A Closet Full of Cash

Think you have to burn through all your funding to develop your brand? Not true, according to Fashionmall.com CEO Ben Narasin, who believes in spending money intelligently...for the long term.

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realbusiness.com

The Conservative

In an industry characterized by sloppy spending and business models with as much staying power as last year's shoes, Fashionmall has stuck to a classic line

Company: Fashionmall.com Inc., in New York City
What it does: Operates a virtual mall for shoppers with a yen for designer clothing
Number of employees: 45
Conventional wisdom: Retail sites can't build a brand without blowing their cash, nor can they generate enough money to scale up into the big leagues.
Unconventional wisdom: There's money in the minor leagues. Building a brand is a long-term game, and the company has enough cash to keep going for years.
Revenue growth: $14,000 in 1995 to $5 million (projected) for 2000
Profit profile: Lost approximately $6 million last year
Capital: Less than $100,000 in seed capital; $35 million from a May 1999 IPO

If you really want to get Ben Narasin pissed off, ask him why he isn't spending the $35 million that's left over from his company's May 1999 IPO. Tell him that analyst Catherine M. Skelly of investment firm Gruntal & Co. says his company, Fashionmall.com, needs a "catalyst" to scale beyond last year's projection of $5 million in revenues. Cite other experts who argue that the company's only path to glory lies in spending big in order to build a brand, increase traffic, and jack up both the top and bottom lines in a hurry.

That kind of talk makes Narasin mad. "With all due respect to intelligent analysts, that's what they said about everybody -- and they are all out of business. Look at MotherNature.com. Gone. Pets.com. They scaled, and look at them. They're all gone! The concept that you have to spend the money is just plain stupid," says the 35-year-old CEO, pausing for emphasis. "You have to spend the money intelligently."

Intelligently, for Narasin, means for the long term.

For the past six years he's been carefully building branded sites that will steer Web shoppers to the stores and products they seek. Fashionmall consists of a handful of sites, each of which serves as a central site through which visitors can shop for goods. Web surfers who want to shop for Armani ties or Bulova watches can avoid the various search engines by glancing through the main page of Fashionmall or of one of its other portals, Outletmall.com (a discount site) or the trendsetter Boo.com. The bulk of Fashionmall's revenues derive from the 60 or so tenants that pay the company 70¢ to 98¢ (depending on the length of their lease) for every shopper who clicks through a Fashionmall site to a tenant site. A small number of tenants also pay Fashionmall for every sale. In addition, the company charges advertisers for banner ads and sponsorship spots throughout the sites, garnering slightly less than 40% of its revenues from those sources.

For the millions of people still cowed by the Web, Fashionmall sites offer a one-stop-shopping resource. For its retailer tenants, Fashionmall generates traffic. The company carries no inventory; its resources consist of its intellectual property, its computer equipment, the 45 employees who work in roughly 5,300 square feet of Madison Avenue office space, and, of course, more than $35 million in cash.

Narasin launched the company in late 1994 with less than $100,000 in funds from Boston Prepatory Co., an Inc. 500 clothing company he founded and which generated enough cash flow to launch Fashionmall. Narasin, the son of a 30-year IBM man, discovered the Internet in 1994 and was instantly hooked on its promise for spreading the fashion word. He took a leave of absence from Boston Prepatory to run Fashionmall full-time, spending most of his energy evangelizing in an industry resistant to both technology and change.

Today Fashionmall has an elite board of directors made up of executives with expertise in retailing, fashion, and mall operations, including former Liz Claiborne Inc. chairman Jerome Chazen, former Neiman Marcus CEO Richard Marcus, and mall developer Robert Taubman, CEO of Taubman Centers Inc. And the company has built a base of about a million unique visitors a month -- not enough to rank among Media Metrix's top 50 Web sites but sufficient to keep its gross margins for last year at more than 80%.

Despite having a high-caliber board and a heavily trafficked mall, the company was projecting a 2000 loss of more than $6 million on revenues of roughly $5 million -- hardly pretty by conventional accounting standards. Yet Narasin says that the loss, about the same as the previous year's, is a result of trying to build the company's brand at a sustainable pace. With its multimillion-dollar stash and its low burn rate, the company could survive for years without any revenue growth.

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