Lillian Vernon: Unpacking the Lessons From a Mail-Order Queen

Sometimes its better to get out of an industry. In Brilliant Pivot & Patience I wrote about Edwin Wegman’s pivot from novelty mail order business to a bio-pharmaceutical success.

On the flip side, Lillian Vernon built a mail order business from scratch and doubled down on her niche, monogrammed goods, and expanded into other hard to get trinkets. She’d focus on working suburban women in their thirties and forties after initially finding success in the teen market. Essentially, Vernon was catering to the markets that were just like her as she aged.

By focusing on such a narrow niche, Vernon was able to grow rapidly versus “The Big Books” – Montgomery Ward and Sears & Roebuck. Those catalogs offered almost everything and started their decline in the post World War II era. Vernon’s drive and tenacity allowed her to build the top specialized mail order brand with revenues of nearly $300 million in 1999. She was also the first female founder to list her company on the American Stock Exchange.

Lillian Vernon’s story is both inspiring and full of lessons on building a fast growing business and brand reputation. She also proves there are such things as female intelligent fanatics, as well.

Unfortunately, the rise of competition in the specialty mail-order business and elsewhere, with discount retailers, proved too much for the company. Lillian Vernon Corporation was taken private in 2003 for $60 million, a deep discount to the operations at the time. Had Vernon sold out sooner or pivoted quicker, things might have been different.

Preparing For Chaos

Startups are inherently chaos. As a founder you need to prepare yourself to think creatively and independently, because more often than not, conditions on the ground will change so rapidly that the original well-thought-out business plan becomes irrelevant.Steve Blank

The hardships of the World Wars brought many enterprising individuals to the United States. The chaos and uncertainty these individuals faced in their home country prepared them to think creatively and independently later in their business lives. Lillian Vernon was one of those individuals.

Lillian Vernon (née Lilli Menasche) was born in Leipzig, Germany in 1927. The daughter of a successful Jewish lingerie businessman, Lillian had a rather privileged early life. Her family would soon experience the hardships of life in Nazi Germany.

She and her family were ostracized. Not long after Adolf Hitler was appointed chancellor, the family was kicked out of their home by Nazi forces. The house that took years for Lillian’s father to afford was gone. From a nearby apartment for the next two years, Lillian could watch her former home operate as a Nazi headquarters.

After Lillian’s brother Fred was beaten by a gang of Nazi youths, their family decided to start all over again in Amsterdam. There, Lillian and her brother were teased for being German. Her father started a brand new lingerie business but failed as his partner embezzled capital while he was on an extended trip to Palestine.

With Nazi Germany expanding their influence throughout the 1930’s, the family would immigrate to New York City in 1937. The Menasche family would be successful in fleeing prior to German occupation unlike other German Jews such as Anne Frank. Lillian and her family spoke no English and were classed low life immigrants. Despite these obstacles, Lillian would learn the language and excel in school.

Family Business And Lillian Vernon Corporation

Resilience is an essential ingredient when running a business. I also learned that sometimes it’s easier to start a new business than to keep a tired one going.Lillian Vernon

Lillian observed and learned many important lessons from her father who failed multiple times in business but persevered. After failing at a lingerie manufacturing business in the U.S., her father eventually spotted an opportunity; he would buy old clothes by the truckload and salvage the zippers. Those zippers were sold to manufacturers and was a success. Yet, as World War II dragged on old clothes were hard to come by. Her father would get into the small leather goods business. All of his business endeavors shared the same name Mercury Products, showing her father’s persistence.

That observed resilience, and numerous obstacles endured in her youth, would allow Lillian to traverse the business world successfully. Entrepreneurship was not for women in the 1950s or prior, especially not for a pregnant woman or mother.

Prior to getting married Lillian worked numerous jobs to make money for herself. At the age of 22, Lillian was married, pregnant and wanted to make some extra money while at home.

So contrary to conventional wisdom and common prejudices, in 1951, tapping into $2,000 ($20k inflation adjusted) in wedding-gift money, she bought a $495 advertisement ($5k) in Seventeen magazine and offered a $2.99 “genuine leather” handbag and matching $1.99 belt. The draw: free monograms. Vernon’s father produced the belts and bags through his company Mercury Products; Vernon took care of the initials, embossing them in gold on leather patches.

Only expecting a small return on investment, Lillian was amazed when she sold 6,540 units in the first couple months netting $32,000 in revenues. She was lucky but never satisfied. That was the beginning of the Lillian Vernon Corporation.

Lillian would keep it simple. She understood that her company couldn’t be all things to all people. She identified a desire for affordable, useful, and basic merchandise and filled the need. She bootstrapped the business, paying herself just enough to get by, and reinvested a majority of the profits back into the business.

Experiments & Lessons

Lillian Vernon’s initial luck was followed by failed experiments that were powerful lessons. Lillian spent some early profits on ads that bombed. She advertised in magazines such as; Town & Country, Vogue and Harper’s Bazaar, that catered to totally different demographics than the first ad to teenage girls that was so successful. The experiments were small bullets and didn’t capsize the business. Her father would help her through the setbacks and stay resilient.

To begin with, there were a lot of false starts, and there was a lot of hard work. So you mustn’t let a few minor mistakes discourage you. Keep going, and I know you’ll come out on top. If you do that, success will be yours forever!Herman Menasche

Herman’s words were not much different than what many other successful entrepreneurs, like Mark Cuban, have said time and time again.

The lesson learned? Understand your customers and stay laser focused on their needs. Lillian would expand into selling monogrammed bookmarks that sold extremely well within her customer, then expanded. She would take the profits and branch out into combs, blazer buttons, golden toothpicks and collar pins.

Later, her instinct of what her growing customer base wanted allowed her to offer many gifts that couldn’t be easily found elsewhere.

Her lessons, the tail-wind present for her mail-order specialty, and reputation allowed Lillian to grow from $1 million in revenues in 1970 to $115 million in 1984. That reputation was built around an unheard of refund policy on any purchases with no time limit. No questions asked.

Bending over backwards for the customer was just the right thing to do, much like Sam Walton’s creating magic for customers discussed in The Birth & Death Of A Franchise: Waldbaum’s. Her rule of thumb was that an unhappy customer would tell 10 others their bad experience, whereas happy customers might only tell three. By creating magic Lillian Vernon Corporation was creating an enormous amount of repeat business earned from their reputation for honesty and reliability.

Furthermore, the culture that Lillian Vernon created was one of family from the beginning. As the company grew into the hundreds of employees, Lillian would still learn people’s names and pay attention to important moments in their lives. This is a tactic that has benefited Southwest Airlines over the years. Former Coldstone Creamery President Sheldon Harris mentioned, “When I visit Colleen [Barrett] in Dallas, employees come running out when they see her approaching. She knows their names and asks them about their families. They feel like they are truly cared about. It’s remarkable to see.”

Growing Pains

Too much growth for a company can be just as bad as too little growth.

When the Lillian Vernon Corporation was producing $60 million in revenues in 1982 and growing at a +50% rate, Lillian had to evolve. Like other intelligent fanatics she learned the art of delegating, however, she made a few mistakes of delegating to the wrong people. Delegating to the wrong person led to the development of the At Home catalog, which featured such items as a $425 sofa bed and $300 coffee table. It was supposed to be an upscale version of their main catalog. Again, it was a repeat of Lillian’s mistake made many years ago, not knowing the customer.

This time an employee was behind the decision. Lillian recounted, “I had given control of the catalog to a manager who carelessly let errors get through. I had obviously delegated too much to the wrong person.” The lesson: delegate when necessary but only to your best players. Otherwise, you’ll be making costly mistakes. This error cost Lillian Vernon Corporation $1 million.

And to evolve from an entrepreneur to a manager, Vernon tried her hand by hiring MBAs, “experts” in management. That was a horrible mistake for her and for most businesses.

In my experience, most people with MBAs are not on the same wavelength as entrepreneurs. Althought I could supply the necessary entrepreneurship myself, I still wanted people in the company who could make decisions on their own. Instead, those MBAs carried analysis to the point of paralysis.Lillian Vernon

Vernon found that it was always better for her to trust character more than education in hiring decisions. She found her measure of success by the number of people who stayed with the company in double digit years.

Fred Hochberg, Lillian’s son, would be one of the only exceptions to the rule having received an MBA from Columbia University. In 1973, he would start fresh out of school at Lillian Vernon Corporation all the way at the bottom of the company working in the warehouse. He’d have to understand the business from the ground up and work his way into management, which he did becoming head of marketing in 1981 and later President & COO of the company. Fred was groomed to take over the business but left when Lillian didn’t think he could handle it.

Public Company & Aftermath

Lillian Vernon Corporation would acquire an infusion of capital from Goldman Sachs to build out a $25 million national distribution center in the mid-1980s. Shortly after, Lillian Vernon Corporation become a publicly traded organization in 1987 when Goldman Sachs sold their 31% stake to the public for $28 million. That would have valued Lillian Vernon Corporation at $90 million.  The company would continue to grow with rather minimal debt and limited dilution.

The company was extremely vulnerable to postal rates and paper costs; they were printing and sending catalogs out every few weeks. Prior to postal and paper costs rising in the mid-1990s and rising competition, Lillian Vernon was growing revenues and profits fast. The company almost sold a majority position for $190 million to private investment firm Freeman Spogli & Co., however, the deal was cancelled after profits fell below projections. Had Lillian sold then, she would have achieved a mind numbing return on her initial $2,000 investment. Instead, the company was uplisted to the New York Stock Exchange in 1995.

After the mid-1990s, postal rates and paper costs grew quickly, competition from other specialty mail-order catalogs and big box retailers. Lillian Vernon’s book value continued to trend higher throughout the period, from $8.10 per share in 1992 to $12.75 per share in 2000, but was slower than previous growth. Profits declined and the company was unprofitable in the 2000s. The dot-com bubble bursting in 2000 and the terror attacks on 9/11 did not help the share price either.

Zelnick Media would take Lillian Vernon Corporation private in 2003 for $60 million. They too could not stem the loses, even with the help of Vernon as non-executive chairman. The company was sold again in 2006 to Sun Capital Partners and filed for bankruptcy in 2008. Current USA, a direct marketer, currently owns the company. As a private company it is unknown if the Lillian Vernon Corporation has achieved profitability.

Conclusion

Lillian Vernon possessed the capacity to trail-blaze the specialty mail-order catalog niche. She grew her business with intelligent fanatic vigor turning $2k into $60 million in 51 years.

The lessons from her experience are poignant for entrepreneurs:

  • Know your customers & bend over backwards for them
  • Bet small and experiment
  • Stay resilient and learn from mistakes
  • Delegate to your A players
  • Hire based on character and drive, not education. High performance, entrepreneurial organizations should away from seasoned MBA managerial “experts”

Read More Here:

“MY GOLDEN GUT” AND OTHER STORIES: HOW LILLIAN VERNON BUILT HER BRAND

An Eye For Winners: How I Built One of America’s Great Businesses – And So Can You

When Creating a Good Culture, Southwest Airlines’ Colleen Barrett Says “All You Need Is ‘LUV’”

Lillian Vernon Corporation SEC Filings 1995-2003

*Featured image created using Cardboardbox mockup from ZippyPixels.com*

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Sean Iddings

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