California Apparel News

Delia’s Corp., the New York-based junior company that’s looking to open mall stores in the teeming-with-teens California market, began life in 1993 as a niche direct marketer to underserved college girls, and in the process found an even more promising market by selling fashionable apparel to their younger sisters.

The company, led by Steve Kahn, its thirtysomething chief executive officer, leveraged the unexpected success of the early catalogs into several e-commerce sites in cyberspace and then into the brick-and-mortar world of regional retail.

At present, there are 31 Delia’s stores, with Chicago being the current westernmost location, and today Delia’s is a multichannel retailer—a well-known brand at the mall, on the Web and in the mailbox.

Today’s conventional wisdom says that multichanneling is a key to retail success, just as Delia’s has proven that the catalog is an important channel for reaching their target customers, tween and teen girls between the ages of 13 and 24. But it wasn’t always that way, and the Delia’s story illustrates important points about finding new opportunities in the face of entrenched ideas.

“The kernel of the idea was to target the college space on a direct basis,” CEO Kahn said recently, recalling the early ’90s brainstorm that became Delia’s. “At that time there were no catalogs aimed at either the high school or the college market. I really stumbled into the demographic opportunity in trying to go after the college kids.”

Kahn’s first thought was to “combine an Avon-type networking company with the Victoria’s Secret monopoly on the lingerie side. The first book we put out was actually designed to be a fund-raising tool on college campuses and was heavily focused on athletic clothing and underwear.”

Then two odd things happened: First, the young women who were hired to be the new catalog’s telephone operators started complaining about the clothes, saying, “’That’s not actually what we really want to wear,’”

Kahn recalled.“And we said, ’Okay, why don’t you go out on the market and find the stuffthat you want.’”

When the company started offering the clothes that the young women actually wanted to wear, the second odd thing happened; namely, the would-be direct marketing whizzes at Delia’s discovered that the younger sisters of the targeted college girls had started ordering from the catalogs, too.

“It became pretty clear that even though nobody had really gone after the college market there was just this unbelievable untapped demographic below that,” Kahn says.

A vendor base was beginning to form to cater to this “untapped demographic” of high school kids, Kahn noted, but the “vendors did not have a lot of capital, so they were appearing in the editorial pages of the magazines the girls were reading, but none of the vendors had any distribution at that time because this was before the proliferation of all the specialty concepts in the mall. So the only place the kids were really shopping was in the department stores. And the department store game was impossible for a smaller vendor without a lot of money for markdowns or without much of a line to play.”

Kahn says the opportunity was obvious: To reach the high schoolers while aligning with the new vendors scrambling to sell to them.

“We basically grew in partnership with all of these grassroots kind of vendors and made our catalogs look like the magazines the kids were reading,” he explains. “So in essence they could just buy the fashions they were seeing in the magazines from us. That was really the genesis of the concept.”

But it wasn’t the end of the struggle. Kahn had started the catalog with $200,000 in seed money, half from his father and half his own. In 1994, the catalog “did about $150,000,” Kahn says. “In ’95, we did $5 million and made money, which was unheard of in the catalog business, simply because our response rates were so strong because we were hitting this group in a void.”

But those numbers weren’t good enough for the venture capitalists and bankers the company approached for financing. “I tried to raise capital, but nobody in the industry would give me any andhellip;venture capitalists didn’t like the idea either,” Kahn explained. “Everyone says, ’You can’t target kids. It won’t work on a direct basis. There are all these handicaps you’re going to run up against and you don’t know anything about the business.’ So, I went back to family and friends and they put the capital in.” A million dollars to be exact, according to Kahn. And in 1996, the company, which had done $5 million in sales the previous year, did $30 million, he said.

It wasn’t until the late 1990s, Kahn said, that the company actually began to get outside financing, and then much of that money was used to build the company’s mall-based distribution system.

The company faltered with iTurf and its other high-visibility Internet projects, and was caught in the ongoing dot-com shakeout along the way. But “despite all the other types of activities that occurred in the business over the past five years, we’ve grown the top-line Delia’s business at a 75 percent compound rate on a cumulative basis,” Kahn said.

Given the much-remarked-upon fickleness of the junior market, and the fact that a typical Delia’s customer remains with a brand only for two years or so before moving on, how does Delia’s CEO see the company faring in the years ahead? “The demographic is very strong in that there is a very large group of current teenagers,” Kahn says, “but there’s a stronger [demographic] bubble which is coming in—the tween market and the adolescent market—behind them. So we get an enormous base of replenishment coming out of the younger kids.”