An investor group led by New York businessman Steve Russo bought Delia’s intellectual property and customer lists for $2.5 million.
The going-out-of-business sales had already ended at Delia’s, a teen-clothing chain. But then, this message popped up on Delia’s dormant Instagram page: “The internets have spoken! We are coming BACK!” it said, below tiled images of a model mugging at the camera in Delia’s shirts.
Entrepreneurs and investment firms are snapping up the intellectual-property rights to retailers that have fallen on hard times, taking advantage of a built-in audience to launch lower-cost small businesses online without the overhead of maintaining dozens or hundreds of locations.
But capturing enough attention with online- and catalog-only strategies can be difficult, retail analysts say, and longtime customers of a particular brand will be quick to flee if they don’t see the kinds of products they grew to love.
As liquidators cleared Delia’s stores earlier this year, for instance, an investor group led by New York businessman Steve Russo in February bought the brand’s intellectual property and customer lists for $2.5 million. Now, he and his partner owners are preparing to relaunch Delia’s as an online- and catalog-only store as soon as the end of July.
Other brands making a comeback as smaller businesses include the now-defunct children’s clothing purveyor Naartjie Kids, which in November sold its name in bankruptcy to a South African company that has promised to reopen its U.S. online store. And the lingerie chain Frederick’s of Hollywood, which recently closed its fewer than 100 remaining stores and filed for bankruptcy, is planning to sell its e-commerce business to a company that revives and licenses brands.
Advertisement
“I think this can be a viable strategy, particularly if you’re correcting what might have been a fundamental flaw in the original business model,” said Cathy Leonhardt, a managing director at Peter J. Solomon Co. and co-head of its retail group.
“Barriers to entry and execution are fairly low” with e-commerce stores, added David Peress, executive vice president at intellectual-property advisory firm Hilco Streambank.
Bradley Snyder, executive managing director at asset-valuation, advisory and liquidation firm Tiger Capital Group, said every intellectual property sale has several considerations, including, “What’s the future of the brand? Is it interesting to people? Where should it logically be?”
Last year, private-equity firm Sycamore Partners bought the intellectual property rights to Coldwater Creek, the women’s retailer that filed for bankruptcy and closed its 365 stores. Sycamore is backing a catalog and website that it says feature the same “beloved basics” and new products the retailer used to carry.
Longtime Coldwater Creek shopper and Philadelphia-area resident Karen Staub said she was surprised to find a Coldwater Creek catalog in her mailbox in March.
“I was like, hmm, where’d this come from?” Ms. Staub, 63, said recently. “Then I got another one, and I realized they were back in business.”
Sycamore, which also owns women’s clothing chain Talbots and other retailers, declined to comment on Coldwater Creek’s relaunch.
Delia’s rose to popularity in the 1990s and had 92 retail stores when it went out of business last month. But Mr. Russo believes the brand is strong enough to survive and even thrive in a leaner format, because he believes the brand still appeals to young girls and moms looking for clean, age-appropriate fashions.
A key part of the chain’s possible appeal is its social-media following. The “coming BACK” post, for instance, got more than 15,000 Instagram “likes” and comments. To spread the word about its relaunch, the business is now using the hash tag #DeliasForever and such messages as “Online only = ALWAYS OPEN!”
Mr. Russo is taking advantage of the followers Delia’s built up on social media before its bankruptcy, and he kept on an assistant in her 20s from Delia’s social-media department to manage the Instagram account.
The founder of FAB Starpoint, a youth-accessory and backpack maker that licenses Hello Kitty, Nickelodeon and other brands, Mr. Russo believes Delia’s fell into bankruptcy in December because the chain’s previous management “didn’t focus on the back-end of the business” for years. “They just bled tremendous amounts of money.” A publicly traded company until its shutdown, Delia’s brought on retail-industry veteran Tracy Gardner as chief executive in May 2013. Ms. Gardner declined to comment.
In 2008, Mr. Russo started Artisan House, a handbag and accessory wholesaler that sells to department and specialty stores. He also owns the rights to operate Hello Kitty stores in the U.S.
All told, Mr. Russo said, his businesses bring in $250 million in revenue annually and employ around 200 people.
He said he expects the new Delia’s to bring in $40 million in sales by 2017 and eventually top $75 million.
Mr. Russo is working on ways to overhaul operations, including by improving the mobile shopping site and making sure that catalogs go only to the brand’s target audience. That’s a process he undertook in 2013, he says, when he and one of his partners on the Delia’s deal bought Alloy, an online- and catalog-only women’s retailer that was owned by Delia’s.
Without a physical presence, it can be difficult for small businesses to reach potential shoppers. “The retailer has to stand for something,” said Steve Reiner, managing director at B. Riley & Co. “You can’t just close the doors and become e-commerce unless you were really a player beforehand.”
The brand’s strength on social media helped to persuade vendor Taylor Shapiro to commit to doing business with the new operation. “Quite honestly, what intrigues me about Delia’s is the fact that they have 300,000 followers on Instagram,” said Mr. Shapiro, president of Los Angeles-based wholesaler Sunrise Brand’s private-label division. “I can see an audience.”
Working with the scaled-back new Delia’s is akin to working with a retailer with just a handful of locations, something he typically wouldn’t do, he said.
Source : WSJ
