The AP’s Scott Mayerowitz goes for the easy opener on news of Skymall’s bankruptcy.
Apparently, airline passengers aren’t buying enough garden gnomes, superhero pajamas and heated cat shelters.
Sales dropped nearly in half year over year and by three quarters over the past four years. The company believes people flipped through the magazine less and less and personal electronic devices became more common. In addition, gogo inflight internet even allows some free browsing of online shopping sites.
The magazine paid the airlines to carry it, in an amount which increased in recent years as fuel costs rose (since paper is heavy). They charged other companies for ads in that magazine, and took a commission on sales, because they in turn provided access to airline passengers which are an upscale demographic and captive (and presumably bored) during flight.
The company’s bankruptcy lists debts to several airlines:
- American Airlines for $1.6 million
- Delta Air Lines for $1.5 million
- Southwest Airlines for $400,000
- United Airlines for $300,000
Delta stopped carrying Skymall in November.
Skymall intends to sell the magazine, hopefully by March, though no buyers are linted up yet. The bankruptcy filing lists up to $10 million in assets.
Increased costs notwithstanding, it has seemed like a bankruptcy waiting to happen for quite some time.
The entity actually filing for bankruptcy is Xhibit Corp. Skymall merged with Xhibit in May 2013.
Except here’s the problem. Skymall is by all accounts a reasonably successful company with $130 million in annual revenue, a differentiated offering, a well known brand, and at least some happy customers. Xhibit on the other hand, appears to be a company with dubious sources of revenue, a very thin competitive advantage, and more hype than substance.
The Xhibit Corporation went public via a “reverse takeover” of a shell company in 2012. Earlier, in 2011, the individuals behind the company acquired a shell company called NB Manufacturing for $350K, and voila, Xhibit was able to become a publicly traded company. The SEC warns that investors should be wary of putting their money in companies that become public this way
At the time of the merger, most of Xhibit’s revenues were generated by “five employees from the sales of a weight loss product, colon cleanser and green coffee supplement…”
Its banks wouldn’t even release the proceeds of credit card sales, because they were viewed as especially high risk.
I do not know the inside story of why Skymall chose to merge with this entity, but it seemed clear from the get go that this wasn’t a long-term play.