Can Bluefly Make a Real-World Outlet Work?

Bluefly, the often-propped-up Internet discount designer clothing and home furnishings retailer, is rolling out a new, old-fashioned marketing idea: a real-world holiday outlet store in New York City.

The idea, said CEO Ken Seiff, is that the merchandise offered at the outlet store has, in many cases, been offered for sale first on the Web site. Kind of an outlet store for the outlet site.

The question is will shoppers want to buy discounted designer goods that didn’t click online.

One thing that might give consumers pause: All sales at the real-world store are final. No returns or exchanges. The 4,200 square foot Outlet Store for is located at 43 West 24th St.

The store opening is not a complete gamble, though. Seiff said the company (QUOTE NASDAQ: BFLY) ran a three-day real-world marketing test last September in New York, and it exceeded their expectations.

In a limited number of instances, “we were able to sell items for more at the sample sale than we were selling it for on the Web site,” he said.

“We realize that the most profitable retailers typically have the best final liquidation strategies,” said Seiff. “Some of our orders from vendors include items in such limited quantities that it is not economic for us to photograph and describe them for sale on our Web site. In addition, about 10 percent of the products our customers return cannot be put back into inventory. As a result, we have historically written off those items.”

Patti Freeman Evans, an analyst at Jupiter Research who is focused on multi-channel retail strategy, said she sees the Bluefly move as an “opportunity for (the) online retailer to gain market share by opening off-line venues.”

“Online influences off-line sales in a $1 to $6 ratio” she said. “Consumers view brands/stores as a whole and not separately by channel.” (Jupiter Research and this publication are owned by the same parent company.)

Seiff said that if the holiday marketing test is successful, the company intends “to explore building on this idea next year.”

The change comes at a time when Bluefly is looking for a way to improve its bottom line. The company, controlled by billionaire investor George Soros, lost $24.26 million last year.

For the third quarter of 2003, however, the company reported that net sales increased by more than 30 percent to $8.2 million. At the same time, the net loss increased by 12.6 percent to $2.52 million.

Just last October, Soros pumped $2 million more into Bluefly from his venture capital fund.

That investment by Soros Private Equity Partners came on the heels of a takeover deal in October 2000 that led to Soros taking a majority stake in the struggling e-commerce firm.

Although true profits remain elusive for the company, according to figures from Thomson Financial, Soros clearly has faith in Bluefly. To date, Soros Private Equity Partners has pumped an estimated $55 million into the company and the venture capital unit owns about 90 percent of the firm.

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