Interestingly, for much of its history, the company was actually a not-for-profit. That’s right: a not-for-profit. Per the company:
For the majority of its existence, FTD operated as a not-for-profit organization run by its member florists. With the florists as its core, the Debtors' legacy business provided a powerful mix of a "local," authentic, and bespoke product, broad geographic range, and a commitment to exacting standards of quality and service. Moreover, the Debtors historically were devoted to creating an optimal product for their florist network, including through investment in innovation and technology and marketing the FTD brand and the floral industry overall. As a result, florists sought out FTD membership, and the FTD brand had (and still has) significant caché in the industry.
Amazing!
So what the hell happened? Well, the blood-sucking capitalists arrived knocking. Now-defunct Perry Capital acquired FTD in 1994 (the same year that the company established its web presence) and converted the company into a for-profit corporation. In 2000, the company IPO’d and in 2008, United Online (now owned by B.Riley Financial $RILY), merged with the company in a $800mm transaction consummated just prior to the financial crisis. Then, in 2013, FTD spun off from United Online, once again becoming a publicly-traded company on the NASDAQ exchange.
Throughout the company’s evolution, it pursued a strategy of dominating the floral market via strategic acquisitions (and, in the process, drew antitrust scrutiny a handful of times). In 2006, it acquired Interflora and in 2014, it acquired Provide Commerce LLC (ProFlowers) in a $430mm cash and equity transaction. The purchase was predicated upon uniting FTD’s B2B “Florist” business (read: FTD-to-retail-florists) and B2C (read: FTD-direct-to-consumer) businesses with Provide Commerce’s B2C model in such a way that would (i) offer customers greater choice, (ii) provide the company with expanded geographic and demographic reach, and (iii) promote cross-selling possibilities. Per the company:
…FTD anticipated that the Provide Acquisition would generate significant cost synergies through efficiencies in combined operations.
Ah, synergies. Is there anything more romantic than the thought of ever-elusive synergies?
The company incurred $120-200mm of debt to finance the transaction.** You know where this is headed. If not, well, please allow the company to spell it out for you:
Though the Provide Business Units have increased the Debtors' revenue (the Provide Business Units currently contribute more than 50% of the Debtors' total revenue) … certain shifts in the market, technological changes, and improvident strategic outcomes in connection with the implementation of the Provide Acquisition combined to (a) frustrate expectations regarding the earnings of the combined entity and (b) impair the Debtors' ability to refinance near-term maturities, which has driven the Debtors' need to commence these chapter 11 cases.
That sure escalated quickly. 😬
Let’s take a moment here, however, to appreciate what the company attempted to do. In the spirit of its long-time legacy of getting out ahead of disruption, the company identified a competitor that was quickly disrupting the floral business. Per the company:
ProFlowers had entered the floral industry as a disruptor by reimagining floral delivery to consumers. Unlike the Debtors' "asset-light" B2B business model, ProFlowers took ownership of the floral inventory and fulfilled orders directly through a company-operated supply chain. By sourcing finished bouquets directly from farms, limiting product selection, pricing strategically into the consumer demand curve, and leveraging analytically-driven direct response marketing to generate large volumes at peak periods (i.e., Valentine's Day and Mother's Day), ProFlowers appealed to a broad market of consumers who wanted an efficient order process coupled with lower cost purchases.
There’s more:
In addition to these potential opportunities, FTD also viewed the Provide Acquisition as the means to strategically position itself for success within a changing industry. At the time of the Provide Acquisition, the disruptive impact of ProFlowers was perceived as a threat to traditional business models within the floral industry (and to the Florist Member Network specifically). FTD was concerned that, if it failed to adapt and embrace shifting industry paradigms, competitors would take advantage and acquire ProFlowers to FTD's detriment. Accordingly, FTD effected the Provide Acquisition.
We clown on companies all of the time for failing to heed the signs of disruption. But, that’s not actually the case here. This company was, seemingly, on its game. Where it failed, however, was with the post-acquisition integration. It’s awfully hard to realize synergies when businesses effectively run as independent entities. Per the company:
In particular, a number of key post-acquisition targets, such as (a) floral brand alignment, (b) necessary technological investments in the combined business (e.g., the consolidation of technology/ecommerce platforms), and (c) the integration of marketing and business teams, have lagged. As a result, both the Provide Commerce and the Debtors' legacy brands suffered from internal friction and suboptimal structures within the Debtors' enterprise.
And while the company failed to integrate Provide Commerce, the industry never stopped evolving. Competitors didn’t just take the acquisition as a sign that they ought to fold up their tents and relinquish the flower industry to FTD. F*ck no. To the contrary, this is where…wait for it…AMAZON INC. ($AMZN) ENTERS THE PICTURE:***
While the Debtors struggled to unify their businesses and implement the Provide Acquisition, the floral industry – and consumer expectations – continued to evolve. Following the example set by ProFlowers, other companies began to deliver farm-sourced fresh bouquets directly to customers, increasing competition in the B2C space. In addition, the expanding influence of e-commerce platforms like Amazon transformed customer expectations, particularly with respect to ease of experience and the fast, free delivery of goods. Given the perishable and delicate nature of the product, delivery and service fees were standard in the floral industry. As e-commerce companies trained consumers to expect free or nominal cost delivery, floral service fees became anathema to many customers.
Well, Amazon AND venture capital-backed floral startups (i.e., The Bouqs Company - $43mm of VC funding) that could absorb losses in the name of customer acquisition.
The company also blames a significant number of trends that we’ve covered here in PETITION for its demise. Like, for instance, increased shipping and online marketing costs (long Facebook Inc. ($FB)), low barriers to entry for other DTC businesses (long Shopify Inc. ($SHOP)), and “the growing presence of grocers and mass merchants providing low-cost floral products and chocolate-dipped strawberries during peak holidays” (long Target Inc., ($T), Walmart Inc. ($WMT), Trader Joe’s, etc.).
Collectively, market pressures contributed to declining sales and decreased order volumes, impairing the B2C businesses' ability to leverage and capitalize on scale.
In other words, (a) chocolate-dipped strawberries have no f*cking moat whatsoever and (b) as with all other things retail, this is a perfect storm story that is best explained by factors beyond just the f*cking “Amazon Effect” (the most obvious one being: a ton of debt).
