Dow Jones Wire on Perfumania
Dow Jones Newswires -- January 29, 1999
Another Web Play: Perfumania Hits The Internet, Shares
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By Kate Berry
MIAMI (Dow Jones)--Perfumania Inc. (PRFM), the discount perfume retailer with a deteriorating
financial performance, hopes to stage a comeback by - what else? - selling perfume on the Internet.
Perfumania's stock has doubled to 13 5/8, from just $6 a share a week ago, in anticipation of the debut
of its World Wide Web site, www.perfumania.com, on Feb. 1, in time for Valentine's Day. The
company's stock has risen steadily since it announced the formation of an Internet division last month.
The stock hit a 52-week low of 13/32, or 40 cents, a share on Oct. 28.
"We are creating an enormous amount of excitement around the Web store," said Perfumania's
Chairman and Chief Executive Ilia Lekach, who returned to the company in November after a leave of
absence. Lekach also is chairman and chief executive of Parlux Fragrances Inc. (PARL), a perfume
licenser that supplies some brands to Perfumania.
Lekach said that although Perfumania expects to post a loss in the upcoming fourth quarter and year
ending Saturday, he expects the company will turn a profit in the upcoming year. The company has
consolidated stores, reigned in expenses and reported a 2% increase in same-store sales in December.
He expects positive comparable-store sales in January, as well.
"We're going to have a huge loss for the year, and after that, we're going to be profitable in the year
ended in January 2000," he said.
Perfumania has posted seven straight quarters of losses. For the year ended Jan. 31, 1998, the company
posted a loss of $11.4 million, or $1.63 a share, on sales of $163.5 million.
The company's lagging performance has been attributed to excess inventory and rapid growth, which
strained the company's cash flow.
As a result, Perfumania sees the Internet as a way to expand its reach in the perfume trade without
adding stores.
The company has increased advertising in newspapers, on classical radio stations, and in Internet
magazines to promote the Web site. Its roughly 290 retail stores are strewn with giant banners and
fliers, part of a cross-marketing effort to promote its Internet presence.
"What we are trying to do is create a global perfume network by having international franchisees that
will be Internet affiliates," said Lekach, a Russian immigrant who got his start selling watches and
electronics before buying a perfume factory outlet in Freeport, Maine, in 1986.
He declined to say how much the company is spending on advertising or the potential revenue it expects
to generate from its Web site.
Though he admits the perfume industry is "flat," Lekach said a globalization strategy could bring
perfume to a wider market via the Internet.
"In many countries in the world, perfume is not that accessible," he said.
Perfumania's goal is to be a so-called "global portal" for perfume on the Internet, allowing customers
around the world to buy perfume or send it anywhere for a low cost. Franchisees in other countries
would do the shipping and handling at local rates; Perfumania would get a commission on all perfume
sales.
"Right now, if you go to the Internet from a foreign country like Argentina, perfume has to be shipped
by freight and it can be very expensive," said Lekach.
"We're establishing a franchisee in Argentina, so when you go to our Internet site, you're going to push
Argentina and get a database in their currency, with their prices with local delivery, and that is very,
very powerful."
Internet shoppers will be able to choose from more than 2,000 fragrances.
So far, the company has signed franchises in Canada and Panama and expects to announce others, with
a focus on Australia, Mexico, Central and South America, he said.
-By Kate Berry; 305-379-3744; kate.berry@cor.dowjones.com.
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