MFA ends private venture in Internet, catalog sales

By Geoff Edgers, Globe Staff, 9/30/2003

It was a radical experiment for the Museum of Fine Arts: Start a private company to run its gift shops, publish its glossy mail-order catalog, and hawk posters, T-shirts, and jewelry on the Internet.

After two years and $10 million in losses, the experiment is over. Museum Enterprise Partners is no more. The MFA has bought out the six managers with a stake in the company, pared staff, and discontinued its catalog.

"We at the museum are not venture capitalists," said John Stanley, the MFA's deputy director. "We couldn't provide the support a young company needs."

MEP, as it was known, was created in 2001, the first enterprise of its kind in the museum world. Although the museum initially owned 80 percent of MEP, the long-term plan was to sell that stake to an outside investor. That way, the MFA wouldn't lose money during a down year but would keep cash flowing in by earning royalties on every product sold.

But nobody wanted to buy MEP and, with the company losing $2.9 million its first year and $3 million for the fiscal year that ended June 2002, the museum could no longer support it.

The $10 million total loss also includes some of the $6.3 million the museum set aside for the "restructuring" necessary to set up the private company, said Stanley. In 2001, the MFA offered severance packages to the 130 people who were part of the museum's merchandising department. Most were offered jobs with MEP but started without pensions, accrued sick leave, or vacation, he said.

In July, the museum bought out the six managers of the company, including CEO Joseph Gajda, and went back to its old merchandising structure. But the operation, now run by former MEP manager Ellen Bragalone, has been cut back considerably, from a $40 million budget in 2001 to about $9 million for the currentyear. Staff has been cut from 130 to 90.

There will be no more catalog, Internet sales, or wholesale operation, said Stanley. The catalog in particular, which was launched in 1976, was considered a marker of prestige. Only the largest museums in the country can afford to publish them. And as recently as 2001, the MFA was mailing out 7 million catalogs during the months leading up to Christmas.

The museum's merchandise business was a moneymaker in the 1990s, with business peaking at a $3.5 million profit in 1990 and averaging $1.6 million a year in profits until 1997. But the business lost $3.5 million in 2000, $500,000 in 2001, and $2.9 million last year, its first full year as a private, nonprofit company.

Perry Lowe, a marketing professor at Bentley College, says that MEP was a great idea. He wonders whether the museum was committed enough to the idea. Small businesses, Lowe says, take time to get off the ground.

"They didn't leave themselves enough leeway," says Lowe. "In a bad economy, losing $2.9 million on a $40 million budget doesn't say to me `bad management.' It may say `bad timing.' "

Gajda agrees. He declined to stay at the MFA but believes in the idea behind MEP. He's looking for investors to start a company to run merchandizing for nonprofits.

"To characterize this as a failure for the museum would be wrong," says Gajda. "We formed just prior to September 11th, and I think we were a victim of those unfortunate events. [The idea] has attracted interest from many, many institutions. It is a business whose time has come."

Geoff Edgers can be reached at gedgers@globe.com.