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Strategies & Market Trends : Shorting stocks: High fliers -- Ignore unavailable to you. Want to Upgrade?

To: RockyBalboa who wrote (581)	11/27/1998 4:22:00 AM
From: Q.	Read Replies (1) \| Respond to of 709

re. the Redherring story on BFLY: "No one has established themselves as the Amazon of the clothing business," bad analogy. Amazon doesn't need inventory, probably BFLY does. BLFY doesn't have capital to buy any. Amazon had tons of capital to advertise, BFLY doesn't. They are almost out of cash. Here's a real prize winner: "Bluefly's holiday rush kicked in at least a week or two earlier than he had ever seen it in the retail world, Mr. Seiff says, and sales between October and November have more than doubled." This is silly. We are talking about a tiny number doubling to another tiny number: 10Q excerpt re. Oct: <<. For the five week period beginning on October 5, 1998 and ending on November 8, 1998, the Company's number of weekly orders grew by 100% from approximately 51 in the first week to 76, 83, 75, 102 in the following four weeks, respectively;>> Elsewhere in the 10Q, it says that the average order size is $72. That means that weekly revenue doubled from $3.7 k to $7.3 k. That means the revenue run rate is now $380 k per year. It's going to have to double a lot more times to be anything significant.

To: RockyBalboa who wrote (581)	11/27/1998 4:30:00 AM
From: Q.	Respond to of 709

about BFLY's shopping experience and business model: I went to www.bluefly.com, and I tried shopping for a few things to see what they've got. They had clothes I like, and the interface does let you narrow the selection process rapidly to the size and type of garment that you want. That's the good news for bluefly. It looks like they will please the customer. I might even order something myself. The bad part of this is it looks like there's no way they can make money at this until they get a lot bigger, which they can't probably without capital. Here's how small they are: I checked to see how many of ea. item they had in inventory. A typical Ralph Lauren polo size L shirt had 3 items in inventory. Size 44R London Fog raincoats: 2 in stock. Size 46R, just one in stock. You see a color photo of each item. Generally the item looks like it just came out of a box, with the shirt sleeves still folded up, and somebody in the store put it on a table and took a photo, which was then put onto the web page. This is fine for the customer, but it seems like a lot of work (i.e., a lot of expense) for the business to generate sales of maybe $500 per photo. I think this small-scale operation is going to have very high expenses relative to their revenues, i.e., very negative gross margins, and they will bleed a lot of cash for the foreseeable future. Well, Amazon.com loses money too, in large part because they spend so much on marketing. Amazon also spent a lot of its software, not the internet part, but the ordering and inventory control part of the operation. I wonder how good Bluefly's is, and how well it could scale with size. When they sell a few shirts a day, they can do just fine with paper and pencil, so I'll bet they haven't bothered to develop very fancy operations software I just wonder if Bluefly can get any capital for marketing and inventory too. Debt capital won't let them grow fast enough, so it has to be equity. That means they have to sell some stock, one way or another, to make it. This seems to be the key thing. If they don't raise equity, they fold. If they raise a little equity, they survive a while but lose all the capital that gets invested in a hurry. The only way I can see this thing going well is if they get a HUGE amount of capital.