A Closet Full of Cash

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Moreover, Narasin appears to know how to operate the company in the black. For its first four years of operation the company funded its own growth, and for the two years prior to its public offering it turned a small profit. Analyst Heather Dougherty of Jupiter Research respects the company's prudent financial course and says that Fashionmall has succeeded as a "niche aggregator" that delivers traffic to its tenants without spending itself out of existence.

The key to Fashionmall's long-term success rests in its ability to stick to the plan of building the brand without burning the cash.

As a brand builder -- and in many other respects -- Fashionmall has trod a different path from the one taken by the scores of now-dead players in the fashion and retailing space. When most online retailers were building inventory and reinventing the logistics of home delivery, Fashionmall was eschewing such costs, cutting revenue-generating deals with the likes of Brooks Brothers, Gap, and Lands' End. And when other dot-coms were spending cash on television and magazine advertising, Fashionmall was swapping space on its sites for valuable ads in magazines like Modern Bride and Civilization.

The most spectacular failure in the Web-based fashion industry to date has been Boo.com, which spent $135 million attempting to build its brand before folding. Narasin swooped in and purchased the brand for a figure between $500,000 and $1 million -- and got a ton of free publicity to boot. Since purchasing the site, Fashionmall has transformed Boo.com from a high-profile, high-burn-rate, inventory-burdened retailer into a lean portal.

At its core, Fashionmall will rise or fall on the notion that established retailers will continue using the Web as a natural extension of their existing businesses. Board member Marcus believes that as more traditional brands use the Web, they will rely on portals like Fashionmall to help shoppers find them in cyberspace.

Still, the major challenges for Fashionmall will be holding on to retailers -- and to shoppers (who may increasingly skip portals by going directly to their preferred sites) -- and finding a way to crack the growth challenge. Skelly, who rates the company as a "market performer" in the intermediate term and a "market outperformer" in the long term, says its key strengths are its available cash balance, slow burn rate, and prudent strategy. "Ben was very forward-looking in predicting that all those dot-coms would go out of business -- and he was committed to hanging on to his capital for dear life," says Skelly, who then falls back on conventional wisdom by adding, "But he sacrificed a great company." In other words, Narasin could have built a far bigger, fashionably unprofitable Wall Street darling if he had grown the company beyond its modest model.

Narasin insists, however, that growth at any cost has already caused the demise of far too many companies. He believes the key to Fashionmall's long-term success rests in its ability to stick to the plan of wisely investing in personnel and technology, expanding partnerships with blue-chip fashion players, keeping margins fat, and building the brand without burning the cash. "People think there is no barrier to entry on the Web," he says. "They are wrong. It is just like the fashion business. There is no barrier to getting in, but there is a huge barrier to lasting."

Tom Ehrenfeld is a freelance writer in Cambridge, Mass.

With no fanfare and little venture money, the companies profiled here are delivering real stuff to paying customers and making a buck in the process. There may not be any "new rules," but there are rules, and we suspect every one of them will look familiar.

DVD Empire: The Bootstrapper
SitStay.com: The Mom-and-Pop
Shoebuy.com: The Scorekeepers
Accuship.com: The Traditionalist
Fashionmall.com: The Conservative
Healthcommunities.com: The Underwriter

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