December 26, 2000, 9:55 AM

Discount designer clothes draw online bargain hunters to

Discount clothing buyers are a hard-core bunch. They think nothing of spending hours sorting through racks and bins of discontinued lines, looking for just the right shirt, coat, accessory-and price. Even if an item is already marked 50% off, such dedicated bargain hunters aren’t afraid of trying to talk sales associates or checkout clerks into knocking off just a few dollars more.

Tough crowd to turn into Internet shoppers, right? Maybe so. But Kenneth Seiff, founder and chief executive officer of Bluefly Inc., believes he can convert discount apparel shoppers into online customers. With a slick-looking Web site and deep discounts on designer togs from Calvin Klein to Donna Karan, Bluefly, a New York online apparel retailer, wants to own the Web discount designer clothing category by selling designer clothing and accessories for women, men and children at discounts of 25% to 75%.

Its early strategy has been creating a customer base from existing online shoppers-typically between 25 and 44, equally split between men and women, with average household incomes of $60,000. Before entering the online fashion business last year, Bluefly surveyed thousands of consumers who bought books, computers, music and other items on the Web. “We designed our business around their needs,” Seiff says. “We know they like designer and brand names.”

Whether they like them out-of-season and in limited color selections remains to be seen. Bluefly carries only about 3,400 items from roughly 90 designer labels in its online inventory, compared to the nearly 30,000 individual products found in a typical T.J. Maxx or Marshalls.

But the company, which trades on Nasdaq under the symbol BFLY, is banking nearly $3.5 million in start-up capital and another $11 million it recently raised from stock warrants on the gamble that they will succeed in building a loyal shopper clientele.

Good early buzz

Initial results indicate the bet is a good one. The site went live in September and Bluefly rang up almost $300,000 in sales in 1998, against a net loss of $3.7 million.

In the first three months of 1999, Bluefly has pulled in sales of more than $420,000. The average order: about $72. “The fourth quarter is typically the most important for merchants in this category, but the sales and the record number of visitors and shoppers we had in February tells us we are on track with our plans,” Seiff says.

As a new player in the business-to-consumer electronic commerce market, Bluefly managed to create an instantaneous splash through its strategic alliances with America Online, Yahoo, Lycos and @Home, exposing millions of potential customers to its name and products during the critical 1998 holiday shopping season. The trendy site with its signature blue pages had 664,000 visitors in December and approximately 2.1 million for the first three months of 1999. But converting browsers to buyers and building brand identity are the challenges Bluefly faces if it wants to build critical mass.

Industry analysts point out that Bluefly must work harder on adding more merchandise if it expects to attract-and keep-shoppers. “The key to this business, either offline or online, is supply, and there is only so much discount merchandise to go around,” says George H. Whalin, president, Retail Management Consultants, San Marcos, Calif. “The discount designer apparel market is tough to crack with any kind of store. A lot of merchants have tried that segment and failed.”

Seiff is well aware of the obstacles he’s up against. Bluefly recently hired Nicholas Kaplan, a Saks Fifth Avenue veteran, to be its chief buyer, and part of the company’s new capital will go toward adding more inventory. “We’ve heard the criticisms about merchandise, but now we have Nick and four more buyers,” Seiff says. “Shoppers will be pleased with the selections we are adding.”

Beefing up inventory is a big part of the company’s strategy going forward. But equally important is adding new technical functions to the Web store such as advanced product search engines and an e-mail program that notifies shoppers when a particular item is in stock.

The coming swarm

With the Internet apparel marketplace estimated at $330 million in 1998, Bluefly’s 1998 sales added only a ripple to the aggregate. But by 2002, the online apparel business could generate sales of nearly $2.85 billion-and Bluefly’s corporate strategy is to be swarming all over the horizon by then.

Seiff says Bluefly represents a classier image than does a retail store displaying discounted merchandise in a rack or a bin. No one has tried on-or stepped on-Bluefly’s product before the customer receives it. And Bluefly offers such premier brands as Tommy Hilfiger, Ralph Lauren and Prada, to name a few.

Elaine K. Rubin, president of ekrubin Inc., a Woodbury, N.Y., online commerce consulting firm, says Bluefly seems to have taken the lead among the small group of Web retailers in this niche. “A key thing in this space is getting to the market first and they’ve done a nice job of getting out there,” she says. “Bluefly has a nice functional site, and they’re marketing much more than the others have.”

That would include Designer, a three-year-old New York-based Internet retailer that offers more than 1,500 products from 250 designer labels, and Deal-A-Day, a bargain hunting site that was acquired by CyberShop International Inc., Jersey City, N.J., in March.

“Maybe there’s only a couple of virtual retailers in this market, but I think it might be hard for any of them to win customers over from the established chains,” Whalin says. “These shoppers are fiercely loyal to their stores because they know the chain will have the bargains they want. If they click on a virtual store and don’t see what they want, they won’t be back.”

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