Turning Silk Greenhouse Into A Sow's Ear

The first time John Morgan walked into the headquarters of Silk Greenhouse Inc., he expected to see lavish floral arrangements. Instead, the president of Winthrop Resources, a software-leasing company and Silk Greenhouse supplier, was greeted by a billboard trumpeting the retailer's stock price that day. That set Morgan to wondering about priorities at the Tampa-based purveyor of artificial plants and flowers. "It seemed that they were more concerned with managing the stock" than running the business, he says.

Morgan, as it turns out, was on to something. Just two years ago, Silk Greenhouse made BUSINESS WEEK's list of the nation's premier hot-growth stocks. Today, Morgan and other creditors are plenty hot under the collar about the company. Silk Greenhouse filed for bankruptcy three months ago, after losing $42 million from November, 1989, to October, 1990. And the company's stock now trades at about 34~, down from a peak of $23.75 in 1989.

Founder Jere L. Bradwell has given up day-to-day control but remains chairman. Most of the company's original management team have left. Perhaps with good reason. The Securities & Exchange Commission is investigating financial record-keeping practices, company officials acknowledge. Bradwell isn't talking, nor are the company's directors. But it's clear that more austere days are ahead for Silk Greenhouse: The company is moving out of its plush offices--complete with a Nautilus-equipped fitness room--to more modest digs in Tampa.

What happened? In many ways, Silk Greenhouse's downfall is a classic tale of how meteoric growth and entrepreneurial management can run a small company right into the ground. A Tampa salesman who sold dry floral arrangements in his spare time, Bradwell launched his company in 1982 as a warehouse store offering silk flowers and plants. Six years later, the 30-unit chain went public at $7.33 a share.

Flush with the proceeds from the public offering and a line of credit from NCNB National Bank of Florida, Silk Greenhouse expanded aggressively. But all sorts of problems started to blossom as the company readied a 28-store expansion in January, 1989.

Bradwell built up vast inventory for the new stores but miscalculated how long the expansion would take. As opening dates slipped, inventory costs doubled by yearend. Inventory controls were virtually nonexistent, insiders say. Meanwhile, the company spent a lofty 13% of sales on advertising to promote the chain.

Silk Greenhouse shareholders were blissfully unaware of any problems. An impressive 80% sales gain in 1989 pushed revenues to $99.3 million, masking troubles. Yet the bloom came off the rose on Nov. 30, 1989, when Silk Greenhouse announced it would post a loss in the fourth quarter--a period that historically provided 50% of annual sales. In less than a month, the stock shed half its market value.

While Bradwell is certainly a gifted entrepreneur, some former associates question his managerial talents. "He was not a good manager--and should have gotten someone who was," says Bob Rudman, a former vice-president of merchandising.

FAST PRUNING. Shareholders are somewhat less sympathetic. A number of suits charging widespread mismanagement have been filed against Bradwell and Silk Greenhouse's board. Indeed, some suits allege that Bradwell and director D. Von Adkins each sold 62,500 shares at $21 in the four weeks before the announcement of the dismal fourth-quarter projections in 1989. Neither Bradwell nor board members named in the suits returned repeated phone calls.The task of returning to solvency has been complicated by new management turmoil. In August, Silk Greenhouse recruited B. B. Tuley, the CEO of Texas-based competitor Michaels Stores Inc. He quickly laid off 25% of the company's total work force--and closed 68 stores and three warehouses. However, on Mar. 5, the company announced that Tuley and his team were leaving and that a new investor group had signed a letter of intent to reorganize the retailer.

If Silk Greenhouse can get its house in order, it may once again prosper in the market for artificial plants and flowers. After all, they cost less than live greenery and, of course, never wither. If only that were true of Silk Greenhouse.

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