Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Non-Tech : Delias (DLIA) -- Ignore unavailable to you. Want to Upgrade?

To: Herc who wrote (359)	8/22/2000 8:53:22 AM
From: Herc	Read Replies (1) \| Respond to of 367

Deila's Aims to Bridge Online, Offline Market By Rebecca Quick IT SOUNDED LIKE a good idea at the time. Teen-apparel retailer Delia's Inc. charmed the Net-entranced stock market last spring when it spun off its Web operations, including Delia's.com, as a separate business called iTurf. The new company combined two key components that intrigued investors: teens and the Internet. Its stock shot out of the gate at $60 a share. But iTurf rapidly moved into an awkward adolescence. Last week, when iTurf shares were trading at $3, Delia's made the tacit admission the spinoff had failed by announcing it would bring the two businesses together again, calling the new company Delia's iTurf Inc. The brief history of iTurf is a cautionary tale of a traditional retailer that tried to cash in on the fickle, Net-hungry market -- and got burned. Even though iTurf delivered on its early promises of fast growth (its online traffic roughly equals that of MTV.com), the company lost favor when investors grew impatient with dot-com losses. ITurf failed to turn a profit and it suffered the consequences. NOW, iTURF HAS BECOME part of the trend toward partnerships and mergers between online and offline businesses. But bringing two vastly different cultures together is a difficult task. Delia's managers originally figured that iTurf's hotshot Net executives could do a better job with the Internet side of business. Now they want it back. Delia's team, which has retailers with plenty of merchandising experience, believes it is better equipped to manage Delias.com (delias.com) than iTurf. Knowing how to sell embroidered tank tops or chunky clogs is a more important aspect of e-retailing than being Net-savvy, the managers reason. "It turned out to be this structural disaster," says Stephen Kahn, chairman and chief executive of both Delia's and iTurf, who will stay in that role at the new, combined company. "It's a little bit of a bummer because what was a brilliant move a year ago now is undermining my credibility." At the beginning of 1999 -- light years ago in Internet time -- the iTurf strategy fit perfectly with the dominant market mentality. Investors were dropping traditional retailers in favor of the more-nimble, Internet-only retailers who could sell goods more cheaply to consumers because they didn't run up massive overhead costs like their bricks-and-mortar brethren. Traditional retailers suffered a double whammy when it came to e-commerce: With their old-economy market valuations, they couldn't lure the most talented Web developers and programmers. With high-tech skills at a premium, techies could -- and did -- demand compensation packages heavy in stock options. Delia's management figured that by taking its Internet holdings public, it could raise the capital needed to build a top-notch Web company and, at the same time, create the currency to lure top tech talent. Delia's already had one of the most envied brands in teen retail. The company began back in 1993 as a catalog retailer targeting college students, but found that its first book seemed to draw more of a response from high-school students. Mr. Kahn and his partners quickly shifted gears and started focusing on adolescents. The company rapidly found success as sales rocketed from $50,000 in 1994 to more than $190 million last year. Delia's went public in 1997. Today, the retailer's total catalog circulation is close to 50 million annually; by comparison, Victoria's Secret mailed 365 million catalogs last year. DELIA'S IS ROLLING OUT a traditional bricks-and-mortar strategy for its new entity that is no less challenging. Mr. Kahn feels stores, not the Web, will be the biggest growth vehicle for Delia's. "Kids love malls -- that's where they hang out and where 95% of purchasing occurs," he says. The company plans to add 15 to 20 more stores a year over the next several years to its current 30 stores. Some analysts have chided the company for spending too much to acquire an existing chain called Screeem! rather than building from scratch. But analysts at least are hoping that the reuniting of the two branches of Delia's will clear up some investor confusion. Initially, the iTurf split was supposed to make it easier to recognize the value of Delia's Internet holdings by separating it from its traditional retail business. In the end, the spinoff just muddled the waters. "People have been trying to understand who owns the online property vs. the offline, and what the structure of the licensing arrangement is," says Jeff Klinefelter, a retail analyst with U.S. Bancorp Piper Jaffray. "It's too confusing. I can't spend the time on it." Receive e-mail notifying you of the latest publication of E-World. See the Personal Journal e-mail setup page for details on how to subscribe. Many iTurf shareholders had all but written off their investments. "This is just one of those few mistakes you make in the business," says Bob Harris, an equity strategist with Sterne Agee Asset Management in Birmingham, Ala., who says he has pared his iTurf holdings down to just a few hundred shares from about 1,000 shares. Despite the rough ride the companies' stocks have taken, senior managers say the iTurf spinoff wasn't a mistake. The offering raised enough money for iTurf to hire a strong management team and build a name for itself on the Internet. Managers on both sides are optimistic in projections about the future value of the new company. The challenge now is to build a business model that takes advantage of the best of both worlds.