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HSN Inc., the retailer that’s been as close as the TV remote control since 1994, had the most unlucky of starts on Wall Street.
This story first appeared in the August 24, 2012 issue of WWD. Subscribe Today.
Barry Diller was looking to simplify IAC/InterActive Corp. in late 2007 and deemed HSN ready to “thrive as a ‘pure play’ retailer.’” But when IAC spun off the home-shopping business, as well as Ticketmaster and LendingTree, that following August, few guessed the market was just weeks away from financial crisis.
Shares of HSN started out at $11 and within months slumped as low as $1.40 as investors sought to find their footing.
It turns out that Diller was right — HSN was ready to thrive.
The company used the flexibility of its business model, which is devoid of the shelf space brick-and-mortar retailers need to constantly fill, and pivoted to what suddenly stay-at-home consumers wanted: more gear for cooking, not as much apparel or jewelry.
That flexibility helped fuel the company. Last year, net profits rose to $123.1 million on sales of $3.18 billion. The stock topped $45 this month — a fourfold increase in four years.
“It’s difficult to argue with the numbers,” said Scott Tuhy, a debt analyst at Moody’s Investors Service. “Since Mindy [Grossman, chief executive officer] came and they became a public company, they’ve had a very solid track record. They have a very good understanding of who their customer is. That sounds like retailing 101, but not everybody does a good job of that. They understand their customer and I think the customer trusts HSN.”
Perhaps that’s because, just as shoppers watch HSN, HSN watches them back.
“We gather feedback from our customer; we measure our business by minutes,” said Judy Schmeling, executive vice president and chief financial officer, who joined HSN the year it was founded.
Segment producers are used to thinking on their feet, and when customers aren’t calling in to buy, they adjust.
“If we see that a product is not moving as quickly as we’d like, we move on to the next product,” Schmeling said.
There’s an art and a science to selling on TV, though.
“You need a great product, first of all,” Schmeling said. “It has to have a great story and it has to have a great storyteller — someone who has a connection to that product, a reason for being. The customer can tell if this is just a celebrity up there trying to sell something they didn’t have an affinity for.”
Schmeling pointed to tennis star-turned-fashion player Serena Williams as an HSN presenter with the right passion and chops to connect with the consumer on the small screen.
And there are still more potential consumers out there with whom to connect. HSN broadcasts to 95.5 million of the roughly 114.6 million U.S. homes with a TV. But Schmeling said HSN has 4.7 million customers and so plenty of opportunities to increase penetration.
Even so, HSN does not have that consumer to themselves. Larger rival QVC is also gunning for those same shoppers, and the company doesn’t lack for competition in its other businesses. There’s Cornerstone, which ships more than 300 million catalogues annually, and hsn.com, which is going toe-to-toe with a multitude of e-commerce and brick-and-mortar retailers.
“Digital is [HSN’s] biggest threat and their biggest opportunity,” Moody’s Tuhy said. “Most everything they sell, it’s not also at Macy’s, it’s also at Amazon. People are spending less time in front of their TVs and more time on their iPads. As their customers, and customers in general, migrate online, they need to have a compelling online attraction.”
The firm is trying to do just that with HSN Arcade, a gaming Web site that launched last year and lets users play versions of poker, solitaire and mahjong while being tempted to shop.
While Schmeling said it’s still too early to say exactly how many sales dollars the arcade has added, she noted that the video game player was “definitely buying from us” — and that’s the whole point.