MARKETING STRATEGIES: Delia’s growing pains

Teen marketer overreaches and hits a snag

Once the model marketer for Generation Y, the seven-year-old trendy teen apparel marketer Delia’s has stumbled.

For 1999, New York-based Delia’s reported an estimated operating loss of $41 million on sales of $190.8 million, which at press time (late April) drove its stock to a 52-week low of 3 1/4, compared to a high of 24 3/8 in April 1999. Net income for the year was up 88%, to $10.9 million, but this was largely due to a $70 million windfall from i-Turf, Delia’s Web division, which it spun off and took public last year. As for the fourth quarter, in 1999 Delia’s net loss hit $1.8 million, compared to profits of $3.2 million in fourth quarter 1998.

The firm’s 1999 results are a far cry from 1998’s, when Delia’s annual sales grew 40%, to $158 million, and income increased 32%, to $6 million. So what happened? Most agree that Delia’s overspent to grow its franchise. Its 64-store retail expansion (the company has since closed its Screeem! retail stores, converting some stores to Delia’s brands) took a heavy toll on the company. “We probably were too aggressive in our expansion,” admits president Evan Guillemin. “Our financial results clearly reflect the challenges we faced this year.”

Now Delia’s Durham, NC-based soccer cataloger/retailer TSI Soccer, which it acquired in 1997 to expand its presence in the boys market, is having its own growing pains. Although TSI’s ’99 sales increased to $35 million, the 16% increase over ’98 sales was not as robust as planned. As a result, TSI put on hold its plans to open new stores this year, says TSI president John Pinto.

Fortunately, kid’s apparel cataloger StoryBook Heirlooms, which Delia’s acquired in September 1998 from then-bankrupt holding company Fulcrum Direct for $4.75 million, appears healthy. StoryBook Heirlooms netted a pretax profit of 4%-5% in 1999, says Estelle DeMuesy, Delia’s executive vice president of direct mail.

Delia’s is now challenged to successfully manage its catalogs, retail stores and Websites. Not an easy task, especially when the company is at the mercy of the whims of teenage girls. “It’s very difficult to invest well in teen apparel because fashions change so quickly,” says Kevin Silverman, managing director of Chicago-based investment banker ABN AMRO. “Fashions change enough at the adult level. Somebody wears something blue in a music video and the next day nothing red will sell. I’ve always viewed the teenage segment as risky for long-term investors.” Critics also suggest that heavy competition from Generation Y copycats, such as Alloy.com, has hurt the company.

Going forward

Guillemin says Delia’s is planning to right itself by refocusing its brand and by introducing a private-label product line, which will carry higher margins, later this year. According to reports, the company expects to turn a profit in the second half of this fiscal year.”We now have the right assets, management, and infrastructure to leverage the brand and go forward,” Guillemin says.

And although Guillemin would not speculate, analysts say Delia’s will sell 925,000 shares of its Internet subsidiary i-Turf to the public, and may sell off its TSI Soccer business to get financially healthy.

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