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Stroller Giant Maclaren Declares Bankruptcy. But Is It a Scam? [Updated]

Posted by Abe Sauer on March 1, 2012 01:29 PM

"Contributing Design Editor, The Wall Street Journal. Interior designer. Founder of NettoCollection, ex-Creative Director of Maclaren Nursery by David Netto."

So reads the Twitter bio of acclaimed designer David Netto, the end bit indicating the residual fallout from his bombshell tweet on Feb. 27 announcing that he had "resigned as creative director of maclaren nursery today and am disassociating myself from the company." The abrupt resignation as creative head of the British stroller brand's nursery division came three days after Maclaren US ever so quietly announced it was seeking Chapter 7 bankruptcy protection.

Yes, the more-affordable-than-a-Bugaboo stroller brand that also appealed to celeb parents such as Brad and Angie, that The New York Times once compared to swine flu as a "major health threat" for jamming New York's gentrified Brooklyn sidewalks, has quietly filed for Chapter 7 and apparently, forgive the pun, folding. What the hell happened that Netto forcibly ejected himself from the chic crib he had constructed for the British-owned Maclaren?

As blog Daddy Types points out, Chapter 7 is not the "reorganization" type of bankruptcy protection, it is the "game over" kind where everything is liquidated for creditors and it's a fire sale. Daddy Types does the research and lays out just how grim Maclaren's US financial situation appears to be:

"Even more remarkably, the company's revenue plummeted 99.5% last year. In 2010, American Baby Products had $20.4 million in revenue from "sale of goods." For the first nine months of 2011, that number was just $34,251. Maclaren had a widely publicized warehouse sale in October, but unless they're related to the uncharacterized revenue of $71,000 from corporate entities, Maclaren N.A., Inc. and Maclaren Services, Inc., those sales figures were not credited to Maclaren USA."

But is it actually that grim?

That last meandering bit about Maclaren N.A., Inc., Maclaren Services, Inc., and Maclaren USA turns out to be rather significant. In a subsequent blog post, Daddy Types chases the paper trail after the blog received a statement, including that "American Baby Products, formerly known as Maclaren USA, was a third party distributor for Maclaren branded products in the US market."

Read Daddy Types' full, and comprehensive, post on all of the "near-meaningless papershuffling and insider baseball" that appears to finger a scam that involved loading Maclaren USA with debt in anticipation of a liquidation and a move to Hong Kong.

That New York Times takedown on Maclaren came in 2009 when the brand was forced to recall a million of its signature folding strollers in America due to a gasp-inducing "fingertip amputation and laceration hazard." (The brand also stepped into a PR morass after it decided not to recall similar strollers in the UK because the brand had "less concern in this country where Trading Standards recorded just one case.")

Daddy Types' research appears to suggest the possibility that Maclaren USA is being dissolved through bankruptcy in order to avoid potential future financial responsibility from lawsuits resulting from the strollers. In its latest blog post, Daddy Types reports that "As for Hong Kong, basically every employee I've spoken to so far identified Maclaren HK Ltd as the functioning headquarters of the company."

"Whatever [Maclaren USA CEO Farzad Rastegar] is up to, I don't think the baby space is appropriate for this kind of behavior," said David Netto today to brandchannel from New York City, where he's currently exploring his legal options to reclaim the $1.1 million he's contractually owed plus up to $5 million in royalties that Maclaren USA aso owes him as a result of acquiring his NettoCollection brand in 2009. "If you're going to own a stroller company, you have to be accountable to your obligations to parents and everybody else," he added. He also told us he is still "reeling from the experience" because it is still so fresh.

Updated: Netto followed up with us to clarify that a "form letter" naming him as a creditor was dropped on his lap only a few days ago, when he learned about the bankruptcy. He also clarified the chain of events, including that the Maclaren bankruptcy filing in the U.S. was on Dec. 29th, but his employer didn't have the courtesy or decency to inform him before the letter. He also clarified that everything had been cordial between him and Maclaren management including Rastegar until he found out he had to "get in line as a creditor" —

"I was notified of the bankruptcy almost two months after it had happened — by a form letter from the court — with no forewarning. My employers, with whom I was in daily contact, had not told me of taking this action. I was not irate at the time of the bankruptcy filing on Dec. 29 because I did not know of it. I only became irate when Farzad told me he wasn't paying me and to get in line as a creditor. Therefore it is not an action taken to protect them from any irateness on my part — all they have to do is pay what they owe to avoid that."

Even though Farzad Rastegar's title is the CEO of Maclaren USA, based in Norwalk, Connecticut, where it operates a showroom, he controls the Maclaren brand and its various subsidiaries worldwide. Rastegar, a former non-executive director at the Apax Partners venture capital firm, acquired the Maclaren brand when its U.K. owner, Sunleigh, went into receivership in 2001.

Whatever happens to Maclaren, Rastegar isn't reliant on its income for a living. He also owns the Ronson lighter brand once owned by business legend Victor Kiam (another disastrous acquisition that led to a shareholder revolt) and Sail Laser LLC, which owns the LaserPerformance brand that Maclaren just announced it's sponsoring. Rastegar also owns various properties, including the building at 150 Wooster Street in New York's Soho area, where Maclaren opened a design showroom on the ground floor.

This all happened so fast for Netto this week that even though he officially resigned on Feb. 27th, the "Our visionary designer-in-chief, David Netto" bio page is still live on the Maclaren US website, although the Maclaren Nursery page featuring his designs is missing.

Like Daddy Types, Netto suspects that Rastegar has spent the last two years "manufacturing bankruptcy" by building fictional obligations to Maclaren Hong Kong. Netto says that, in retrospect, he had seen signs of the dismantling over the last couple years, including massive employee turnover in the U.S. and worldwide and mismanagement of his NettoCollection brand, which was renamed "Maclaren Nursery by David Netto."

Another disturbing signal: in the days before the creditor's letter arrived and he learned about the bankruptcy, Netto says he could not get Rastegar or anyone in management to talk to him, even though he was the brand's public face in the US. Now the Los Angeles-based Netto is in New York lawyering up in pursuit of the $1.1 million Maclaren owes him in addition to royalties up to $5 million, and if criminal mismanagement is found, going after that is on the table too. "I am going to get my money," he declared. As for his NettoCollection brand? "I will try to rescue the brand if possible."

"I want to be emphatic," Netto told us, "Maclaren makes a great product and it has a terrific core business." He says the most tragic outcome of the whole mess would be if a strong brand like Maclaren, which was founded in 1940 by British aircraft engineeer Owen Maclaren, was permanently damaged by questionable management decisions. And if this bankrupcy is just a legal ploy to avoid paying the potential stroller liability, Netto argues that "He should have paid it" in reference to Rastegar. "If you're going to own a stroller company, you have to be accountable to your obligations to parents and everybody else."

Rastegar, ironically, wrote an essay for Harvard Business Review last year about how he came to acquire the Maclaren brand, and how painful the recall was for him as a father and fan of the brand:

"Having a safety recall at Maclaren—let alone one that went off track—was particularly painful for me. My first experience with the company had been as a parent, years before, after a stroller I’d bought for my daughter, a top-of-the-line brand, collapsed in the middle of New York City’s Fifth Avenue. My London-based sister-in-law recommended that we get a Maclaren instead, a brand then available mainly in the UK. We did, and I was so impressed with its quality that I started to do some research on the company. Founded by Owen Maclaren in 1945, the business was based in Northamptonshire and employed nearly 500 people. I was working in my family’s investment company at the time, looking for opportunities. This seemed like the perfect one."

Whatever Rastegar's strategy is in declaring bankruptcy, the privately held company's financial troubles have been, until now, escaping any attention. (The company has yet to return requests for comment on this story.)

The Maclaren North America Twitter account has been tweeting away as if nothing's wrong, while its Facebook page is promoting the LaserPerformance sponsorship and Maclaren beginning, its brand extension into botanical skincare and "personal care products for the entire family." The infamous Park Slope Parents website contains no mention of the Maclaren bankruptcy filing. The Daddy Types blog seems to be the only one looking into why one of the most powerful and profitable brand names in the billion dollar baby gear biz declared bankruptcy without anyone raising a (as of yet, un-amputated) finger, although expect more media coverage in the coming days.

Maclaren's not the only stroller giant that's in trouble in the US, by the way. Kari Boiler, the president of Bugaboo in the Americas, is leaving the Dutch company a decade after she launched the brand stateside with 15 strollers from her garage.

Comments

Susan Fox United States says:

Actually, Park Slope Parents did announce the recall in a "Special Notice" email to all of the membership on November 9, 2009.  We didn't have an active blog at the time so we didn't post it on our public website-- but it did go out to each and every member via email.

===============

From the Maclaren Website regarding the recall :

<
maclarenbaby.com/.../
>

IMPORTANT NOTICE

Consistent with our unwavering commitment to child safety we are providing
U.S. consumers notice of a voluntary recall of all Maclaren umbrella
strollers sold in the U.S. In cooperation with the U.S. Consumer Product
Safety Commission, we are providing free of charge to all affected consumers
and retailers a kit to cover the stroller's hinge mechanism, which poses a
fingertip amputation and laceration hazard to the child when the consumer is
*UNFOLDING/OPENING* the stroller. The affected models include Volo,
Triumph, Quest Sport, Quest Mod, Techno XT, Techno XLR, Twin Triumph, Twin
Techno and Easy Traveller.

Maclaren USA's Umbrella Strollers meet all U.S. ASTM & JPMA compliance
standards. These certifications guarantee our umbrella strollers meet the
maximum safety standards available. The voluntary recall is to alert the
operator when opening or closing the stroller of the possible risk of
injury.

Safety is our first priority and through this voluntary effort we urge
consumers to contact us immediately to obtain the kit which consists of
hinge covers designed specifically to fit all Maclaren strollers.

Maclaren stresses all operators read the instruction manual prior to use
which contains valuable safety tips and service recommendations.

--
The order form for ordering hinge covers is here :<
maclarenbaby.com/.../
>

The official CPSC notice will go out tomorrow.


Park Slope Parents

March 1, 2012 08:09 PM #

Shirley Brady United States says:

Hi Susan -- We don't mean that Park Slope Parents didn't mention the recall; we're talking about the bankruptcy filing. We hear the NY Times is covering this tomorrow, and we're still awaiting comment from the company. thanks, Shirley Brady (editor, brandchannel)

March 1, 2012 09:36 PM #

Stroller Derby Mom United States says:

Well, this is upsetting and outrageous. My sisters and I all use Maclaren strollers. If the company is bankrupt, does it mean customers aren't legally protected because they can't back up their warranties?

March 1, 2012 09:13 PM #

Samantha Australia says:

Hi,

Mum of three, my first stroller was a Maclaren and I love it which I had never changed to Bugaboo, Phil + Ted, cheaper brand that I don't even know the names which were CRAP, Mountain Buggy, Preg Prio (not sure how to spell)...  I will always stand by Mc for Qualiyl, price, design LOVE LOVE LOVE Thanks  xx

March 2, 2012 04:34 AM #

The Dude Dad United States says:

For anyone following this story... see additional coverage by WSJ & NYT & Huff Post

blogs.wsj.com/.../maclaren-u-s-unit’s-bankruptcy-flies-under-radar

dealbook.nytimes.com/.../

www.huffingtonpost.com/.../...uptcy_n_1322145.html

March 7, 2012 12:41 PM #

Comments are closed

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