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DELIA’S MULLS OPENING HUNDREDS OF MALL STORES

By Gregory J. Gilligan

Andrea Weiss

Speaking to a 16-year-old girl on a two-hour plane trip a year ago convinced Andrea Weiss that Delia’s Corp. was making the right move by opening store locations.

The hip and stylish teen girl’s apparel cataloger had tested the idea when it opened its first store in 1999, and by early last year it had about 31 locations. These have worked out so well that the New York City-based company is considering an expansion program that would put hundreds of Delia’s retail stores in malls across the country.

Weiss, who became Delia’s president in May 2001, knows that opening retail locations can be risky, though, and was reassured by the conversation with her flight partner.

“All she talked about was Delia’s and how she shopped our catalog and at our Westchester [N.Y.] store,” Weiss said. “But she kept telling me that she wished we had a store near her town in Connecticut because she and her friends would shop more often.”

In fact, the company already knew that teen girls and their parents craved an additional way to buy Delia’s popular clothing, shoes and accessories other than the company’s catalog and Web site.

“I couldn’t find a teen-age girl who didn’t know the name, and they squealed when they found out they could have a store near them,” Weiss said.

Weiss knew that opening retail locations could provide the company with a strong, sensible growth vehicle as Delia’s looks for a way to boost sales and profits. She also knew that many other successful catalogers have increased their sales and brand awareness by opening retail locations.

So Delia’s has now begun its aggressive retail rollout strategy. At the close of the fiscal year ended Feb. 2, Delia’s operated 46 retail locations. It has since opened two and closed one. Two more are set to open in the first half of the year, and an additional 16 stores are scheduled to launch by year-end. In 2003 Delia’s expects to open 30 stores, which would give the company nearly 100 locations nationally. Leases have already been signed on two locations for next year.

The goal for the foreseeable future is to expand Delia’s retail operations to about 300 locations nationally, and maybe more.

“We may become even more aggressive beyond 2003,” said Weiss, who was executive vice president and chief stores operator at The Limited before joining Delia’s. “We are having no difficulties in finding good locations in the top centers with very good terms.”

In fact, stores are such a fast-growing segment of Delia’s business that they should represent roughly 50 percent of sales by the end of this fiscal year and more than that next year. In 2001 retail sales made up roughly 40 percent of total sales, up from 32 percent the year before.

“There clearly is a big opportunity for them in retail,” said Dorothy Lakner, a retail analyst at CIBC World Markets. “Delia’s operates a successful catalog and migrated successfully to the Web. But the real big upside potential for them can be a retail expansion.”

Another reason Delia’s should do well, Lakner said, is that it is targeting the lucrative teen female market, one of the fastest-growing demographics in the United States.

The company’s brand of clothing tends to receive more mom-approval than its closest competitor, the racier Wet Seal. Abercrombie & Fitch and American Eagle Outfitters, while popular chains among high school and college students, cater to both male and female customers. And Limited Too is for girls younger than the typical Delia’s shopper.

Selling only to girls gives Delia’s a competitive advantage, Lakner said. “Ask anyone who has a teen-age daughter, and the Delia’s name will come up.”

Delia’s mails nearly 40 million catalogs annually. But analysts and other retail experts say the opportunities are greater in retail because far more people shop at stores than buy through catalogs or over the Internet.

Other catalog companies that have flourished by opening retail locations include women’s apparel retailer Talbots, which was one of the first to demonstrate years ago how a mail-order company can make the switch. J. Jill, another women’s apparel cataloger, has been trying to do the same over the past few years.

Even L.L. Bean took the big step in 2000, when it opened its first retail location in 83 years besides its flagship in Freeport, Maine (SCT, May 2000). That second store, in Tysons Corner Center mall outside Washington, D.C., was followed by a third at The Mall in Columbia (Md.) last year.

Part of Delia’s strategy, Weiss said, is to have multiple channels of distribution, including a mail-order business, an online shop and now retail stores.

“The growth dynamics are very compelling,” she said.

The challenge, she added, is to integrate and promote among the three channels of distribution to make the shopping experience appear seamless. This year, for instance, Delia’s featured international rock star Shakira in a promotion that appeared in its catalog, Web site and stores. This was the first time the company developed that kind of threefold promotion — and the first time that Delia’s featured a celebrity on its catalog cover.

Delia’s stores showcased a giant placard of the catalog in their main windows and highlighted merchandise representing Shakira-inspired styles. The Internet shop provided an exclusive Shakira interview and a clip from her latest video. Delia’s catalog and Internet shop offer another important advantage in the opening of new stores: The company knows where its customers live.

Coming soon to a mall near your daughter: Delia’s envisages 300 or more stores nationally.

“It becomes much less of a risky venture because it is easier to pick where to open a store,” Lakner said. Texas and Florida, for instance, are among the four strongest states for Delia’s catalog and Internet businesses. So this year Delia’s is opening its first Texas store (at the Galleria, Houston) and its first Florida locations (at Florida Mall, Orlando, and at Town Center at Boca Raton).

The New York area is also a strong region; Delia’s has eight stores in New York and 10 in nearby New Jersey. More are planned, particularly in upstate New York.

California is another state that has a high number of catalog and Web customers, but Weiss said she isn’t ready to tackle the West Coast just yet. “There are many malls ahead of us before we do California,” she said.

But Delia’s isn’t relying solely on its catalog and Web customer list to pick retail locations, Weiss said. The chain looks for locations in upscale malls where the demographics tend to attract teen girls and where other retailers catering to teens do well. “And then we look at the demographics from our catalog,” she said.

A typical Delia’s retail location of 3,500 square feet generates average sales of $400 per square foot, a healthy sales level for mall-based stores targeting teens.

Though opening new stores is a key growth driver, Delia’s will continue to evaluate underperforming locations and close them as necessary, Weiss said. The company’s store in the Smithhaven Mall, Long Island, N.Y., for instance, closed this year, and three or four other stores could close later in the year.

Building a management team has also been crucial to Delia’s growth. Weiss was brought aboard last year after nearly three years at The Limited, where she was responsible for developing and directing retail operations at more than 5,000 stores operating under eight names. Before that, she was president of the retail division of Guess.

Besides Weiss, Delia’s has hired several high- and midlevel executives with extensive retailing backgrounds, including Brian Jarvis (who oversaw the opening of 800 Bath & Body Works stores in four years as that chain’s executive vice president), Wendy Heath (former vice president of merchandising and design at Limited Too) and Hilary Chasin (former senior vice president of marketing at Foot Locker).

Despite its strong following, healthy sales and expansion program, however, Delia’s has been losing money since the first quarter of 1999. For the fiscal year ended Feb. 2, the company lost $22.1 million — though that was a big improvement over its $79.7 million loss of the previous year. Returning the company to profitability, therefore, is another important goal.

Delia’s took a step in that direction in the fourth quarter, posting a profit of $310,000 that beat Wall Street estimates. Revenues, however, were down 33 percent for the year and 35 percent for the fourth quarter. The decrease is largely a result of sporadic mail delivery, fourth-quarter inventory shortages and the divestiture of some of the company’s noncore businesses.

Delia’s said it expects sales to improve this year and that the company should be profitable in the current fiscal year, though the loss in the fiscal first quarter will be slightly worse than initial expectations, executives said.

CIBC’s Lakner said it is too early to tell whether Delia’s has turned the corner and is headed for profitability.

“There certainly is evidence that may be the case,” she said, noting that adding more retail to the mix should help.

Weiss agrees.

“That’s why it is so exciting to be a part of Delia’s now,” Weiss said. “It’s a great brand that we are now taking to the next level.”

Gregory J. Gilligan covers the retail industry for the Richmond-Times Dispatch.

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