Playboy Claims Ecommerce Operator Reneged on Contract
Playboy said that because of eFashion’s termination of the contract just three weeks ago, it has put the adult entertainment giant’s online merchandising operations in jeopardy.
The cancellation of the contract was made after a June 1 dinner meeting between eFashion CEO Edward Foy and Scott Stephen, executive vice president and general manager of Playboy Digital, who is responsible for Playboy’s ecommerce and catalog businesses.
In the suit, Playboy said that eFashion has repeatedly failed to honor its end of the deal, which encompassed ecommerce sales of Playboy-branded fashions, calendars, DVDs, jewelry, collectibles and back issues of Playboy magazine, as well as select non-Playboy-branded products.
Secaucus, N.J.-based eFashion promotes itself as “a leader in ecommerce operations for designer, luxury and celebrity fashion brands.” It operates sites for DKNY and New Era.
Foy, according to the suit, said he canceled the contract because Playboy hasn't lived up to its part of the deal. No other details were mentioned in the suit.
Playboy said in the suit that the eFashion deal, which began in January 2008, has been a nightmare for the company from the get-go.
“Despite providing eFashion with over $13 million in financial concessions for which it was obligated under the license agreement, and Playboy’s sincere efforts to foster the relationship of the parties, eFashion has anticipatorily repudiated the [deal],” the suit said.
“These businesses generated nearly $17 million in annual revenue before eFashion took them over but have been reduced to approximately $4 million-$5 million under eFashion’s operations, as Foy admitted to Stephen at the June 1 dinner."
Playboy contends that just six months into the deal, eFashion wasn’t meeting its numbers, and later the company branded it "underperforming."
As a result Stephens met with Foy who requested, among other things, that Playboy significantly reduce the minimum royalties required under the license agreement and effectively eliminate eFashion’s financial commitment to Playboy’s catalog business.
Foy, the suit said, complained of the financial commitment of $4.4 million for the catalog, and later Playboy ultimately agreed to reduce eFashion’s financial obligations to the catalog business.
Playboy said other obligations also were reduced and that eFashion effectively received a $13.7 million financial relief, in addition to the $4.4 million.
“Despite the many concessions that Playboy made to demonstrate its commitment to eFashion, even in the face of eFashion’s substandard performance and misrepresentations, eFashion again failed to fulfill its obligations,” the suit said. “Indeed, eFashion has failed to pay the amounts due Playboy under the amended license agreement for the first quarter of 2009.”
Playboy, in the suit filed at U.S. District Court in Chicago, is seeking damages from the alleged breach of contract.
XBIZ was unable to reach Playboy executives and eFashion’s CEO for comment after normal business hours on Friday.