Stayin’ Hollywood

Take a stroll down Hollywood Boulevard today and you’ll find it’s not as sleazy or creepy as it once was. Urban renewal has been in full force with the rise of the Kodak Theatre (home of the Academy Awards) and the Hollywood & Highland Center shopping complex adjacent to the reinvigorated and timeless tourist attraction, Grauman’s Chinese Theatre.

Like the boulevard it resides on, Frederick’s of Hollywood has been undergoing a makeover of sorts.

But for the 61-year-old cataloger/retailer of racy women’s lingerie, the past decade has been a rough ride. It began in 2000, with a two-and-a-half-year reorganization under Chapter 11 bankruptcy protection caused by heavy, lingering debt incurred when it switched from a public to a private company in 1997. But after emerging from Chapter 11, business remained fairly flat, and capital eventually dried up.

This past January, however, the company inked a deal with Movie Star Inc., one of its top apparel/lingerie vendors. In a merger that included a $20 million rights offering and a one-for-two reverse stock split, the renamed Frederick’s of Hollywood Group gained $20 million in seed money from Movie Star, giving it a new lease on life.

“This deal took two companies that were smaller in size and enabled us to synergistically launch a growth plan that emphasized the positives of both companies,” says Linda LoRe, the nine-year president/CEO who saw the company through its bankruptcy protection period. “It allows us a platform for an accelerated growth strategy, which happens to be the best strategy for us.”

Specifically, the Movie Star deal gave Frederick’s access to the following:
• an increased capacity to raise money;
• the public market; and
• immediate funding upon the close of the deal on Jan. 29.

The company is primed for topline growth in the form of an expanded catalog circulation strategy, additional stores, a more fortified Web business and additional customer contact overall. “It gives us the ability to define our brand and announce it to our customers through different levels of our contact strategy,” LoRe says.

But an “expanded” catalog circulation strategy for Frederick’s means keeping circ flat with last year rather than cutting back, as many other mailers are doing in light of the flat economy and postage and paper cost increases.

In the overall scheme of things, keeping catalog circulation flat with last year will help the company grow, especially as the 131-store count will increase while other elements of the business are being upgraded. According to LoRe, “The key focus is to grow the Frederick’s brand.”

The company’s 12-month housefile has grown 7 percent over the past year, despite a 25 percent catalog circulation decrease and flat 2007 sales, spurred by an increase in purchase frequency. According to Tracy Rhyan, the company’s director of multichannel marketing, Frederick’s “attributes that to smarter marketing and better merchandise and creative.”

It’s just the latest turn in the typical Hollywood roller-coaster ride that Frederick’s has taken over the years. “But the brand has so much viability in that, regardless of what’s happened economically to the company, the brand has withstood the test of time,” LoRe says. “The company would’ve collapsed under its own weight if not for such a strong brand with a strong message to consumers.”

As Yolanda Dunbar, Frederick’s senior vice president, brand and direct marketing, points out, Frederick’s has sought to strengthen its ties to Hollywood. “We’re so of-Hollywood,” she says. “The revitalization of Hollywood is the same as with the revitalization of Frederick’s.” Frederick’s customers, she says, want to know things like what’s going on with Britney Spears and what’s being featured in People magazine.

In fact, the company’s ties to Hollywood and the entertainment industry out West were particularly apparent during the recent writers strike. More than one-third of the company’s stores and customers emanate from California. “So we were hurt by the writers strike,” LoRe says. “It not only affected writers, but also actors, hairdressers, even people who shoot our catalogs.”

A Customer Persona Breakthrough
Staying in tune with the Hollywood interests and fantasies of its customers is only half of the formula. Frederick’s keeps its brand fresh by staying in step with its customers’ lingerie needs. “We focus on knowing our customers, seeing where our customers are going and checking with them,” LoRe says.

“Women want to feel sexy, and men want them to feel that way,” says LoRe about Frederick’s approach. “So if you start with that as a principal, as [founder] Frederick Mellinger did, and watch customers change and evolve, and how their expectations of you change, that’s critical to us in terms of customer service, bringing product to market and innovation.”

The company builds customer personas around the Frederick’s brand. “That’s the fastest growing persona in our database,” Rhyan says. There are five or six variations of such personas. Some customers want to be seductive every day. Others only occasionally. “Our goal,” she says, “is to reach out to that customer to let her know we have what you want.”

Frederick’s targets 25- to 35-year-old women with income in excess of $80,000. More often than not they’re either single, newlywed, recently divorced or “anyone who wants a little spice in life,” LoRe says.

As Jean-Yves Sabot, vice president of retail for the Abacus division of Epsilon, explains, Frederick’s performs a clustering of its housefile through ClearEDGE, Abacus’ marketing database solution designed to maximize the way multichannel merchants plan, coordinate and manage targeted marketing campaigns. This results in the creation of personas in the database. Frederick’s has matched the nature of its catalog offers to these personas, both on housefile and prospects, which has resulted in a nice lift in performance.

“Not every persona exhibits the same purchase behaviors,” Sabot says. “We’ve been able to use the relevant personas to match the book and provide relevance by better selecting (or selectively omitting) responders from the models.”

As a member of the Abacus co-op database, Frederick’s gains Abacus’ market insight research on the different clusters supporting how different the personas are from a purchase standpoint. Frederick’s has found the demographics of each persona don’t matter, but their purchase behaviors do, Sabot says. Frederick’s gained the ability to profile each persona separately to ensure the target would be relevant to the offer.

In addition, Abacus has provided insight on the purchase patterns of the best personas to clone them successfully, leveraging the data within the Frederick’s database and in relation to these customers’ external purchases. Customers different “seduction needs” are, according to Sabot, “reflected in the purchase patterns that modeling can capture as we see the holistic purchases of the prospects and housefile names.”

Deal Fuels Sourcing and Merchandising
Another by-product of the Movie Star merger is its on-the-ground sourcing capabilities. “We partner very well with our manufacturers,” LoRe says, “to create a seamless supply chain by bringing in Movie Star. We have greater speed to market and better margins. Movie Star will be one part of our sourcing strategy. The other part is to continue to work with our other suppliers and vendors to create a full line of products for the market.”

With Movie Star on board as partner, Frederick’s has also gained valuable intellectual capital, LoRe says. “We now see the picture a little differently.”

Movie Star executives have helped Frederick’s better define its product categories based on varying customer desires. The marketer created sub-brands in its “seduction” merchandise category. “We were able to clearly differentiate certain moods and elements and categorize in the catalog, with a different look and feel online and in our stores,” LoRe says. The stores contain small “seduction” shops within them.

LoRe calls this sub-branding initiative significant to Frederick’s recent revival. “We were able to identify products for customers and make it easier for them to shop with us by upgrading our imagery and products,” she says. “We’ve taken the imagery of the seduction brand and lifted it several levels.”

Specifically, Frederick’s has upgraded the construction, colors and fabrics of its clothes. “All our products have a distinctive Frederick’s feel to them,” LoRe boasts. “They’re high quality, attractively priced and fashionable. We take sexy and make it fashionable and approachable to make customers feel confident.”

PR Plays Big Role
Because Frederick’s is so heavily California/West Coast-oriented, the company does very little national brand advertising. “Public relations has been our largest marketing tactic,” Dunbar says, “in terms of word-of-mouth and creating a buzz.”

Among Frederick’s public relations efforts are its steady pitches to fashion magazines and its lingerie design show. The two-day event included an online contest where customers could design a corset. The rock band Foo Fighters performed during the first night of the event, held last October at the Hollywood Palladium, in what became a “star-studded” evening, she points out. Other celebrities included Jessica Simpson, Ashley Olsen and Janet Jackson. “The lingerie event last year equated to $6 million in advertising,” says Frederick’s public relations director Jennifer Cornwall.

Beyond that savings, the money is now there for Frederick’s. And for the time being, the company is investing it shrewdly to bring in more retail and Web customers while continuing to rely on the catalog as its driving force to keep the sexy brand relevant.