourage town residents to shop locally might hold some appeal, the single store gift card seems to me to a rather silly payment alternative.

Sheila May
Therese Saint Clair

The Boston Hearld reported that Blue Tulip filed for bankruptcy protection on January 5, 2009.  Highland Capital Partners is reported to own 44% of the New Jersey-based company, which operated about two dozen gifts stores in the northeast and employed 400.  Highland’s investment in Blue Tulip was apparently the brain-child of Tom Stemberg, the former CEO of Staples and now a General Partner at Highland Partners.

Three years ago, I remember listening to Mr. Stemberg describe on CNBC how Blue Tulip was going to reenergize the stationery and gift boutique industry by building a series of template-based model stores staffed by well-trained professionals.  As an experieced stationer I couldn’t imagine how the “Staples-model” could be applied to our industry, but when someone of Mr. Stemberg’s stature is willing to risk the firm’s capital and that of its investors in a new venture it is wise to take notice.

While Highland Capital Partners will no doubt cite the recession and weak holiday sales as the primary factors behind the demise of Blue Tulip, I suspect it was a flawed business model.   As we have seen many times in our industry, investors believe that they can clone a successful store model and replicate that store or franchise it across a wide geography.  

The fatal flaw is that Mr. Stemberg and its investors cannot clone the management and entrepreneurship that made the model store so successful in the first place.    Blue Tulip, like most chain stores, is driven by product sales and not service.  You are either have a well differentiated brand for which you can charge a premium or you become the low-cost producer.  Blue Tulip’s products were no different than you would find in any gift store and it didn’t have the economies of scale to become the low-cost producer. 

In the case of fine stationery, independent store owners are the catalyst that provides the client with a meaningful shopping experience.  Entrepreneurship and service quality are the hallmarks of successful stationers.  These intangibles are practically impossible to replicate in a corporate model which is generally structured by-the-book and where most purchasing decisions are made by headquarters.  The spontaneity and creativity is removed from the equation and, as such, store managers will spend more time looking for corporate guidance than seeing how they can serve their clients more effectively.

I suspect that Blue Tulip is just the first of several chain stores in the stationery and gift industry that have discovered that their business models are seriously flawed and will need to take urgent action to right-the-boat.

Richard May
Founding Member