Business Week e.biz -- Strategies
Frederick's of Cyberspace
Can the Hollywood lingerie retailer turn its Web site into a "romance portal"?
The signs are plastered all over the hallways and offices at the company's headquarters, a warren of tiny offices and cubicles above the store on bustling Hollywood Boulevard: "Infrastructure or Bust." For Frederick's of Hollywood Inc., no double entendre is intended. During the busy Christmas season, the company's online business slowed to a crawl, effectively capping sales at about $50,000 a day. Clerks, typing Web orders int oa seperate distribution system, were making mistakes, leading to shipping errors. That's expensive when you're dealing exclusively in lingerie and underthings: Returned panties and swimsuit bottoms must be destroyed. "We were getting e-mails from customers complaining that the site was too slow, complaining that they lost the contents of their shopping carts, complaining about the shopping experience," says Gary K. Landry, CEO of Fredericks.com.
That's enough to spoil any fantasy. So now, the privately held lingerie retailer is trying to get more of a lift from the Web. By June, the company will launch a makeover of its Internet subsidiary, Fredericks.com, complete with special promotions, a frequent-buyers' club, and pull-down menus that will allow customers to peek at specific items with a single click from the home page. There's even a new, multimillion-dollar, 140,000-sq.-ft. distribution center in Phoenix that can stock its stores and fulfill orders placed online or through its popular catalog.Heart-shaped tubs. The company's goal: to be the online destination for shoppers looking for undies--and a little romance. The company wants to become more than an online seller of lingerie, clothing, and swimwear. Now, it wants to blossom into a "romance portal" that can fulfill its customers' every secret desire--from flowers at the doorstep to the quiet dinner for two to a weekend at a hideaway complete with a red, heart-shaped bathtub. "The Internet represents an opportunity for Fredericks.com to grow to the size of Frederick's itself," says Linda LoRe, CEO since last summer. The dot-com will probably be spun off in an initial public offering this summer.
The makeover comes none too soon. Founded by World War II veteran Frederick Mellinger in 1945, Frederick's was the first to mass-market a sense of style in underthings to American women, with a line of all-black lingerie. But in the '70s, the company's reputation went from sultry to sleazy as it toyed with cut-out bras and adult novelties. In the '80s, it watched as Victoria's Secret, now a $3 billion business, snapped up all the prime mall space, relegating Frederick's 200 stores to grade-B malls. By the time the family sold out to Knightsbridge Capital Corp. in 1997 for $70 million, annual sales were no more than $160 million. LoRe won't say what they are now, but analysts estimate they're around $250 million.
Frederick's, however, was early to the Web. It set up its first Internet store in 1996 in Yahoo! Shopping--almost a full three years before Victoria's Secret launched its own Web campaign. And in April, 1998, in a bid to widen its product mix and gain more control over marketing and merchandising, Frederick's set up an independent site, Fredericks.com.
Coming early to the Web didn't guarantee runaway success, though. Troubles in the physical world have hurt the Web business. Management--the parent company has had three CEOs in the past four years--was so busy trying to keep its stores out of the red that it didn't devote enough time or resources to the fledgling Net effort. The company's Web site has been little more than an electronic catalog with none of the bells and whistles of rival apparel sites. Frederick's customers couldn't even register for weddings and anniversaries or buy gift certificates. Navigating the site was time-consuming, and customers had to call an 800 number to check on their orders. "The staff was so busy keeping the Web site up and running that it didn't have time to develop the business," says Landry.
Still, with no advertising other than printing the Web address on every page of the 12 million catalogs it mails each year, the Internet business is profitable and accounts for roughly 10% of the company's sales, or $25 million. That's still only about half of what online competitor Victoria's Secret pulls in. "Frederick's has a very strong history and franchise," says analyst David M. Cooperstein of Forrester Research Inc. "With a little more effort it has a great chance to exploit the brand online."
How? Step One: Improve the performance of the sluggish Web site. Landry realized that the single computer server the company was using was simply too small for the traffic. So he switched Frederick's to a seven-server setup in Cupertino, Calif., managed by Digex, which also hosts Web sites for TWA and outdoor-goods retailer Campmor. The results were immediate. Business in March and April topped that of December, with more than a million unique visitors a month, up from 600,000 earlier. Then in February, Landry hired Keynote Systems Inc., a Web-monitoring service, to measure the Web site's performance against the average of the top 40 sites, including Yahoo, Amazon, and eBay. Frederick's Web pages now consistently load faster, in two to three seconds instead of its previous average of four or five.
Now, Landry is working on upgrading content and services. In June, he will replace some data-entry clerks with software, to cut the error rate. Frederick's also will start rolling out extra features monthly, including gift certificates and a password-protected gift registry so that buyers can make their wish lists--but not their sizes--known to friends and relatives. And in August, Frederick's will allow customers to check the status of their orders, including tracking their deliveries with United Parcel Service Inc. Another new feature: tips on what types of shoes to wear with a teddy, say, or which bras work best with strapless gowns.
The last step: a portal for lovebirds. Through partnerships, Frederick's figures by next year it will be selling things on the Internet that it could never offer in stores: flowers, chocolate-covered strawberries, reservations at romantic hot spots. "Call it a special-occasion portal, or call it an intimate-occasion portal," says LoRe. Call it nothing less than the rest of the fantasy that Fredericks.com already sells.By Larry ArmstrongReturn to top