Lingerie Heating Up Online Sales.

WEB BREATHES NEW LIFE INTO FREDERICK'S

CALL it an online man-bites-dog story.

While online ventures are notorious money-losers and long-established brick-and-mortar operations are solid, the Internet site for Frederick's of Hollywood has been profitable since its first day, even as the retailer is struggling to emerge from Chapter 11 bankruptcy protection.

Gary Landry -- general manager of Direct Vision, which includes the catalogue and Internet operations for Frederick's of Hollywood -- attributed that success to Fredericks.com staying lean during the period where many dot-com companies overextended.

"The model was not built to buy market share," he said. "Our goal was good rapid growth, with profit."

The history of Frederick's of Hollywood and Fredericks.com seems to be in juxtaposition. In late 1996, relatively early in the e-commerce game, Frederick's of Hollywood decided to become a presence on the Internet and opened a Yahoo store when Yahoo Inc. was hungry for business, according to Seth Jacobson, a spokesman for Frederick's.

By 1997, the Internet operation had begun to establish itself as the entire company was bought by Knightsbridge Capital for about $70 million. In the next few years, the competition for lingerie sales increased, with Victoria's Secret emerging as an industry leader.

Meanwhile, the Knightsbridge buyout left Frederick's with a heavy debt load that has haunted it ever since.

After a year and a half of selling through Yahoo, Frederick's launched its own Web site at the end of 1998 but continues to be linked through Yahoo. Since then Fredericks.com has soared. Its sales more than tripled from $3 million in 1998 to $10 million in 1999, according to the New Generation Research Inc.'s bankruptcy profile on the firm.

Landry said Frederick's of Hollywood is currently undergoing a financial reorganization that he hopes will soon lead to its emergence from bankruptcy protection.

Due to the weakness on the brick-and-mortar side, Frederick's filed for Chapter 11 bankruptcy protection last June and was purchased out of bankruptcy by Wilshire Capital LLC, a Los Angeles investment firm. Now the brick-and-mortar stores are doing "OK," according to Jacobson, but are feeling the effects of a sluggish retail market.

By contrast, Fredericks.com has been exceptionally profitable. Landry declined to provide current figures but said revenue, after more than tripling in 1999, has doubled again so far this year.

Four people staff the Web site: a creative manager, a merchandise manager, and two Web masters. Digex, a hosting service in Cupertino, handles the infrastructure hardware and software. The distribution center in Phoenix handles order fulfillment for the Internet, catalogue and stores.

Landry broke the secret of the Web site's success into two basic components: a fast operating system and content that shows complementary items on the same page.

The site receives approximately 16,000 unique visitors a day, according to Landry. Despite that popularity, there are no specific plans for an initial public offering, he said.

Jacobson said the site has hit some bumps in the road. "We just re-launched the look of the site this past September and asked customers what they wanted," he said. "We created a good site -- robust, functional -- (that is) not trying to sell everything under the sun."

Fredericks.com also has plans to expand with a "romance portal" and will begin by offering Frederick's flowers before Valentine's Day. Eventually, Landy envisions entering into partnerships to sell flowers, candies, books, music, wine, gourmet foods and travel services.

Stephen Zrike, a senior online retail analyst at Forrester Research, describes the Internet as a "no brainer" for companies like Fredericks that maintain an attractive catalogue.

Zrike said e-commerce is very efficient for interacting and selling a known brand to consumers but falls short as a tool for building brand recognition.

"Frederick's of Hollywood has built a strong brand platform for themselves through catalogue and brick-and-mortar that has helped them with e-commerce offering," Zrike explained. He offered the example of J.C. Penney that is overall not having a stellar retail performance but is doing very well online.

When asked if shyness by consumers to enter stores might contribute to Frederick's online success, Zrike said he's certain that's a factor. He said similar sites are seeing a lot more male customers who buy online because they can stay anonymous.