Thomas Kinkade Art Dealers See Red Over Financial Losses

Bloomfield Hills financial planner David White and his wife, Nancy, didn’t need to get involved in the inspirational world of Thomas Kinkade’s art. But in 1998, the famous painter’s values of God, country and family motivated them to open a gallery.

Today, after financial losses totaling more than $3 million, White, to put it mildly, regrets that decision. At one time, White owned four Kinkade dealerships. But some stores racked up operating losses of more than $700,000 a year. Now, White is among at least 10 dealers who have sued Kinkade’s licensing company, Morgan Hill, Calif.-based based [sic] Media Arts Group Inc.

The central complaint in White’s lawsuit is that Media Arts Group misrepresented the viability of Kinkade dealerships and induced him into opening additional stores in unprofitable markets.

Other lawsuits, including one filed Oct. 29 by Brian Wittman in Wayne County Circuit Court, further allege that Media Arts saturated the market with too many dealerships and distribution points and allowed mass merchandisers to sell Kinkade products at prices for lower than those permitted by dealers.

Some dealers are especially upset that Kinkade products are sold through Wal-Mart Stores Inc., Target Corp. and the television shopping network QVC Inc. “Bottom line, Media Arts was trying to expand too quickly; and to do it, they embellished and they misprinted the truth,” said Norman Yatooma, a Birmingham attorney representing White and Wittman.

But Dana Levitt, an attorney representing Media Arts Group, paints White, and others who have sued the company, in a different light.

“These are gallery owners who owe the company money, don’t want to have to pay; and in order to avoid having to pay the company money, they have decided the best defense is a good offense,” Levitt said.

Levitt acknowledges that many gallery owners are facing slumping sales but said the country’s recession, not company business practices, is to blame.

“Some of (the dealers) have seen it for what it is, an economic downturn,” Levitt said. “Others have seized upon really flimsy arguments to try to avoid having to pay their debts.”

Media Arts Group claims that White owes $140,000 for unpaid inventory, Yatooma said.

Kinkade, known as the “painter of light,” is an enormously successful marketer of sentimental landscapes and romanticized pictures of cottages and gardens.
His art ranges from canvas originals selling for more than $100,000 to canvas reprints at thousands of dollars and framed prints on paper for hundreds of dollars, as well as gift items such as books, Christmas ornaments and snow globes through Media Arts Group.

Media Arts Group (NYSE: MDA) sells its products through a distribution network of more than 4,500 dealers including 344 signature galleries and 361 showcase galleries.

White opened his first Kinkade gallery in Lansing. None of his galleries ever made a profit. Only the profits from his Bloomfield Hills based Estate Planning Group prevented him from having to file for bankruptcy, he said.

White’s perception is that Kinkade holds true to his professed values but that he lost control of Media Arts Group.

“The company, they talk is values, but hey didn’t live them at all,” White said.

Jim Cote, a local dealer who is not suing Media Arts Group, said his sales are down this year but said his company remains profitable.

Cote said he isn’t bothered by the sale of Kinkade products through mass-merchant retailers. Still, he said, some dealers are worried about a movement by Media Arts Group to sell more framed paper prints in mass-merchant retail stores.

“The one group of dealers feels it’s competition with the galleries,” Cote said. “Another group feels it’s good, helps with name recognition and brings people into the galleries.”

Cote opened his first dealership in Birmingham in 1996 and also operates stores in Novi, Rochester and Ann Arbor.

White filed his lawsuit in Wayne County Circuit Court in April. It subsequently was transferred in October to the American Arbitration Association, a forum for alternative dispute resolution, and will be resolved by a three-judge panel. The case was transferred partly because the initial contract signed by the Whites requires that the association mediate legal disputes. A status conference is scheduled for this month.

Wittman, the plaintiff in the other local lawsuit, operated a gallery in Portage for about 10 months from October 2001 until July.

Shortly after he opened his gallery, Wittman said, Media Arts Group flooded the market with the same inventory he featured in his store. But when he became a dealer, he signed an agreement not to sell Kinkade’s paintings and gifts at prices lower than those set by Media Arts Group.

“We had competitors selling at way below what my actual cost was, and I had to adhere to that retail sales policy,” Wittman said.

In some cases, that meant that competitors such as Hallmark and Wal-Mart were selling paper prints mounted in frames for between $59 and $139, while he was forced to sell the same paper prints for $200 to $400.

Wittman’s dealership was a gift gallery, meaning the merchandise was skewed toward gift items such as snow globes.

Wittman said Sam’s Club actually was “selling the items at less than we were paying for them,” at a store that was in a strip mall behind his store.

Although attorney Levitt said he didn’t known exactly when Media Arts began selling Kinkade products in some retail stores, he argued that only selected merchandise is sold by mass merchants.

“There may be some Kinkade products that are available at these stores,” Levitt said. “The kind of things that the signature gallery owners want to sell and that they have the exclusive right to sell, those kind of things are not available anywhere except at signature dealers.”

Yatooma said he plans to ask the court to impose fines and damages of more than $22 million in the White case and $5.4 million in the Wittman case.

Yatooma argues those damages are justified when actual losses, punitive damages, attorney’s fees, and the lost opportunity to pursue other business ventures are combined.

Media Arts Group has grown rapidly over the past 10 years, but the company’s recent financial performance has been spotty and marked by management changes. In the past five years, four CEOs have left the company, according to a story in the San Francisco Chronicle.

On Nov. 7, the company reported a net loss of $2.5 million or 19 cents a share on $74.5 million in sales for the nine months that ended Sep. 30. That was an improvement over the same period in the previous year, when the company lost $6.0 million or 53 cents on $74.4 million in sales.

Two years ago, Kinkade, the largest shareholder of Media Arts Group, tried to purchase all remaining shares and take the company private but was unsuccessful.

“I’m not saying there haven’t been troubles,” Cote said. “It’s a young company; there have been troubles in growth. This is a highly discretionary product.”