In what may be one of the hottest pairings in teendom since Britney and Justin, teen apparel and sporting gear cataloger Alloy agreed on July 31 to buy its closest rival, $137.6 million cataloger/retailer Delia’s Corp., for $50 million. The combined company will have annual catalog, Internet, and retail sales of roughly $300 million and a database of more than 20 million names, or 30%-40% of consumers 12-18 years old.
In addition to the namesake brand, the $318.3 million Alloy owns teen girl apparel title Girlfriends LA, rock-and-roll merchandise mailer Old Glory Distributing, and extreme-sports gear catalogs CCS and Dan’s Comp. Catalog and Web sales accounted for $167.5 million in revenue for the New York-based company last year; the rest came from its sponsorship and marketing division, which targets teens and young adults.
“We see real ongoing synergies,” says Sam Gradess, Alloy’s chief financial officer. “We’ll concentrate on keeping active the two female-focused brands and optimizing their brand names.”
Alloy intends to pay particular attention to circulation management. Total circulation at Delia’s is about 35 million, while Alloy’s is 55 million-60 million. “In all likelihood, there will be some reductions” to the circulation of the New York-based Delia’s catalog, Gradess says, adding that there’s about 50% cross-over between the two databases.
As for the 67 Delia stores, Gradess describes them “as a potential growth opportunity over the longer term. In the near term the focus will be on improving existing store productivity and evaluating whether certain stores should continue.”
Industry watchers applaud the deal. “By acquiring its primary competitor for a great price, Alloy has just captured the market for teen girls lock, stock, and barrel,” says Craig Battle, managing director of Princeton, NJ-based investment bank Tucker Alexander. Alloy can leverage the two customer files while improving sourcing and operational efficiencies. There are so many things to be gained here that if the two brands appear to be similar, “that’s less important,” Battle says.
To run the combined company, Alloy has hired former J. Crew chief operating officer Walter Killough Jr. Two of Delia’s cofounders, Stephen Kahn and Chris Edgar, will assist in the transition. The third cofounder, Evan Guillemin, will remain with the company.
Since their foundings in the early to mid-1990s, Delia’s and Alloy have been on divergent paths. Delia’s, which launched in 1994, a year and a half before Alloy, fell victim to the siren song of the Internet. In 1999 it spun off its Web division, only to reintegrate it into the core business 18 months later. The back-and-forth cost the company millions, Battle says. What’s more, when it began opening stores in November 1999, Delia’s got hurt with some costly leases, which it is now trying to renegotiate. Compounding matters, Delia’s went on a spending spree, buying several children’s apparel and sporting-gear catalogs. It sold or closed all of its noncore properties by the end of 2001.
Alloy has kept busy acquiring companies as well, but in addition to buying teen-oriented catalogers, it purchased marketing companies targeting the same demographic. The company has also struck numerous marketing and media partnerships for attracting teens and sells ads on its Website and in its catalogs and e-mail newsletters.
The management “at Delia’s are great promoters,” Battle says, “but Alloy seems to be a great operator of a direct marketing business.”
Once its purchase of Delia’s is wrapped up, Alloy is unlikely to lay low. Alloy has said it may consider spinning off or selling outright the combined merchandise business of Alloy and Delia’s in the future while retaining its more profitable sponsorship and advertising business.
“Of course, it’s early yet,” Gradess says. “There’s still a lot of work to do.”
Alloy and Delia’s: A Timeline
First Delia’s catalog hits mailboxes
Alloy launches Website; catalog follows a few months later
Initial public offering
Acquires TSI Soccer catalog
Acquires children’s apparel titles Storybook Heirlooms and Just for Kids from Fulcrum Direct
Initial public offering
Spins off online subsidiary iTurf
Acquires 17th Street Productions
Liquidates its Droog spin-off catalog of teen boys’ apparel
Acquires CCS, a direct marketer to teen boys
Remerges Delia’s and iTurf
Acquires BMX catalog Dan’s Competition, MarketSource’s 360 Youth Division
Sells TSI Soccer to Sports Endeavors
Acquires marketing companies Marketplace Media & YouthStream
Retains adviser to evaluate “strategic alternatives”
Acquires Old Glory Distributing
Acquires OCM Direct business of Student Advantage
Alloy acquires Delia’s