Delia’s Growth Strategy, Take Two

Like the teenage girls it targets, apparel marketer Delia’s has suffered from growing pains. But after expanding beyond its core brand (acquiring soccer gear cataloger TSI Soccer in December 1997; buying children’s apparel title Storybook Heirlooms in September 1998; growing a network of online teen communities), the New York-based company sold off or folded those noncore properties (see “Delia’s Growing Pains,” page 16). This spring, it emerged from its awkward phase with one goal: to bolster the Delia’s brand across multiple channels.

‘We have a 250-plus-store opportunity here,’ says Delia’s chairman/CEO Stephen Kahn

To that end, Delia’s, which began as a print cataloger in 1994, plans to nearly double its retail presence during the next two years. The company, which had sales of $215.1 million last year, already has 42 retail stores and four outlet shops. By December it will have opened 10 stores this year; it plans to open another 20 next year.

To oversee the retail expansion, in May, Delia’s hired former Limited executive Andrea Weiss as president. (Evan Guillemin, Delia’s former president, is now chief operating officer.) As executive vice president/chief stores officer of The Limited, Weiss was responsible for developing and directing operations and sales strategy for more than 5,000 stores.

The hiring of Weiss is as clear a signal as any that Delia’s no longer sees itself as a cataloger, or as a cataloger/online marketer. Rather, it intends to follow such apparel marketers as Sandpoint, ID-based Coldwater Creek and Quincy, MA-based J. Jill Group into true multichannel mastery.

“We believe we have a 250-plus-store opportunity here,” says chairman/CEO Stephen Kahn. “The challenge will be to leverage this opportunity as quickly and profitably as possible.” Kahn notes, though, that the company is erring on the side of conservatism, at least for the next year or so — no doubt having learned from the past several years, when it tried to rapidly grow not just channels but also brands and product lines.

This year, Delia’s expects to take in $103 million-$105 million in catalog and Web sales; the direct division is projecting earnings before interest, taxes, depreciation, and amortization (EBITDA) of $3.0 million-$3.3 million. For the retail segment, Delia’s is projecting $55 million-$58 million in sales and an EBITDA contribution of $3.0 million-$3.3 million.

The retail opportunity

A key weapon in Delia’s retail charge, says Weiss, is its database of 13 million names, which includes 6 million active buyers. The company uses catalog mailings — its annual circulation is 45 million — to flood the local markets where it has a retail opening.

In fact, some industry professionals say that the ability to promote the stores via direct mailings is one advantage catalogers in general have over retailers when it comes to going multichannel. “Businesses that do one-to-one marketing have moved into bricks-and-mortar relatively easily,” says Gordon Cooke, chairman/president/CEO of J. Jill, which opened its first retail store in November 1999 and now has 28. “Moving into the catalog space is a much more difficult task.”

Kahn agrees. “Fortunately, because Delia’s began as a catalog, we already had a head start with our retail efforts in terms of distribution and fulfillment capabilities. While this helped support the initial rollout of Delia’s stores, we’ve really built up our infrastructure over the past two years, upgrading our warehouse and investing in systems and personnel.”

Among the systems Delia’s uses is the Retail Enterprise suite of applications by Boca Raton, FL-based Ecometry. The software, which runs on an HP-3000 system, has a “universal data interchange” component that uses a proprietary “talker/listener” methodology to exchange data among the core order management program and the e-commerce, merchandise forecasting, and database analysis functionalities.

Of course, a data management system is only as good as the data collected. According to Stan Fridstein, president of Westlake Village, CA-based direct marketing consultancy Synapse Infusion Group, Delia’s makes a point of capturing in the stores customer information such as zip codes and the dollar amount of sales, something that “only the shrewdest marketers are doing.”

Just as the retail division will benefit from the database and marketing reach of the catalogs, the print books should benefit from Delia’s retail emphasis. Trends in the teen apparel market change as quickly and unpredictably as a teenager’s mood. “Obviously the catalog has the longest lead times of all the channels,” Kahn says. “Retail is able to respond to trends much more quickly. We’ll test product at retail and on the Web before putting it into the catalog.” Delia’s might then drop into a catalog mailing an insert featuring unexpectedly popular styles.

Taking the retail challenge

Given the challenges faced by catalogers — mailbox glut, ever-increasing postage and parcel delivery costs, higher return rates, the difficulty in finding new names — it’s understandable that they might think of expanding into retail as a cinch. But retail presents its own unique challenges.

For instance, instead of mailbox glut, there’s the heavy competition for a mall’s foot traffic, warns J. Jill’s Cooke. “Does Delia’s have a powerful-enough brand to withstand the competition? That’s a question it needs to be asking,” Cooke says. “Because building a unified brand across channels is essential to its success.”

Weiss agrees, noting that translating branding from one medium to another isn’t simply a matter of ensuring that your signage uses the same type font as your catalog’s display copy. Just as Delia’s has had to learn the optimal way to paginate its print books, it has to perfect the physical layout of its stores.

But Jeffrey Klinefelter, a senior research analyst at Minneapolis-based investment bank U.S. Bancorp Piper Jaffray, is among the observers confident that Delia’s will master the art of retail. “Once Delia’s figures out the logistics of delivering floor sets to the stores, for example, the company should be in good shape,” he says. “And it will benefit from iTurf and its other Web ventures [many of which it has consolidated or sold off during the past year] because it has the operations capacity to be a much larger business.”

Delia’s Growing Pains

  • 1993 Stephen Kahn, with Yale roommate Chris Edgar, hatches the idea of a catalog selling clothing for teen girls.
  • Fall 1994 First Delia’s catalog hits mailboxes.
  • December 1996 Initial public offering.
  • December 1997 Acquires TSI Soccer to expand its presence in the boys’ market.
  • September 1998 Acquires kids’ apparel titles Storybook Heirlooms and Just for Kids from Fulcrum Direct.
  • May 1999 Spins off online subsidiary iTurf.
  • Fiscal 2000 Liquidates its Droog catalog of teen boys’ apparel.
  • November 2000 Remerges Delia’s and iTurf; says deal will allow it to better manage the catalog and Web businesses.
  • February 2001 Sells TSI Soccer to Hillsborough, NC-based Sports Endeavors, parent company of the Eurosport soccer catalog.
  • March 2001 Completes sale of to a subsidiary of Barnes & Noble.
  • April 2001 Sells Storybook Heirlooms and Just for Kids to Kirkland, WA-based
  • May 2001 Sells the assets of to New York-based Primedia (the parent company of Catalog Age).

Partner Content

Hincapie Sportswear Finds Omnichannel Success in the Cloud - Netsuite
For more and more companies, a cloud-based unified data solution is the way to make this happen. Custom cycling apparel maker Hincapie Sportswear has leveraged this capability to gain greater visibility into revenue streams, turning opportunities into sales more quickly while gaining overall operating efficiency. Download this ecommerce special report from Multichannel Merchant to more.
The Gift of Wow: Preparing your store for the holiday season - Netsuite
Being prepared for the holiday rush used to mean stocking shelves and making sure your associates were ready for the long hours. But the digital revolution has changed everything, most importantly, customer expectations. Retailers with a physical store presence should be asking themselves—what am I doing to wow the customer?
3 Critical Components to Achieving the Perfect Order - NetSuite
Explore the 3 critical components to delivering the perfect order.
Streamlining Unified Commerce Complexity - NetSuite
Explore how consolidating multiple systems through a cloud-based commerce platform provides a seamless experience for both you, and your customer.