Month: December 2013

My Khodorkovsky Recollections

Mikhail-Khodorkovsky-001Seeing the photos today of a freed Mikhail Khodorkovsky stirred some glaring memories from 1999-2000 when I spent a significant amount of time with him in Moscow

At the time, Khodorkovksy was riding high, sitting at the top of his Yukos Oil operation after having spent several years carefully building an international profile – first at Bank Menatep and subsequently at Yukos. Khodorkovsky was not yet 40 years old, and had the confidence/arrogance both of a young man who had not experienced defeat, and always knew he was the smartest guy in the room.

Sometimes it served him well, and he could appear charming, with almost boyish naiveté. Once, at lunch – we actually were in Switzerland – he was excited about the choices on the menu and his high-pitched and halting English (which he rarely used) was fairly engaging.

At other times, he was almost playful when he discussed his status in Russia’s business hierarchy. “I’m an oligarch, I can make anything happen,” he said with a smile while assuring a visitor than he could get a third person to show up at a specific time and place. And he verged on being professorial when he took out a small black-covered notebook and began diagramming the highly criticized transfer-pricing strategies used by his company.

Despite that, a darkness sometimes associated his comments, such as the time – in the middle of a business conversation – when he leaned over to his colleague Leonid Nevzlin, whispered in his ear and began laughing. The joke, it seems, was the manner in which he and Nevzlin had dealt with a particularly troublesome associate.
Saturday afternoon lunch at his dacha also was an adventure – a handful of us sitting around a massive rectangular table. Surrounding us were bodyguards equipped with AK-47s. A ride in his car also was a once-in-a-lifetime event: the heavily reinforced lead doors so thick (and bullet-proof) that one could barely close them.

In the end, though, the thing that ends up being most memorable was his intense interest in politics, even when he knew – and acknowledged – that it wasn’t a good idea. He willingly made introductions to other reformers, and he thought about proactive tactics – such as assertive op-eds and leaking information to the media – that clearly had danger associated with them.

He was arrested in 2003, convicted in two trials, and sat behind bars for 10 years. Menatep is gone and Yukos is gone.
Khodorkovsky stopped being an oligarch a long time ago. He stopped being a prisoner today.


Loehmann’s Joins “Chapter 33” Club With Third Bankruptcy Filing


In filing for Chapter 11 protection on December 16, discount retailer Loehmann’s Holdings Inc. joined the unique club of “Chapter 33” filers – those companies that have utilized Chapter 11 protection three times.

The company first sought Bankruptcy Act protection in May 1999, emerging in October 2000 with 25 fewer stores.  Then, 10 years later, in November 2010, the company again filed for Chapter 11.  It emerged in March 1, 2011, with $45 million in new financing and the elimination of $110 million in long-term bond debt. It also closed nine underperforming stores and successfully implemented $23 million in cost-saving initiatives.

Today, the 92-year-old company has just 39 stores, selling designer wares at prices it claims are 30 percent to 65 percent less than those found in department stores.  Among the designer names are brands such as Calvin Klein, Donna Karan, Theory, Michael Kors and Dolce & Gabbana.

The second trip to Bankruptcy Court doesn’t seem to have paid dividends, however.  Since its emergence in 2011, Loehmann’s financial performance has been weak “due to a number of factors including unsuccessful strategic, financial and operating decisions made over the last several years,” William Thayer, the company’s chief operating officer, says in his declaration that accompanied the filing.  “These decisions have resulted in the underperformance of store productivity, reduced margins, lower inventory turnover and lack of liquidity.”

Thayer adds that, over the past several years, Loehmann’s has implemented strategic and operational initiatives that initially yielded positive results, including improving inventory turnover, reducing expenses, and reactivating lapsed customers. However, he says the decline in economic conditions in California, the New York region, the Midwest and Florida had an adverse effect on its financial condition.

Despite this poor performance, the company makes some very interesting – and possibly surprising – assertions about its customer base.  The first is that its core customer base is mostly affluent women between the ages of 18 and 54 with household incomes in excess of $75,000.

In addition, Thayer’s filing tells us the following:

  • Loyalty customer sales account for approximately 65 percent of Loehmann’s sales, with the Gold Card portion of the program generating $6.6 million in net annual income.
  • The company has approximately 200,000 “Best Customers”; it says many in the classification have been customers for more than 10 years. 
  • Collectively, this group averages approximately $26.8 million in annual purchases, purchases goods an average of approximately three times a year and represents approximately 10 percent of the company’s annual net sales.

Loehmann’s also notes that it holds a robust customer database, totaling more than six million names, and that more than 80 percent of these customers have been active during the past three years.

Given this “robust” customer database, the company’s online underperformance is particularly noteworthy. “Loehmann’s was late in introducing the e-commerce channel relative to its peers in the ‘off-price’ retail sector,” Thayer says, adding that the company’s website wasn’t launched until November 14, 2011, and only after less than six months of development.

In September 2013, Loehmann’s re-launched an enhanced site, and has enjoyed some success, with online net sales since inception totaling approximately $22.5 million. Visitors are up 18 percent and the conversion rate is up 20 percent.

But it was too little, too late.

And, in the end, the only number that really matters is 33, as in three times 11 equals 33