Bluefly.com Might Be in Tailspin

FRAMINGHAM (08/10/2000) - Online retailer Bluefly.com posted substantial revenue increases but has announced that it is low on cash and might look for buyers.

Bluefly Inc., which bills itself as "the outlet store in your home," posted a loss of US$5.3 million for the second quarter, up from $3 million last quarter.

Net revenue for the quarter grew to $4.3 million, a jump of 480 percent over the $740,000 it made in the same quarter last year.

The company has also engaged Credit Suisse First Boston as a financial adviser and has formed a special internal committee to evaluate three options for its future: raising more money, fashioning new partnerships or selling.

So even as its financials improve, Bluefly.com finds itself on an endangered species list: It is one of the last "pure" - meaning not a "click and mortar" - online apparel retailers, said Alan Alper at Gomez Advisors Inc. in Lincoln, Mass. "I think the business models that the pure plays have come up with have not necessarily shown to have tried and true appeal" with investors.

Accordingly, raising additional cash to sustain the company until profitability occurs might not be an option for Bluefly. "Last year at this time, they could probably have still raised money. Now, pure-play retailers are finding that [Wall Street] is not very interested in anteing up again," Alper said. With revenue numbers under increasing scrutiny, Internet retailers have had to cut back on the expensive marketing budgets that let them compete against such established brand names as J Crew and LL Bean.

On the other hand, even as cash runs low, Bluefly is getting savvier about working with what it has. During the second quarter, Bluefly added more than 36,000 customers, the company said. The number of repeat customers, which now account for 46 percent of revenue, also increased by 6 percent. It also lowered the cost of acquiring new customers by 30 percent from the previous quarter.

As a possible lure to potential buyers, Bluefly also touted its expertise in mining customer information and using it to target appropriate clothes at customers.

"That's a real asset; you can't underestimate that," said Alper. "If some company out there is really interested in getting a better feel for online consumers, Bluefly would be a great acquisition, because they understand how to do it and do it well. When you're talking about data collection and the analytics they've been able to collect, that's a gold mine."

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