“Lillian Vernon’s Million-Dollar Mistake”

A fantastic failure taught this consummate catalog entrepreneur as much, if not more than, her many successes.

Lillian Vernon is the stuff of entrepreneurial legend: The mail-order business launched on her kitchen table is now publicly traded with 1998 revenues in excess of $250 million.A Valuable Lesson

But she and her Lillian Vernon Corp. learned perhaps their most valuable lesson about growth from a catalog that flopped. Flush with years of revenue increases of 25% to 40% annually, Lillian Vernon was looking for ways to expand beyond its core market of middle-class women. When a demographic survey revealed that many customers were better-heeled than anyone realized, Vernon — at that point still sole owner of the company she had built — was ready to take advantage of this discovery.

Lillian Vernon built its reputation on merchandise that was unique, yet moderately priced, such as home accessories. To boost customer order size, Vernon began a second, upscale catalog. Lillian Vernon At Homefeatured more expensive, often larger household items. The goal was to leverage the strong Lillian Vernon name to lure affluent regular customers into the new, pricier book.

The reality was quite different. Vernon could no longer attend to every detail of a company with revenues now in the millions. She hired an outside “professional manager” — with lots of training but little understanding of Lillian Vernon’s approach — to run the catalog. In doing so, she abandoned her convention of promoting from within.

At Home’s price hike from the usual catalog merchandise was a monetary Mt. Everest. While standard Lillian Vernon selections then rarely exceeded $25, At Home featured $800 benches, $1,000 oriental rugs, and the opportunity to have your portrait painted for $2,800.

Confusion By Diffusion

Vernon admits: “People were opening up the catalog and saying, ‘This isn’t Lillian Vernon.’” Most selections languished as customers shunned the unprecedented prices. Her core consumers might pay slightly more for merchandise, but not this much. The company learned the hard way that someone in the market for a sofa was not about to order it from the Lillian Vernon catalog. Such items weren’t the “impulse” buys customers usually made.

“I failed to follow my own rules,” Vernon declares. She hadn’t overseen the merchandise selection or realistically assessed her customers’ buying behavior. And she had relinquished control to someone out of touch with the entrepreneurial culture responsible for Lillian Vernon’s growth. After two years and $1 million in losses, Vernon shut At Homedown. But she didn’t abandon the idea to segue her customers into a more upscale niche. The catalog failed as a whole, but a few items were popular with customers and profitable.

Vernon put such bright merchandising spots in the regular catalog, and gradually nudged merchandise caliber and price points upward. Later, Vernon succeeded with several upscale catalogs. The biggest difference from At Home is in the price tags: There’s not a couch to be found.

Writer: John Duggleby