This Wednesday (June 18), ShopHQ parent ValueVision Media will have to make its biggest sales pitch yet: convincing shareholders to resist activist investor Clinton Group’s attempt to replace the board of directors with a Who’s Who of retail and television talent, including reality show guru Thomas Beers.
It’s not going to be easy. ValueVision and ShopHQ have a long history of poor performance, lagging their peers in the home-shopping space, QVC and HSN, by a wide margin.
And though the Eden Prairie, Minn.-based retailer has made some strides — improving its revenue and cash flow in eight consecutive quarters — the stock has plunged 34% in the past six months and the time may be right for a change.
“This has been a hard one to handicap,” Feltl & Co. retail analyst Mark Smith, who follows TV retailers including Shop HQ, said recently. “But it looks like the odds are as good as any that they [Clinton] might prevail.”
Frustrated with declining sales and what it claims is unrealized potential, Clinton Group currently owns about 4.9% of the company, or about 2.4 million shares. In October Clinton, led by president Greg Taxin, launched an effort to oust CEO Keith Stewart, replace ValueVision’s board of directors and steer what he believes is a foundering ship toward a new path of profi tability. Those efforts recently got a boost after two major independent proxy advisory firms, ISS Proxy Advisory Services and Glass Lewis, threw their support to the activist investor.
ValueVision has disputed Clinton Group’s claims, saying it has enhanced the home-shopping channel’s fortunes significantly since 2009, when Stewart became CEO. In that timeframe, the stock has risen 842% and the company has diversified its product mix: Beauty, health and fitness sales are up 200%, while watches and jewelry sales dipped 17%.
In securities filings, ValueVision warned that some of Clinton Group’s proxy targets have not fared well. One, young women’s apparel maker Wet Seal, has declined 78% since Clinton’s slate of directors joined on Oct. 5, the filing said. “Shareholders should ask themselves: Is a vote for the Clinton nominees a vote for experimenting with the same strategy at ValueVision, only using your money?”
Clinton Group responded by pointing to ShopHQ’s still jewelry- and watchheavy product mix: during one week in May, the investor claimed, more than half of ShopHQ’s 28 live hours on the air were devoted to selling Invicta brand watches. Plus, its shows are predominantly still aired in standard definition instead of HD, and its programming format seems stuck in the 1990s.
While the two are likely to continue their war of words right up to the day of the special shareholder meeting, analyst Smith said the mix of recognizable names on its slate coupled with shareholder frustration over the stock price — which has dropped from $6.99 per share to $4.62 each in the past six months — could give Clinton Group an edge.
The rival slate’s names include Beers, the CEO of Freemantle Media North America; former Home Shopping Network (now HSN Inc.) CEO Mark Bozek; former Saks Fifth Ave. president and chief merchandising officer Ronald Frasch; former Sony Music Entertainment chairman and CEO Tommy Mottola; former Tommy Hilfiger Corp. chief operating officer Robert Rosenblatt; and former QVC senior vice president and marketing head Fred Siegel.
Beers is well known to cable players: before joining Fremantle, producer of American Idol and America’s Got Talent, he was founder and CEO of Original Productions LLC, creator of several reality hits for Discovery Communications, including Deadliest Catch, Ice Road Truckers and Storage Wars.
Clinton also has launched a website to inform shareholders of its plans. In a video on the site, Beers appears to want to bring a little Hollywood flash to the shopping channel — calling the strategy “retail theater” — and says the new board slate sees opportunities to take some of interactive aspects of TV talent shows and apply them to create a “seamless entertainment transactional experience.”
Infusing glitz and glamour has helped HSN. The shopping channel has cut several deals with movie studios to launch proprietary products in conjunction with releases — it recently devoted 24 hours of programming to the Walt Disney Co. film Maleficent, engaging 40 designers to create 400 products tied to the movie. “We’re still selling product” from that Disney tie-in, HSN CEO Mindy Grossman said at a recent PricewaterhouseCoopers event.
Clinton’s Shopping List
Activist investor The Clinton Group has some up with a plan it believes will turnaround foundering ship ValueVision Media, parent of ShopHQ.
Replacing the CEO;
Changing the mix of merchandise offered to customers — reducing the percentage of merchandise in the jewelry, watch and electronics segments and creating relationships with other vendors in beauty, health, fitness, fashion, accessories and home categories;
Establishing a New York City merchandising presence and enabling greater access to proprietary products from celebrities, musicians, personalities and well-known brands;
Marketing the ShopHQ brand and service through public relations, off-asset marketing, as well as using promotions and social media;
Differentiating Shop HQ product from competitors by adding programming that involves integrated social commerce and cost effective, shopping-centric entertainment across multiple platforms.
SOURCE: The Clinton Group