It’s an all-too familiar story – an exciting new business, powered by a charismatic founder, rockets to stratospheric success.
Investors jump on board, followed by speculators, further inflating valuations – and expectations. Then, inevitably, the cracks begin to show; overexpansion leaves orders unfulfilled, budgets and targets go unmet, retailers feel frustrated, and inexperienced-yet-overconfident management scrambles for more financial resources.
The jewellery industry has witnessed its share of these scenarios, and the most recent example is Alex and Ani – touted as one of the industry's great success stories of the 2010s.
Founded in 2004 by Carolyn Rafaelian, Alex and Ani rode the charm bracelet wave to meteoric heights, at one point employing more than 1,000 people and boasting a market valuation of $US1 billion.
Rafaelian once claimed, “Alex and Ani’s total sales have increased over 11,000 per cent between 2010 to 2014.”
However, in a not unfamiliar story, two months ago the company filed for Chapter 11 bankruptcy – roughly equivalent to voluntary administration under Australian law.
According to Forbes, Alex and Ani's sales fell precipitously during the COVID-19 pandemic, dropping from an estimated $US400 million in 2019 to $US240 million in 2020. Staff had halved to 524 employees and the business was saddled with more than $US150 million in debt.
So, what went wrong?
Leadership lacking
With a personal fortune of $US900 million, Rafaelian – who inherited Alex and Ani’s manufacturer, Cinerama Jewelry, from her father – once featured on the cover of Forbes magazine’s ‘Richest Self-Made Women’ issue, and imbued Alex and Ani with her own New Age spirituality, from numerology to poetry and shamanic blessings.
Yet according to some industry pundits, much of Alex and Ani’s early success could be attributed not to Rafaelian’s spiritual alignment but to CEO Giovanni Feroce, who led the business from 2010 to 2014.
Under his tenure, Alex and Ani’s annual revenue reportedly increased from $US2.2 million to $US230 million. Feroce placed great emphasis on marketing as well as ‘High Street’ retail over shopping centre locations.
Amid rumours of a personality clash with Rafaelian, he left the company and Rafaelian took over as CEO. An exodus of senior leadership took place in the ensuing months, including its chief financial officer, chief technical officer, chief strategy officer, chief digital officer, acting chief operating officer, and vice-presidents of retail and wholesale.
A business is only as good as its staff. While labour is one of the highest costs to a company, productive employees – particularly in key operational roles – are also one of its greatest assets.
Losing senior staff led to a vacuum of ‘institutional knowledge’ at Alex and Ani, as well as the disruption of “key business relationships”, according to its 2021 bankruptcy filing.
Indeed, Alex and Ani lost its Australian and New Zealand supplier, House of Brands, after barely two years following failed negotiations.
Declining distribution
Despite its management problems, Alex and Ani’s jewellery was still in demand and the business was striving to keep pace.
In the bankruptcy filing, current CEO Bob Trabucco noted, “Alex and Ani’s explosive growth in the early 2010s resulted in certain operational challenges as the company’s existing infrastructure struggled to keep up with demand for its products.”
Put simply, the business’ leaders did not adequately prepare for success – nor did they adapt to changing conditions, creating a cumulative negative effect.
According to Forbes, the business began to falter, leading to “haphazard” product distribution and delivery. Management then implemented a strategy similar to that of Pandora Jewelry, opening more of its company-owned ‘concept’ stores while slashing retailer accounts – which once numbered nearly 2,000.
This strategy has its own pitfalls; more concept stores means higher costs, while fewer retailer accounts leads to fewer opportunities for sales and promotion.
By the time of Alex and Ani’s bankruptcy filing, the wholesale channel accounted for just 19 per cent of revenue.
Financing fumble
Alex and Ani also attempted to follow a Pandora-like vertical integration model, securing a $US170 million loan in 2016 from a consortium led by Bank of America (BOA), of which $US100 million was reportedly used to purchase its manufacturer, Cinerama Jewelry, from Rafaelian.
That decision would prove to be instrumental in Alex and Ani’s downfall.
In December 2018, BOA claimed a loan repayment was missed and withdrew access to its credit line. With its cash flow severely disrupted, Alex and Ani was left unable to purchase seasonal inventory, which it claimed led to a steep decline in sales.
Rafaelian was then forced to restructure the company and launched legal proceedings against BOA, seeking $US1 billion in damages. BOA disputed the allegations and the legal claim was later dropped, with Rafaelian ultimately forced out by majority shareholder Lion Capital.
Alex and Ani reportedly defaulted on its credit agreements three more times, with BOA calling for the business to be sold – though Lion is insisting on further restructuring. Notably, a former Pandora executive is now chairman of Alex and Ani.
Ultimately, the Alex and Ani saga shows that even a fairytale business can fall victim to management misfires. What's more, it’s not the first example in the jewellery industry – and it won’t be the last.
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