QUOTE AND NEWS
StreetInsider.com  Nov 29  Comment 
Visit StreetInsider.com at http://www.streetinsider.com/Management+Changes/Bluefly+%28BFLY%29+Taps+Industry+Vet+Jim+Gallagher+as+CFO/7910916.html for the full story.
StreetInsider.com  Nov 21  Comment 
Visit StreetInsider.com at http://www.streetinsider.com/Earnings/Bluefly%2C+Inc.+%28BFLY%29+Reports+Q3+Loss+of+%240.22Share/7898870.html for the full story.
StreetInsider.com  Aug 14  Comment 
Visit StreetInsider.com at http://www.streetinsider.com/Earnings/Bluefly%2C+Inc.+%28BFLY%29+Widens+Q2+Loss+to+17cShare/7661161.html for the full story.
StreetInsider.com  May 14  Comment 
Visit StreetInsider.com at http://www.streetinsider.com/Earnings/Bluefly%2C+Inc.+%28BFLY%29+Widens+Q1+Loss+to+28cShare/7432186.html for the full story.
StreetInsider.com  Feb 2  Comment 
Visit StreetInsider.com at http://www.streetinsider.com/Management+Changes/Bluefly+%28BFLY%29+CEO+Payner-Gregor+to+Step+Down%2C+COO+Park+to+Replace/7132729.html for the full story.
StreetInsider.com  Nov 14  Comment 
Visit StreetInsider.com at http://www.streetinsider.com/Equity+Offerings/Bluefly+%28BFLY%29+Files+3.67M+Common+Shelf+for+Selling+Shareholders/6945448.html for the full story.
StreetInsider.com  Sep 8  Comment 
Visit StreetInsider.com at http://www.streetinsider.com/Equity+Offerings/Bluefly+%28BFLY%29+Raises+%246.5+Million+From+Common+Stock+Offering/6770888.html for the full story.
StreetInsider.com  Aug 11  Comment 
Visit StreetInsider.com at http://www.streetinsider.com/Earnings/Bluefly%2C+Inc.+%28BFLY%29+Widens+Q2+Loss+to+4cShare/6706291.html for the full story.
Forbes  Aug 8  Comment 
Monday's trading session began with the Street reeling.
StreetInsider.com  Jun 1  Comment 
Visit StreetInsider.com at http://www.streetinsider.com/Management+Changes/Bluefly+%28BFLY%29+Appoints+Joseph+Park+as+COO/6550652.html for the full story.




 

Business Overview

Bluefly is an online retailer by trade that specializes in selling designer apparel and home accessories to men, women, and teens at prices that it claims are 30%-70% cheaper than what you could find at retail outlets. The company operates mainly from their website Bluefly.com which carries over 50, 000 styles from over 350 brands. Some brands included are notable names like Prada and Calvin Klein. The company has served more than 1.5 million customers, across 13 countries. The site was fist launched in 1998 and since has yet to have a profitable year. Since CEO Melissa Payner has taken over her job has been focused on narrowing the company’s losses. However, this has proven difficult because of the overall economy entering into a recession and consumers not spending as much. Net sales have been falling over the past years, but critics point to the positive cash flow trend that is signaling that the company may be back on a trend towards profitability.

There are companies like Rho Ventures backing the company though. Rho, has a 36% stake in the company’s shares. The outlook looks positive from all of the support that the company is receiving. Specific actions that have been taken to improve profitability include streamlining operations, dramatically trimming marketing expenses and inventory purchases, and creating a larger presence in social media outlets. The company believes that the best way to improve their exposure is to increase online marketing efforts, because these seem to be more efficient than offline marketing efforts. One of the main strengths of the company is that it is able to adapt to changing trends and change their inventory more quickly than brick-and-mortar merchants.

Marketing Strategies

Product

BlueFly sells designer apparel and home accessories to men, women, and teens. Their products include but are not limited to shoes, handbags, sunglasses, shirts, pants, coats, dresses, and suits. All of their products come from well known and well established brand names such as hot designers Christian Louboutin, Prada, Cole Haan, Gucci, Michael Kors, Marc Jacobs, Fendi, BCBGMaxazria, and Stuart Weitman.

Place

BlueFly’s headquarters are in New York City, in the heart of the Fashion District, at 42 West 39th Street, New York, NY 10018. However they do not operate from a typical retail outlet. All of their sales come from their website BlueFly.com and can usually shipped to any place in the world. Since the company does not operate like a typical brick-and-mortar retailer they can quickly keep up with fashion trends and are always on the cutting edge of fashion. Shipping through BlueFly makes finding exactly what you want quick and painless. They make use of external sources to keep inventory for them and can keep up with seasonal changes.


Price

Price is a distinct advantage for the company. The company operates efficiently and can forward their cost savings on to the end user or customer. The firm acquires end-of-season and excess inventory of high-end designer fashion products. This allows them to sell products to customers at hugely reduced prices. BlueFly claims to sell products at 30%-70% of the suggested retail price.


Strategic and Competitive Analyses

Industry Level: Porter's Five Forces

The Intensity of Competitive Rivalry

HIGH

When looking at the competitive rivalry in the Retail Industry one can conclude that rivalry is intense. Many of the retailers are in direct competition of one another because many if not all of the retailers are focused on attacking the same market. This includes both the male and female markets and each involves competing over the same customers. The only difference that BlueFly has is that it has differentiated it self by focusing on the high end consumer. There are many similar companies selling the exact same product as well. They do not posses their own branded products, as they are simply acting as a distributer. This means that they are competing with the well known and established Macy’s, Sax Fifth Avenue’s, and Nordstrom’s of the world. Taking a closer look though they have even more competition because they also have to compete with major online giants Amazon.com, eBay, Overstock.com, and QVC. So even though they have a competitive advantage over brick-and-mortar retailers, the online retail industry may even be more cut-throat. The main issues that the Retail Industry competes on are different services, technology, customer service, membership and other benefits. All of this adds up to low returns (low margins) due to cost of competition.

The Threat of New Entrants

MODERATE

When looking at the threat of new entrants in the Retail Industry one can conclude that the threat is moderate. The overwhelming main reason for that is that the cost of entry is relatively high. The capital investment at first may be high but BlueFly does not own any rights to the products they sell. They are simply a “middleman” in the supply chain, as they act as a distributor. Other reasons that make the threat of new entrants moderate is economies of scale, barriers to entry, government restrictions, and an over saturated industry. There also exists loyalty only to the brand names they sell, and not BlueFly specifically making it easier for new entrants to turn a profit quick enough to stay a float. There also exists the fact others will see the growth in the online retail industry and want a piece of the profits as well. First mover advantage is ending quickly, and others can enter the ecomerce market place relatively simply.

The Threat of Potential Substitutes

HIGH

When looking at the threat of substitute products in the Retail Industry one can conclude that the threat is high. The main reason that the treat is high is because there are perfect substitutes. Retailers can duplicate BlueFly’s business model easily and attack with similar efficiencies and cost savings. However, when breaking down the threat of substitutes by online versus brick-and-mortar there are advantages. Searching for and purchasing products is easier to the consumer and the fact that BlueFly is an online retailer gives them an advantage. The main components that need to be considered when evaluating the threat of substitute products in time, money, and personal preference.

The Bargaining Power of Customers

HIGH

When looking at the bargaining power of buyers, one can conclude that the bargaining power is high. There exist low switching costs to customers in the market. Buyers have easy access to the internet where they can compare prices and merchandise. They can also determine whether or not they want to only buy clothing after trying it on. Customers can find the same products at a multitude of other locations, and could simply use the website as a way to browse for their desired purchases. Due to the fact that there are so many retailers to choose from there exists a relatively low amount of loyalty and buyers who will make decisions solely on price.

The Bargaining Power of Suppliers

LOW

When looking at the bargaining power of suppliers one can conclude that the bargaining power that the supplier possesses is low. Retail companies are not challenged the high switching cost that occur when switching from one supplier to another because of the fact that there are so many suppliers in the market to choose from. BlueFly also offers a wide range of products and is not dependant on selling any one item in particular.

Overall Competitive Landscape

Personal income and fashion trends drive demand for clothing. The profitability of individual companies depends heavily on effective merchandising and marketing. Large companies can offer wide selections of clothing and have advantages in purchasing, distribution, and marketing. Small stores can compete by offering unique merchandise, targeting a specific demographic, providing superior customer service, or serving a local market. The industry is labor-intensive: annual revenue per worker is about $145,000. Competition for the clothing store industry includes department stores, discount stores, and Internet and catalog retailers.

Company Level: SWOT

Weakness

As far as we saw on Bluefly.com. The most of goods Bluefly sold are under the luxury brands such like Armani, Burberry, Gucci and Prada. These goods are targeting on upper middle-income consumers.

The problem is if a person who have ability to purchase luxury brands’ goods, is he/she more willing to shop luxury brands through Internet or go to the place such as authority retailer store or shopping mall where consist of a lot of choices. The answer is go to the mall. There are two reasons. First, in retail stores, customers can have physical experience before they decide to purchase, but this is not the main reason. Second, also the main reason is people always have irrational psychological satisfaction when shopping at luxury brands stores, especially with friends, hard to explain what cause this, could because vanity or self-esteem. Contrarily, some apparel with middle or low price such like as spot, travel and outdoor products consumers willing to spend time on web shopping. The webs have huge daily deals for example the stores like nike.com, adidas.com, and reebok.com.

Opportunities

We think that Bluefly.com hasn’t fully takes use of advantages from E-commerce business, such like preorder services. The web can help customer to preorder some goods without discount, and wait until discount coming out and then inform the customers who selected this item on his/her waiting list. We believe that high technology today have made shopping on Internet more reliable and secure. But while lots of factors [1] are effectively driving sales, we think keep investing and developing on technology and fulfillment remain limiting factors to earnings growth would be much helpful.

Threat

Bluefly.com’s biggest threat comes from its financial side. Bluefly is experiencing quarterly losses, and stock had tumbled 55%. The details will be shown on financial analysis. Investors already lose confident on company’s stock. Additionally, Bluefly.com still keep its selling concept that targets on luxury brands. Another threat comes from high discount rate, which makes Bluefly’s profit margin low[2] as well.

Big Two

Base on what we had searched, almost every finance analysis webs agreed that Amazon.com and Ebay.com are main competitors for Bluefly.com. Amazon.com, Inc[3] is a company who plays an intermediate role between three primary parties: enterprises, sellers, and consumers. Addition to that the company generates revenue through other business and promotional services, such as online advertising, and credit card agreements. Amazon’s business is international wide range. It has main retail websites in different countries. To take use of Amazon’s original advantages-selling book online, Amazon stared sell e-book. Today, Kindle, an e-reader that designed and manufactured by Amazon is very popular in worldwide with its convenient use and multiple functions, Kindle brings tons of revenue. When compare with Bluefly.com, Amazon has more products category and more geographical advantage, but Bluefly.com deals only in luxury brands categories and offers huge discount on luxury goods. In fact, Bluefly.com has the same advantages when compare with Ebay.com.

The way Ebay.com [4] earns its revenues that is pretty much same as Amazon.com and Bluefly.com, but the subsidiary business is different. Amazon is developing e-reader business as its subsidiary, but ebay.com wants offer customer chance to shopping in everywhere. To achieve this goal, ebay.com acquired RedLaser, the barcode scanning application for iPhone and related technology from Occipital. In the future, probably every different phone has ebay.com application.

Direct Three

We found a lot of competitors may directly push pursuer away from Bluefly.com. They are: Shopbop, Outnet, Saks, Gilt Groupe and Rue La La.

To compare with Bluefly.com, Shopbop [5]only targets on women’s market, the website doesn’t offer as much as discount as Blue.com does, but shopbop.com offers prices from low to high in one category. People can browse the website in six major languages (French, German, Spanish, Japanese, Chinese, and Korean) and make purchase in 12 different currencies, which would definitely enhance a more friendly personal shopping experience. The daily free shipping and free return services in United States, also some time promotion in spend over $100 free shipping worldwide, draws consumers from all over the world.

Outnet [6]sells women’s products too, more related to luxury products and offers discount prices, but lots of goods are flash sale and the product lines are narrow. The designers’ brand are not all available in the same time. Consumers often find the products they wanted already sold out. Also, without registration it is difficult for people to know there are such deal. Same position Gilt Groupe [7]and Rue La La [8]are faced with. Compare to Outnet, Gilt, Rue La La who are clearing out the inventory, Bluefly is using different strategy. Because it is not appointment shopping, the biggest disadvantage for flash sale is that they expire in certain time, it is too stressful for the one who don’t have time in the mid of noon, they won’t enable to get great deal. However, they can come to Bluefly whenever, and wherever they want and need.

Saks Fifth Avenue [9]is a luxury American specialty store, wide brands choose, but offers relative lower discount rate and often discounts base on season effect.

Conclusion:

As far as we are concerned, the more competition on online fashion website, the better deal Bluefly’s customers can get. If Bluefly continues offer best price, expanding their brand recognition (get more sponsorship, for instance, features on reality designer competition TV show - Project Runway [10]), and keep have unique stylishness matching, it will gain a competitive advantage over rival companies and increase profitability.

Financial and Operating Metrics

Stock Market Performance

As the snapshot we can see above, BFLY’s financial performance was drop dramatically since the financial crisis which started in September 2008. The biggest possibility is that, people need to cut down their discretionary expenditures on high-level products, began purchase daily necessary goods, and safe money for economy fluctuation which they might faced with the probability get fired in another day. Thus, even though Bluefly offer a wide range of attractive luxury goods, people have no desire in online shopping. The revenue cannot cover the majority operating expenses, which result in a net loss. The stock performance will directly influences by its ineffective management.

This fashion industry is fully impact by economic environment. In addition to that, the competition is extremely intense on account of no matter what time people can still choose the designer best fit their income level. As expected, when people confront financial crisis, the first thing they dump is luxury. Bluefly orientated on high-level consumer goods, which make it even harder to recovery from operation loss in a short time period.

Since the economic downturn has big effect on Bluefly, so as many apparel companies. It is hard to predict whether it still have an ability to return to the normal conditions. We don’t advise the company broaden their product line to contemporary goods, as the profit margin is limited, which might lead the company to an even worse finance position. Thus, grasping consumer’s preferences will let BFLY get to the core of nature of the fashion industry. Best thing is that, beginning from 2010, there is a huge built up and purchases on office clothing for women, because they are concerned about basically how they appeal in the office and they are looking for designer type of the things. The probably reasons are luxury segment of market is very strong right now, and that continues. And there is another market segment, which people are looking for job, so what to wear to interview are very important. Fortunately, Bluefly focus on it, it catch the market trends. As well as people who are in the job are getting serious and they want to take it seriously, generally, they will dress a little bit more. Order size jump in FY2010 by more than 10%, not only the purchase of luxury jump, but also the customers are increasing on the order basis. People are more deliberate the purchase that they made, so they tend to put things in their shopping cart which they really want and finally buy them. On the contrary, in the past, people would put a lot of things in their cart, and either buy expecting return some of them or take a lot of things out before they make purchase. Therefore, its financial performance is turning better and hopefully it continues this tendency in the future.

Profitability & Efficiency

According to yahoo finance data[11] as of 12/31/2010, Bluefly render a strong balance sheet, as it keep decreasing the ratio on leverage side, which make the possibility of difficulty in paying interest and principal while obtaining more funding have less chance taken place. Current ratio and quick ratio also proves its ability. A higher number in both ratios will result BFLY more capable to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables).

Unfortunately, BFLY’s profitability is questionable in recent 3 years. The negative signal in ROE, ROA would suggest that the company needs to work on more efficiently using its invested capital to generate returns to cover necessarily expenses. Without a gain, how BFLY ensure its shareholders’ wealth. No matter sales or assets growth rate is fluctuated, which also exacerbate the concerned about the health of business.

As far as efficiency with asset and inventory, we can predict that 0.79 amount of BFLY sales that are generated from each dollar of assets. Companies who with low profit margins tend to have high asset turnover. BFLY is one of the examples. It asset turnover seems to be relatively high when compare to industry, meaning that it makes a high profit margin on its products. It just needs to find methods that make sales. Inventory turnover gives us basically ideas on how investment is going. The dropping in inventory turnover recently, indicates that the company still faced with poor sales, therefore, excess inventory. Therefore, we cannot say BFLY is open effectively.

Financials

Note: Sales and profits are in thousands of dollars--add 000 to get the full amount.

[2010 Sales: $88,563] [2009 Sales: $81,222] [2008 Sales: $95,774] [2007 Sales: $91,493] [2006 Sales: $77,062] [2010 Profits: ($4,033)] [2009 Profits: ($4,369)] [2008 Profits: ($11,340)] [2007 Profits: ($15,829)] [2006 Profits: ($12,193)]

Employess: 84 Fiscal Year Ends: 12/31 Top Exec Salary: $500,000 Second Exec Salary: $250,000 Bonus: $752,224 Bonus: $240,000

Comparison with Competitors

500px

The table you can see in the right side, which shows BFLY has relative small market cap when compare to the industry level or even market leader – Ebay and Amazon. As it list as small cap company in NASDAQ, we understand why it is in this position. In order to allow investors to gauge the growth versus risk potential, the market classified the companies into different caps. $70.20M market cap of BFLY represents the fair value of the company, including all of its assets, capital, revenues, etc. the investor need to consider it before making decision. Also, just like Ebay and Amazon have getting through, large caps normally experienced slower growth with lower risk. In the meantime, small caps have experienced higher growth potential, but with higher risk – such as net losses. Without large amount of employees, BFLY doesn't need to face with the problem bring by complicated human resource. Only 83 staff, it offers the company more flexibility in management and lower cost in administration. What’s more, the communications from the top to bottom will effectively, which also benefit from identify and adjust problem in high efficiency.

The bright side about BFLY is, the gross margin is not bad, 37.49% which is even higher than the industry average. However, it cannot change the fact that EBITDA, operating margin, net income and EPS went to negative. All of these may bring BFLY in big trouble. The investor can hesitate when putting money into the company, since if the loss continuous to the future, the default risk is high and the business may result an end. We mentioned before, the bad sign shows due to several reasons. First, it has a declining in net sale growth since financial crisis. Second, it spends a lot on selling and fulfillment expenses. Although it is part of marketing strategy, finding a way to cut down cost is a method how BFLY pull itself out of the mess.

References

  1. What drives consumers to shop
  2. Discount e-tailer still hopes for buzz
  3. Amazon Official Website
  4. Ebay
  5. Shopbop
  6. Outnet
  7. Gilt Groupe
  8. Rue La La
  9. Saks
  10. Project runway show
  11. Financial statement of BFLY
Wikinvest © 2006, 2007, 2008, 2009, 2010, 2011, 2012. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.
Powered by MediaWiki