General Publishing Group of Los Angeles, which for two years in a row topped PW's list of fastest growing small companies, closed its doors on June 16. A public auction of its assets, advertised in Publishers Weekly, however, was postponed after three vendors filed to block the foreclosure sale.
According to president and publisher Quay Hayes, "We had five years of profitable, dramatic growth, followed by a year with a substantial loss. We could never regain our footing."
GPG, which began publishing in 1992 with two titles, reached sales of $15 million by its fifth year, and was producing 30 titles annually -- many of them in a glossy, four-color format. In 1997, however, the company suffered 40% returns -- double its normal rate -- and showed its first loss. At the same time, it was unable to obtain a line of credit, and instead, got an interim loan from a private individual that was to be replaced by a line of credit from a commercial lender within the year. "But," said Hayes, "that never came through."
For the past 14 months the company has operated without a line of credit and at the same time had to pay the old line down by $1 million out of cash flow.
Shifts in the marketplace -- and changes in its distribution picture -- further eroded operations at the already financially vulnerable company. Over the last years, GPG lost 15% of its independent store customer base annually, and in the last 18 months three of its top 10 accounts went into bankruptcy. In addition, its biggest account has made no payment to GPG since September.
Distributed first by Warner Publishing Services and then by Donnelley, GPG was again looking for a distributor in 1998 when Donnelley decided to withdraw from that aspect of the business. Random House Distribution made GPG a good offer -- but then withdrew from the market in September 1998 in the wake of the Bertelsmann buyout. "In January, we ended up going with Mercedes in Brooklyn, which is a fulfillment warehouse. We had to do all the order entry and collections," said Hays. He allowed that the company (General Publishing Group) could have done a much better job at distribution, collections and inventory management.
GPG, which had 24 employees, had almost 20 titles ready to go to the printer at the time of closure. All contracts and assets now are the property of the private lender who forced the company to shut its doors when the loan came due. It is unclear what will happen to those assets.
Hayes, and his wife, Sharon, GPG's v-p of media relations, often had been approached by companies interested in striking partnership deals. Hayes asserted that the returns policy of the major accounts was the primary reason his company failed. "We're not selling cottage cheese," he said. "New titles don't spoil in 90 days and have to be sent back to the publishers. But that's the way many books are treated. For companies our size, cash flow under those circumstances becomes unworkable."
