LUXURY’S VIRTUAL SURVIVOR
Byline: Valerie Seckler
NEW YORK — And then there was one.
That about sums up the virtual landscape for luxury pure-plays during summer 2001, which has left Fashion500.com the unlikely sole U.S.-based survivor of the sector’s shakeout this spring.
But don’t call Michael Bereck, chairman and chief executive officer of Fashion500, a survivor just yet. The self-effacing 39-year-old insists that it’s too soon to appropriate that status to the upscale Web site that went live last October.
“I’m not ready to claim survivor status yet,” Bereck offered over breakfast last week. “If some of the deals we’ve been in talks over come through, then it will be time,” he continued, revealing that Fashion500 has been approached by a number of the former e-tail partners of a defunct luxury trio: BestSelections.com, Luxlook.com and LuxuryFinder.com. Bereck said it was premature, however, to identify that handful of parties, adding, “I don’t know whether these deals would come through in another 30, 60 or 90 days.”
There wasn’t much bravado mixed in with Bereck’s gritty realism, but the Fashion500 founder nonetheless projected a steady confident stance. “I’ve got 15 years experience as an investment banker, so I’m familiar with the lean times, as well as the good ones,” Bereck recounted. “I’m a warrior. This is my environment.” In the next breath, he added: “The last six months have been very tough. People [financiers and strategic partners] weren’t even willing to talk.”
Nonetheless, Bereck claimed the company’s cash flow and a series of cost-cutting steps taken this year will keep the dot-com well financed through December. “Our original investors continue to fund the company and keep it going,” the Fashion500 ceo said. “There’s no one throwing money at us; people are still licking their wounds.”
Bereck, casual in dress and relaxed in manner, said those economizing measures have included relocating Fashion500’s corporate offices and studios to one of New York’s high-tech economic development zones — 100 Water Street in Brooklyn’s DUMBO section — from far pricier digs on Manhattan’s Park and Madison Avenues. “You have to watch your costs these days, so we moved the business to Brooklyn around four months ago,” Bereck said. “It’s not important to have Manhattan offices anymore, like it was a couple of years ago,” he contended. And Fashion500 needs a healthy swath of space to provide business-to-business services, like digital photography, to its designer e-commerce clients, as well as to aid consumers shopping those sites.
Now, Fashion500 occupies 6,000 square feet in Brooklyn, and is paying just one-third the rent it paid in Manhattan, plus it receives Real Estate Investment Trust benefits from the City of New York, according to Bereck. For every employee it brings to the high-tech zone in DUMBO’s 20 or so square blocks, containing about 2 million square feet of leasable space, an employer receives $3,000 in the form of either a tax rebate or a check.
Fashion500 also has sharply scaled back its workforce, slashing its payroll to 15 employees from 50 at its peak. “We are trying to be proactive, rather than reactive,” Bereck said. “We have slowly paced our growth plan. I feel so good about taking it slow. I never believed in going at 100 miles per hour, throwing a lot of money at something and then seeing what happens.
“One thing we’ve learned is to take the business where it comes,” Bereck related. “The demand for services from our branded partners on the B2B side is there; it’s bigger than the consumer side. What makes us a defensible, buildable model,” Bereck contended, “is the user’s ability to enter designer sites by typing in the URL’s of those names. It means we don’t have to spend lots of money to build the Fashion500 brand.”
That, in Bereck’s view, was what finally killed long-running luxury Web sites BestSelections and LuxuryFinder, which went offline in April and May, respectively, as well as Luxlook, which went under last month after only nine months live. “Spending 30 cents per dollar of revenue when your profit margin is 28 percent just doesn’t make sense,” Bereck reasoned. “The idea is to leverage marketing money by promoting existing brands, rather than struggling to build a new dot-com label.”It’s not exactly surprising that most luxury apparel pure-plays have flamed out, but few Web watchers at this time last year would have predicted Fashion500 to be the likely lone survivor. Its click-and-mortar competitors include eLuxury.com, a joint venture between Bernard Arnault’s Internet development arm Europatweb and LVMH Moet Hennessy Louis Vuitton, and saksfifthavenue.com, which joined longer-running players such as NeimanMarcus.com, which went live in October 1999, and Nordstrom.com, which began e-tailing fashion in October 1998. Net-A-Porter.com lives on as a U.K.-based pure-play as well.
Although the fiscally conservative Bereck declined to forecast the firm’s revenue for 2001, he estimates that the kinds of small- to medium-sized designer firms Fashion500 has, thus far, attracted could see sales of between $500,000 and $1 million their first year online and more going forward. Currently, he said, a handful of the portal’s 25 brands are drawing most of the action — “the usual 20 percent of the brands are producing 80 percent of the business.” Asked to list the dot-com’s strongest performers, Bereck identified Kieselstein-Cord, Betsey Johnson, To Boot and White+Warren.
“We’ve learned a lot about what will and won’t sell online,” Bereck said. “Product priced at $100 to $400 is no problem. After that, it depends on the brand as to whether or not it will sell on the Internet. We expect to turn a profit this year.”
The luxury apparel Web site, initially funded with $5 million from various high-net-worth individuals, premiered just nine months ago with what then was a roster of 15 designers, such as Escada, Fernando Sanchez, Philosophy by Alberta Ferretti, Barry Bricken, Oscar by Oscar de la Renta and Carmen Marc Valvo. Revenue flows from a small fee assessed to the B2B clients and a percent of B2C sales stemming from those designer sites.
“People used to argue the Web is only for selling apparel basics,” Bereck noted. “We’re doing just the opposite. We’re offering fashion that people can’t find elsewhere.”