Silpada shutdown ends financial drain on owners totaling ‘tens of millions of dollars’

Background: Why Silpada Designs closed

Lenexa-based Silpada closed last year and sold off most of its merchandise. The remains, a lawsuit said, were carted away by employees under "the cover of darkness."
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Lenexa-based Silpada closed last year and sold off most of its merchandise. The remains, a lawsuit said, were carted away by employees under "the cover of darkness."

The owners of Lenexa-based Silpada Designs did not decide to shutter a profitable business on the decline, as was first reported. They instead pulled the plug on a money loser that was costing them millions of dollars.

This new sense of Silpada’s abrupt decision this week to shut down at the end of July came from co-chairman Tom Walsh.

“Over the past three years, we (the owners) have personally invested tens of millions of dollars above and beyond the purchase price paid in July 2013” of $85 million to Avon Products, Walsh said in an emailed statement to The Star.

Walsh said that comment was part of the information the company provided its sales representatives on Tuesday when it informed them the firm was shutting down.

Walsh also offered an explanation of why company vice president Andrea Carroll, who was chosen to speak to the media about the closing, had mistakenly said Silpada was still profitable even as its board had decided to close the business.

“Long and short, any positive cash flows that may have been interpreted as profitability were due to capital injections by the ownership group that as a private company we did not communicate to the company at large,” Walsh’s email said.

In other words, Silpada was losing money, the owners were making up the difference and the employees did not know.

“The unprofitability of the company and the inability to reverse negative trends are the facts that resulted in this decision,” Walsh wrote.

Privately owned businesses such as Silpada rarely make financial statements public or circulate details widely within the company. This is in contrast to the regular and detailed financial reports from companies such as H&R Block, Sprint and others with shares that trade publicly and can be purchased by any investor.

Carroll, in an email Thursday, corrected her original comment that the company was profitable. It has not been profitable since 2010, she confirmed in a phone interview.

Her original comments made clear that Silpada’s fortunes had been fading for the last six years, largely from a business model rendered unsustainable by changing demographics and lifestyles.

Revenues had been falling, she said. The company had 15,000 reps, down from a peak roughly twice that high. Its established reps were holding fewer sales parties than in previous years and recruiting fewer new reps to maintain and grow the sales force than before.

Silpada’s surprise decision to shut down seemed all the more sudden given Carroll’s original report that it remained profitable.

“It’s possible, but it would be unusual” for owners to shut down a profitable business, said John Hense, managing director at CC Capital Advisors in Kansas City.

Hense said a company might report a profit on its accounting statements but still burn through more cash than it generated. In such cases, owners might decide to reach into their pockets for a set amount of time to see if they could correct the situation and then decide whether to close the doors.

He said that Silpada, as an unprofitable company feeding on its owners’ pockets, likely left its owners few options.

“If it’s unprofitable with negative trends, if revenue has been declining … that’s a really hard company to sell,” said Hense, who works with business mergers and acquisitions.

Tuesday’s unexpected decision to shut down the company meant that many of its nearly 200 employees were let go.

Sales reps will cancel plans to attend the company’s annual convention, which had been set for mid-July in Kansas City and which the city expected to have a $1.5 million economic impact.

Customers have only two months to feed their Sillpada appetites before finding another source for the quality jewelry that made the company successful in the first place.

“We are very appreciative of the support and recognition our company has received from the Kansas City community and Kansas City media all these years,” Walsh said in the email. “We feel it is important this headline and report of our profitability be corrected to reflect the true nature of the situation.”

Teresa Walsh and Bonnie and Jerry Kelly founded Silpada as a home-based business in 1997. The retailer grew to become one of the largest party plan sellers of sterling silver jewelry in North America.

The families sold Silpada to Avon Products in 2010 for $650 million, but Avon experienced its own business setbacks. Evidence of Silpada’s decline from its peak was evident in the price the families paid to repurchase the business from Avon only three years later — $85 million.

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The Star’s Joyce Smith contributed to this report.

Mark Davis: 816-234-4372, @mdkcstar