Every so often, one hears of a young, bright entrepreneur who conceives a fresh direct marketing idea, executes it admirably, earns kudos and rakes in millions.
This isn't exactly one of those tales.
In fact, the trajectory of SkyMall's history could once have been best described as elevator shaft. The airline seatpocket catalog founded in 1991 hit such a nadir three years ago, for instance, for instance, that all of entrepreneur Bob Worsley's investors cut off funding, a potential buyer backed off and Worsley himself was in danger of losing his house, which he'd put up against a payment to his printer.
But perhaps all's well that ends well. Once, Worsley flopped big with a high-concept airline catalog that tried to do everything from selling product to same-day fulfillment. These days, SkyMall's main business is simply charging other catalogers to buy pages in its quarterly airline book, which reaches 350 million passengers on 17 airlines.
Such a mission is less grand, but far more profitable. By fourth quarter 1996, for instance, SkyMall's earnings had soared $1 million ahead of the previous year. Nine-month revenues were up 2.7% to $18.9 million. SkyMall's IPO in December raised $15 million net and, by February; the stock price rose 18% to $9.50. (In fact, analyst First Call gives SkyMall a "buy" rating, projecting 59 cents earnings per share for '97.)
SkyMall's original investors now sit on a market capitalization of more than $80 million. "I think [Worsley]'s got the vision and what it takes to grow any company," says Bert Getz, CEO of holding company Globe Corp. "I think, with the appropriate supervision and with his ideas, it's marvelous."
SkyMall, for all its "Sturm und Drang," is actually a rather sober place. The first thing you see in Worsley's office is a large, framed photomontage of six red-haired children. All six are his. The second thing you see is...not much. Throughout this small, neat, boxy building, located just a half-mile from one of Phoenix's more beat-up neighborhoods, you find no extraneous artwork, tacked-up cartoons or egregious displays of personality. The occasional posters displayed are those sold by Successories (a SkyMall client), with their bromides on "Success" and "Teamwork." Even customer letters, which hang prominently in the call center, feature both compliments and complaints.
This seems typical of Worsley's open, even temper. The red-haired CEO is given to polite, intelligent discourse, making points with the aid of presentation charts. He is the sort who makes notes on small index cards, knows where he filed obscure materials and keeps his voice modulated at the level of a doctor at bedside.
In other words, Worsley appears more accountant than cataloger, which is, in fact, his original career. That alone explains the genesis of SkyMall: Most catalogers tend to fall in love with a market, or a type of merchandise. Worsley fell in love with a business plan, and then discovered that love is often blind.
As the story goes, this love blossomed on an airplane in September 1989. Four years earlier, Worsley had quit a job at Price Waterhouse to start a company that "loaned" financial officers to small businesses. Still restless for a higher-growth opportunity, Worsley that day picked up a Giftmaster catalog that sold airline-branded merchandise. "This," he recalls, "was something I could sink my teeth into."
As it turned out, he bit off far more than he could chew. Worsley's idea for an airline catalog, which he sketched out on that very flight, involved three elements: First, actual "name" merchandise, in order to give passengers confidence in ordering. Second, a single toll-free number passengers could dial from the plane. Third and most important, the ability for passengers to pick up their merchandise right at the airport.
It was that third element that captured the fancy of investors - and eventually brought the catalog to its knees. "The idea just had sex appeal," he recalls. Consumer focus groups raved about the SkyMall plan. CNN and Robin Leach filmed stories about it. Software millionaire Alan Ashton backed it, and Ashton's wife was so taken with the idea that she wrote Worsley a $250,000 check at dinner, which Worsley graciously handed back. ("I said, there's a proper way to do this.")
SkyMall's original problem was twofold. First, airport fulfillment required enormous infrastructure. Worsley essentially had to build automated warehouses from scratch to get product picked, packed and to airports in half an hour. And, since merchandise fulfillment had to be on-site, Worsley also had to buy product outright from those "name" catalogers, along with the warehouses in which to store it.
Second, SkyMall's plan needed passengers. Lots of them. In Worsley's business projections, 30%-40% of orders would come in through each of SkyMall's seven airport sites. "We were looking at 100-200 orders per day in every airport," says Worsley. The reality was far more sobering. "It ended up," he says, "with two or three orders a day."
What no one knew was that most passengers didn't want to schlep catalog merchandise with their luggage. Although SkyMall's sales boomed from $5.4 million in '91 to $22 million in '94, about 95% of orders were for home-delivered merchandise.
The costly, idle infrastructure toppled SkyMall's house of cards. By 1994, the company bled more than $500,000 per month. Ashton, who by 1994 had put up $20 million, was asked for $6 million more to finance a restructuring. He refused. A Baby Bell looked to buy a minority interest for $15 million or so, then backed off.
Worsley, who at the height of the 1991 Christmas season collapsed with stress-induced chest pains and neck swelling, had two choices: declare bankruptcy, or buy time with creditors. He picked his creditors, who in some cases agreed to payment plans of 36 months.
Worsley peeled off nearly every function that bled the company: airport delivery, inventory buying, warehousing, fulfillment, even outlet stores. By yearend, SkyMall squeaked out an $800,000 income on $27 million in sales, a sharp contrast to the previous year's $12.2 million loss. Once the IPO went through, SkyMall's creditors were rewarded for their patience. Today's balance sheet shows assets of $20 million and long-term debt of only about $5 million.
Good enough position, in other words, to talk big plans again. The first step has been SkyMall's overhaul of its order-taking function, the only piece left from the company's dismantled infrastructure. Until recently, SkyMall relied on faxes and FedExes to pass orders and confirmations to its scores of catalog clients. Now, by outsourcing that function to a company called LitleNet LLC, SkyMall has begun to pass that information around electronically.
LitleNet's goal is to translate information between SkyMall's database and the catalogers', so orders no longer need rekeying. An order for Brookstone wireless speakers (193607A) and Magellan's sidekick bag (LB346KA), for instance, would pass from SkyMall through a Litlenet server to arrive in a format that fits each cataloger's fulfillment system. Confirmations would return the same way, each translated to fit SkyMall's system.
Eventually, "we also hope to get product information this way," says Worsley. That way, SkyMall could find out inventory status and product availability online.
"We call it an intelligent messaging network," says LitleNet president Tom Litle, noting that SkyMall is its first catalog customer. "Our goal is to move information between marketers [supporting] whatever format they want."
All that should help SkyMall to push the borders of its concept. Since SkyMall has locked up every U.S. airline except American and Northwest, its growth can come in only two ways: more dollars per passenger, or more clients (such as cruise lines) from other markets.
Worsley plans to do both. From 1991-1995, SkyMall doubled revenues per passenger from 3.8 cents to 8.4 cents, and the number should hit 9 cents for 1996. Long term, Worsley plans heavy promotions, incentives and frequent-flyer tie-ins to pump sales. "We think we can get revenue per passenger to $1," he says.
Worsley also speaks of mailing SkyMall's catalogs to the company's house file, which now numbers 1.2 million names.
And on the Internet, "I think SkyMall can be positioned as a place kind of like a convenience store," says Worsley. In other words, surfers looking for a quick gift could call up SkyMall to find, say, the top 20 products from 60 or 70 different catalogs.
Then there's Worsley's plan for hotel and cruise ship catalogs, which "could be as large [a business] or larger than the airline business," he says.
Hospitals are another possibility, and even airport waiting areas have potential. "We tested 10 gates in Atlanta, and we couldn't keep [catalogs] in stock," Worsley says.
1 2 Continued »
