E-tailer Nancy Rae Industries files Ch. 7 bankruptcy

Nancy Rae Industries, an e-tailer that specialized in heart rate and body fat monitors and other electronics and accessories, has filed for Ch. 7 bankruptcy, leaving the likes of Polar, Acumen, Accufitness, Tanita and Omron in the lurch, not to mention dozens of customers who had bought product as late as six days before the filing.

The website (www.nrindustries.com), however, was left up until Oct. 3, although the webmaster, who is also owed about $5,000, took down the credit card and order forms and put up her own rather humorous warning messages on the contact pages (see page copy that appears only at www.outsidebusinessjournal.com and not in the PDF news digest).

In the bankruptcy documents filed Sept. 11 with the U.S. Bankruptcy Court, Northern District of Illinois, the Gurnee, Ill.-based, company led by Gary Sugerman claimed liabilities of $309,043.94 and assets of $3,000, including $1,000 in a bank account and the remainder in the value of office chairs, packing supplies and software.

The bankruptcy left 152 unsecured creditors, including an array of industry suppliers. According to the court filing, the largest amount owed was to Omron distributors BV Medical, $52,084; others include Tanita, $31,761; Polar Electro, $11,916; Sportline, $18,729; as well as Suunto (owned by Amer Group), $6,196; Accufitness, $2,888; and small start-up heart rate monitor company Ekho, $2,190.

“Oh well, we can’t dwell on it and we can only look forward,” Cory Mortensen, Ekho president, told SNEWS. “It didn’t feel good, I’ll tell you that.”

Mortensen said he got his company on the site in April, only a few months after launching Ekho in March. He said he began to get suspicious when the Nancy Rae company was delinquent on four invoices, yet placed another order as late as Sept. 2. After he contacted the company about the seeming discrepancy, it faxed an order cancellation but sent no payment.

“I feel bad for them. You hate that to happen to anybody,” Mortensen added. “But we can thank them for the people they hooked on Ekho.”

BV Medical declined comment, stating the company was going to wait until the creditors meeting to see what it would do. Unsecured creditors normally receive no compensation or reimbursement as part of a Ch. 7 filing and cannot approach the company for money even when it exits the plan. The creditors’ meeting, for which 740 notices were sent by the court, is Oct. 16 at 3 p.m. at the Babcox Justice Center in Waukegan, Ill.

Matt Chalek of Accufitness said the Nancy Rae company got slower and slower to pay, with the president even telling its suppliers only weeks before the filing that it was switching banks and therefore wouldn’t have checks to pay them for a couple of weeks. Accufitness, which finally sent a collection letter about two weeks before the filing, said it has simply written off the loss.

The documents indicate the company, only in business as this type of company and on the web since approximately late 2002, paid large amounts to seed search engines and paid large per-click sums to these engines ($2 to $5, according to insider sources) for customers that came to the website from these engines — inordinately large amounts considering its income. That meant it was spending more to get customers to the site than it was earning from sales, plus it was offering free shipping.

For example, the court papers note combined payments in June, July and August to Google of a total of $138,574 and a total in the same three months to Overture of $111,538, for a total to those two alone of more than $250,000. However, year-to-date sales for 2003 in the court documents claim only $500,000. Company President Sugerman in the documents claimed to owe Google another $23,000, although Google account papers obtained by SNEWS show a balance of $2,277.17. Although not named in the documents as a company principal, Sugerman’s father Lyle Sugerman was apparently a large backer and participant in the company, creditors told SNEWS. Both had filed their own personal Ch. 7 bankruptcies in the last decade, according to the Northern Illinois court records, with Lyle’s terminated May 19, or less than four months before the company’s bankruptcy.

“They had a great business idea, but their marketing strategy was poor,” the company’s attorney Leonard Becker told SNEWS. “Gary (Sugerman) was new to the retail-web marketplace and was probably a victim of his own ignorance…. The company was paying premium dollars for top traffic.

“These folks had every intention of making good,” he added. “They thought they were doing the right thing; their situation was not unlike many of the dot-coms.”

The phone numbers that were listed as company contacts are disconnected. But the website’s content is now live on another page, www.nancyrae.com, although if you want to see the humorous contact page info, move quickly since this may not last long.

“I’m sure many businesses in the online fitness industry are very happy to see him go. He was driving up the costs of major fitness keywords on Overture to ridiculous levels — heart rate monitors, pedometers, Tanita, Polar, etc.,” said former webmaster Denise Hartmann, of www.i-create.web.com, who said she dealt mostly with Lyle as a part of doing business with the company. “I think it was something of an adrenaline rush for him to take on his competitors head-to-head like you can on Overture.

“I feel so personally responsible that people got taken by this company. I tried so hard to make NRI look legit, to make the customer feel comfortable spending hundreds of dollars,” she added. “I did get a sense that they could go out of business at any time, with myself and other vendors losing money owed. But I was foolish not to see the possibility of the customers getting hurt like they have. It never occurred to me.”

SNEWS View: The Sugermans seemed to be following the way of the old allegedly “New Economy” proclaimed several years ago by the dot-comers — dump lots of money into the business even if that means huge losses. That didn’t work for the dot-coms and it didn’t work for this company either. One would have thought that a business person would have read about those lessons learned a few years ago, with all the splashy rags-to-riches-to-rags stories of glamorous businesses that went into a tail spin and disappeared as quickly as they had begun. Guess not. Most unfortunately, the name Nancy Rae comes from Lyle’s wife, who passed away several years ago; apparently the website and company were named after her to honor her. May she rest in peace. We also feel sorry for the customers around the world who bought heart rate monitors, body fat scales, GPS units and other fitness and monitoring devices, only to be stiffed. We hope that the customers don’t retain a bad taste in their mouths for these suppliers themselves, such as Polar, Ekho, Timex and others. Perhaps they won’t, thanks to the webmaster who has been working tirelessly on her own time to get word to these customers and to tell them to dispute or to stop the payments on their credit cards.