Frederick’s of Hollywood Redux

Frederick’s of Hollywood has had almost as many comebacks as Cher. It’s no secret that the marketer of lacy — and racy — lingerie has endured numerous ups and downs in its 58-year history. As recently as July 2000, the Hollywood-based cataloger/retailer filed for Chapter 11 bankruptcy protection, not emerging until January 2003.

At the same time, Frederick’s has been keen to shed its salacious image. In the late 1990s, the company started retooling its catalogs and stores and expanding its product offerings to include such basics as T-shirts, dresses, shorts, and pants. Some efforts had been sidelined by the bankruptcy, but Frederick’s is now ramping up its strategy to devamp.

In January, Frederick’s mailed a 68-page catalog called Infocus, which sells apparel, jewelry, perfume, and even home accessories, no doubt taking a page from Victoria’s Secret. Infocus still includes some of the over-the-top underwear that is the company’s signature, but apparel and accessories make up 75%-80% of the merchandise. In the core Frederick’s book, lingerie accounts for 40% and apparel 60%.

Frederick’s is hoping that the spin-off, whose average price point is about 20% higher than that of the core catalog, will help it attract younger customers; the company’s primary audience is women in their mid-30s. Frederick’s is increasing circulation 15%, to 28 million catalogs, this year. Infocus accounts for much of the additional circ; 40% of the first mailing went to rented names.

Infocus’s more modest offerings makes it easier to find lists for prospecting, says Danielle Savin, general manager of Frederick’s direct division. Previous attempts to expand its audience were thwarted by list owners wary of renting names to Frederick’s. “In the past, some list owners would see the Frederick’s name and decline us for certain merchandise qualifications,” Savin says. “But with this name no one had any objections.”

In addition to different merchandise, Infocus has somewhat different copy that “sells” the product, whereas the Frederick’s catalog relies more on model shots to convey the message. For instance, the Infocus copy for a houndstooth shirtdress begins “Be bold in this hot menswear inspired shirtdress with front button closure and self belt…” In the core book, the copy for the same dress simply states: ‘Shirtdress in bold houndstooth print with front button…”

Infocus aims to present apparel “that represents the Frederick’s lifestyle — one of fun, glamour, sexiness, and the red-carpet excitement of Hollywood,” says Linda LoRe, president/CEO of Frederick’s. LoRe knows from glamour; she had been president/CEO at upscale retailer Giorgio Beverly Hills before joining Frederick’s in 1999. The question is, can Frederick’s upgrade its image to appeal to the mainstream without losing the brand — and customer base — it’s spent decades building?

Panties and push-ups and thongs, oh my

Founded in 1946 by Frederick Mellinger, Frederick’s of Hollywood actually started out in New York as a mail order marketer of black undergarments; a year later the operation moved to Hollywood. The company, whose achievements include introducing American women to push-up bras, bikinis, and thong underwear, opened its first store in 1952 and went public in 1972.

The business was bountiful until Frederick’s flashiness fell out of favor in the more conservative ’80s; the company posted its first annual loss in 1984. It also didn’t help that sexy-but-not-sleazy competitor Victoria’s Secret was steadily chipping away at Frederick’s business.

Shortly after Frederick’s was purchased by Chicago-based Knightsbridge Capital Management in 1997, the company hired Terry Patterson, its first female CEO. Patterson started working on classing up the brand, but she left the company abruptly in March 1999; LoRe stepped in four months later.

“When I came here, some decisions were well intended, such as stopping prospecting, because management at the time wanted to cap costs,” LoRe says. But then the catalog’s house file became cold. “We had to reintroduce prospecting and show consumers that we weren’t this tawdry company, which was a big challenge.”

There were other missteps. A 1999 repositioning catalog with new product and new creative was erroneously mailed to core customers during a sale week. Though the merchandise assortment and creative changes made the catalog more mainstream, it lacked a point of view, Savin says. The house file reacted negatively across all segments; prospects did not respond either. Worse yet, Savin says, the catalog was developed by an outside agency with all new photography, so the advertising expense was high.

Battling bankruptcy

In June 2000, Los Angeles-based investment firm Wilshire Partners bought Frederick’s of Hollywood from Knightsbridge; Frederick’s filed for bankruptcy the next month. “We had to restructure the entire organization,” LoRe says. “Our catalog and stores ran as separate divisions and were channel driven.” For example, at the time the company’s catalog, Web, and retail divisions each had separate logos.

That Frederick’s auditor, Arthur Andersen, would not render an audit opinion for the 1999 fiscal year did not help matters. “We were overleveraged as a company,” LoRe says, “and the fact that we were unable to get an audit opinion was troubling.” An audit opinion tells suppliers whether a company is fiscally fit enough to be granted credit, so the lack of one “spooks your vendors,” LoRe says.

“Those were some difficult days,” LoRe continues. “I have never in my career been through anything as difficult as Chapter 11. You have to be so focused, so clear in working with the lawyers, your creditors. It’s like getting a Ph.D”

The company’s creditors “were very supportive and believed that we had a reason for being,” LoRe notes. Vendors continued to ship to Frederick’s, which allowed it to stay afloat during bankruptcy.

Slowly the company gained momentum with product innovations such as the Hollywood Extreme Cleavage bra and key executives brought in by LoRe. In addition to Savin, these executives included vice president of marketing Yolanda Dunbar, general manager of stores Denise Marsicano, general merchandise manager Christine Ansari, and chief financial officer Don Degner. The company is now owned by a consortium of creditors, including Credit Agricole, HBV Mellon, and ING Pilgrim, and management.

A new chapter

With its bankruptcy days behind it, it seems that Frederick’s is now on the right track. Although the company closed 58 stores during its 30-month stay in Chapter 11 (it still has 156), sales for fiscal 2003, ended July 31, were $140 million, flat with the previous year. The direct division accounts for 40% of the business.

The company’s earnings for fiscal 2003, meanwhile, beat internal projections by 20%. Profit for the direct division increased 47%. And for the first six months of fiscal 2004, profit tracked 60% higher than for the comparable period of the previous year. Comparable-store sales — a year-over-year comparison and an indicator of a retailer’s health — for December increased 11%.

“Frederick’s still has a strong brand name, despite its ups and downs,” says apparel consultant Adrienne Cote, who applauds the cataloger/retailer’s efforts in trying to steal market share from the $3.5 billion Victoria’s Secret. “It’s important for their customers to begin thinking of Frederick’s for products other than intimate apparel.”

Not that Frederick’s should ever give up intimate apparel, says one former rival. “There can be room for more than one player selling lingerie, particularly a specialty retailer,” says catalog industry consultant Cynthia Fields, a former president/CEO of Victoria’s Secret Direct.

“As far as the ‘racy’ stigma is concerned, it is not necessarily a negative,” Fields adds. “Victoria’s Secret has increased their emphasis on ‘sexy’ in recent years. Just look at their TV ads. Numerous new product introductions in both lingerie and fragrance have been titled ‘Very Sexy.’”

Just as Victoria’s Secret appears to have no qualms pushing sexiness, Frederick’s is not worried about losing its core audience by downplaying some of its raciness. LoRe points to the 30% growth in its house file during the past 36 months. About 35% of Frederick’s core circulation for the past three years was sent to prospects. Many of the new names came in via the Web through banner ads, a small but manageable affiliate program, and advertising with portals MSN and Yahoo!.

Besides, LoRe contends, the women’s apparel business is all about change: “You constantly look to reinvent yourself and continue to evolve.”

58 Years of Frederick’s

1946 Frederick’s founded in New York by Frederick Mellinger as a mail order marketer of black undergarments
1947 Frederick’s moves to Hollywood, CA
1952 First store opens, selling novelty items such as crotchless panties and inflatable bras
1972 Frederick’s goes public, enjoys stream of profitability
1984 Company posts its first annual loss
1990 Frederick Mellinger dies
1997 Frederick’s is purchased by Knightsbridge Capital Management
1999 Company taps former Giorgio Beverly Hills chief Linda LoRe as president/CEO
2000 L.A. investment firm Wilshire Partners buys firm; Frederick’s files for Chapter 11 bankruptcy protection citing debt from leveraged buyout
2003 Frederick’s emerges from bankruptcy
2004 Company mails Infocus, a more mainstream apparel title

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