HANOVER DIRECT TO BUILD ERIZON

Byline: Vicki M. Young

NEW YORK — Hanover Direct expects to announce within a week additional capacity at Erizon Inc. — its e-commerce end-to-end services business — as well as an interactive feature to keep consumers from abandoning their shopping carts in the midst of Web purchasing.
That projected announcement was disclosed by Brian C. Harriss, Hanover’s chief financial officer, on a Thursday morning conference call on the firm’s first-quarter results.
For the quarter ended March 25, Hanover’s losses widened to $13.5 million versus a $4.4 million loss in the comparable 1999 period. The results include a preferred stock dividend charge in the quarter for both the current year and 1999. The current quarter’s loss, Harriss said, was attributable to the firm’s investments in Erizon. He also said that the loss was in accordance with the company’s “internal plan.” Revenue for the period was up 1.9 percent to $130.1 million from last year’s $127.7 million.
During the call, Rakesh K. Kaul, president and chief executive officer, didn’t rule out the possibility that the company might add more luxury products to its stable of brands, or even sign up third-party customers on the fulfillment side.
In late 1999, Hanover launched Turiya, a luxury home furnishings catalog that sells $3,000 Scandia down comforters and $450 pillows. Richemont Finance SA, a subsidiary of Swiss luxury goods group Richemont, owns 49 percent of Hanover Direct. Richemont Finance in March provided a $25 million unsecured credit facility to finance the company’s infrastructure investment in Erizon. The luxury goods company owns the Cartier, Chloe, Baume & Mercier, Vacheron Constantine, Piaget, Dunhill, Montblanc, Van Cleef & Arpels and Lancel brands.
Kaul said he’ll keep tabs on how the luxury market unfolds to “see what business we can do.” The ceo added that he’ll also be watching Richemont’s Web activity closely.
Harriss said next week’s announcement on Erizon’s increased capacity will provide the company with “significant scope and scale, allowing us to sign up new customers for Keystone and Erizon.” The firm is targeting branded retail customers in apparel and in the home-furnishings sector. Harriss also noted that the abandonment rate of consumers once they get to the shopping cart is “tremendous.” Erizon has the interface capability, he said, where once consumers are at their shopping carts, customer service representatives can immediately interact with the consumers to help keep their abandonment level down.
Harriss, referring to a Salomon Smith Barney report citing Federated’s decision not to pursue incremental third-party business, said, “We are excited about the opportunities in the marketplace [because of the] critical competitive changes in the landscape.”
For the quarter, Erizon had an operating loss of $7.8 million, compared with a $3.6 million operating loss last year, again due to investment spending toward systems development and upgrades to the information/technology platform. During the quarter, Erizon also opened a 17,000-square-foot facility in Edgewater, N.J., which houses 60 professionals with expertise in Internet production, design and development, and the Internet marketing group.
The Keystone Internet Services Inc. unit of Erizon, the company’s business-to-business e-commerce subsidiary, reported revenues skyrocketed 829 percent to $6.5 million for the first quarter, compared to $700,000 in last year’s comparable period.
Harriss also pointed out during the call that the breakdown of Hanover’s revenues was actually better than the reported topline 2 percent increase.
The first-quarter performance of Hanover Brands, the firm’s business-to-consumer merchandise subsidiary, was positive, Harriss noted, adding that his firm “continues to grow this business.” The subsidiary includes Silhouettes, Undergear, International Male, Gump’s by Mail and Domestications.
Sales in the quarter declined 2.7 percent to $123.6 million from $127.0 million. Harriss pointed out that the dip was attributable in part to its discontinuation of the Tweeds and Austad’s catalogs. Comparing sales volume of catalogs still in operation, Harriss said, the “actual continuing sales were up $5 million, or 4 percent.” He added that the subsidiary’s performance was also negatively impacted by transportation difficulties in Indiana which hampered efforts to get shipments to and from the local airport. Hanover mailed 71 million catalogs during the period, versus 69 million in the prior year period.
“Of greater interest to us,” Harriss said, “are the numbers on the continuing sales mix between the Internet and the catalogs.” Internet sales for the quarter were $15 million, a 219 percent jump from $4.7 million in the the 1999 period. “In the one quarter we achieved 46 percent of our full Internet sales for 1999. We continue to see an improved mix of Internet and catalog [sales] and positive synergies over advertising between the catalog and the Internet. We see the two as powerfully synergistic,” Harriss said.