Valuations & Acquisitions: Tough Time to Compete, Worse Time to Sell

Of course, the entire industry was affected by Sept. 11, not just Waterfronts Nautical. So too was Waterfronts a victim of postal rate hikes — at a time when it was ratchetting up circulation. From 2005 through 2008, the company’s combined printing, postage and in-the-mail costs increased 25 percent.

Recent sales haven’t been good for the still profitable Waterfronts Nautical. In 2007, net sales were $5 million with more than 50 percent of circ going to prospects. Last year ended at about $4 million in net sales due to reduced prospecting. In 2009, Kirsch anticipates the business will shrink to $3.5 million with only 20 percent of circ going to prospects. “But we will be profitable,” he insists.

So what’s the moral of the story? “The most important mistake we made was to serve such a narrow customer group — men’s apparel,” Kirsch says. “Women control more than 80 percent of the household discretionary income.”

When household budgets fall, purchases of men’s apparel dry up. As Kirsch describes it, the woman of the house rationalizes: “He has dozens of pairs of the same Chino pants or Oxford shirts, and they all look the same. He doesn’t really need anything.” On the other hand, he says, “she continues to buy for herself.”

For greater value going forward, Kirsch’s lesson is, “Whatever you do, make the foundation of your business entity to serve the female consumer first.”

Who’s Going to Buy It?
There’s some good news, however, for Kirsch, and it’s perhaps an early indication that lending is loosening and activity increasing. Some “strategic operators,” as Kirsch calls them, are reviewing the Waterfronts business. But even without a buyer, Kirsch has no plans to fold the title.

“Our biggest failure was not pulling prospecting back aggressively or quickly enough,” he says. “The housefile continues to perform very well. And despite our goal of divesting Waterfronts Nautical to the right strategic buyer, we’ll continue to operate the catalog/Web division of Sportif for the foreseeable future even if we don’t find a buyer.”