A former advertiser known for technology-friendly apparel is pursuing an acquisition of SkyMall, just days after the in-flight catalog filed for bankruptcy protection.
ScotteVest, based in Sun Valley, Idaho, has signed a non-disclosure agreement with SkyMall and intends to bid for the struggling catalog's assets either alone or in a partnership, CEO Scott Jordan told CNBC Digital Wednesday.
"SkyMall was doomed to fail by its business model," Jordan said. "But I know how to fix it."
In a filing for bankruptcy protection last week, SkyMall blamed an increased use of electronic devices for the declining popularity of its in-flight catalogs, which are often placed in seat-back pockets. It also said that the availability of Internet access on planes opened the door to new competition from e-commerce retailers. SkyMall CEO Scott Wiley didn't respond to a request for comment.
Jordan said he believes the catalog failed to adapt to Internet shopping but can do so by directing customers directly to retailers whose products are in its pages. "E-commerce needs to be done by the advertisers," he said.
SkyMall sells merchandise from a variety of sources, including its own curated selection of items. It also has allowed advertisers like ScotteVest to place paid ads in the catalog. But in all cases, customers are encouraged to make purchases directly through the magazine (by phone or Web site) rather than directly through the manufacturer.
Jordan said that customers are much more likely to make purchases if they are directed to Web sites operated by manufacturers themselves. Jordan also said that in-flight Internet shouldn't hurt business but actually help it. The company could consider giving shoppers passwords that offer free wi-fi access to purchase products. Airports could also have physical stores for after-flight pickup, he said.
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Jordan disputes the idea that electronic devices distract people from catalogs. "It's just not the case," he said. "People have Kindles, but they had books before."
He said that SkyMall has two main strong points: Its brand name and a relationship with airlines that gets its catalogs in front of passengers. He proposes that airlines carrying the catalogs get a percentage of sales from such transactions to help align interests.
SkyMall generates more sales than ScotteVest but the latter business has apparently managed its e-commerce business better. SkyMall generated revenue of approximately $33.7 million in 2013 and $15.8 million for the nine months ended September 28, 2014, according to filings. ScotteVest generates more than $10 million in annual sales and is "very profitable," Jordan said.
ScotteVest, whose products include jackets equipped for iPads or the jumbo-sized iPhone 6 Plus, has an assortment that complements many of the travel gadgets sold in SkyMall catalogs. SkyMall has countless gadgets in its offering such as binoculars that attach to an iPhone and several varieties of iPad stands.
ScotteVest has gained popularity with high-profile figures in the technology world such as Apple co-founder Steve Wozniack, who is also on the company' board of directors. The company also has produced vests in recent years for the annual Allen & Co. conference in Sun Valley, whose attendees include Tim Cook and Mark Zuckerberg.
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Jordan said he has experimented with catalogs but now focuses on e-commerce. Some 85 percent of ScotteVest's sales are direct-to-consumer with the balance going through partners including Brookstone, Hammacher Schlemmer, and Amazon.
Prior to filing for bankruptcy protection, SkyMall employed approximately 150 employees, while ScotteVest employs 15 people, Jordan said.
SkyMall has struggled to keep airlines interested in carrying its catalogs. The company said in a filing that the printing costs have made the catalog unattractive to airlines, which apparently help pay for them. Delta Air Lines and Southwest Airlines both terminated their contracts with SkyMall last year. Delta confirmed it had ended the relationship due to declining customer use of the catalog but SouthWest didn't respond to a request for comment.
Outside of airplanes, traditional catalogs have been in structural decline for years. Catalog mailings peaked at 19.6 billion in 2007 and fell steadily to about 12 billion in 2013, according to the Direct Marketing Association. Part of that decline was surely due to the recession, which saw many retailers fold and others slash costs.
SkyMall expects to hold an auction for its assets "on or about" March 24 and to close the sale in April, according to its filing.