Troubled Clothing E-tailer Bluefly Strikes AOL Pact

With cash reserves running dangerously low, embattled online retailer
Bluefly Monday
announced a merchandising pact with America Online for
placement in the Shop@AOL online shopping destinations.

Under terms of the deal, Bluefly.com will be a gold tenant in several
key Shop@AOL, AOL.com, CompuServe and Netscape Netcenter‘s online shopping
channels. Financial terms of the deal were not disclosed.

The retailer will receive gold tenent status in Women’s Clothing and
Accessories; Men’s Clothing and Accessories; Teen Girl’s Clothing and
Accessories; Department Stores, Shoes, Handbags, and Accessories; and
Home Furnishings & Decor.

In addition, Bluefly will be a silver tenant in the channels’ Kids &
Baby Clothing and Accessories area.

Investors reacted favorably to the announcement, with shares of the
company shooting up as much as 67 percent today.

At press time, the share price was hovering around the $3 mark, up 54
percent from the $1.93 close on Friday, although still 80 percent off
the 52-week high of $16.6875.

Bluefly clearly values the typically high-priced portal deal. Last
month, the retailer signed a similar agreement with Microsoft‘s MSN.com.

That deal, which expanded an earlier relationship, called for the
store to be a featured tenant in the portal’s eShop channel, with fixed
links in the clothing and accessories department.

Another financial reprieve also came Monday for Bluefly, when
financier George Soros’ fund filed SEC documents agreeing to a $3
million purchase of senior notes and warrants.

The announcements of the AOL agreement and Soros’ buy-in could not have
come at a better time for the cash-strapped retailer, which is actively
shopping itself around following disappointing second quarter earnings.

Bluefly recorded second quarter revenues of $4.33 million, up 480
percent from $741,000 a year ago. Net loss for the second quarter was
$5.3 million, or $1.12 per share, a 77 percent jump from $3 million in
losses recorded in the same, year-ago period.

Bluefly had $3.9 million in cash as of June 30, $4 million less than
it had at the end of 1999.

Bluefly CEO Ken Seiff told atNewYork two weeks ago that the company
has enough cash to get it through the end of this year, although “other
options to raise money” must be pursued to keep the company afloat.

He said Bluefly would pursue “strategic alternatives,” which include
entering into a joint venture or partnership or the company’s outright
sale.