Lingerie retailer Frederick’s of Hollywood seeks suitors
Sex doesn’t always sell, and that’s a problem plaguing racy lingerie retailer Frederick’s of Hollywood Group Inc.
Frederick’s of Hollywood introduced Americans to the push-up bra after World War II and pioneered the concept of sexy undergarments. But for the last two decades its skimpy outfits have failed to entice shoppers to its stores or to its mail-order business. Now the company is taking come-ons from potential buyers.
With competition from retailers such as Victoria’s Secret, four straight years of financial losses and shares trading around 30 cents, Frederick’s has hired investment bank Allen & Co. to explore strategic moves, “including but not limited to a sale of the company or a business combination,” the company announced recently.
The company has received multiple inquiries over the last six months from possible partners including private equity firms, said Frederick’s Chief Executive Thomas Lynch.
The problem has been seducing customers, Lynch said. “My challenge now is reintroducing folks to the brand today and showing them we have a great product. The problem is, I haven’t had the balance sheet to go out and tell people, ‘Hey, check out what’s going on.’”
Frederick’s is famous for its racy image, marketing products such as its Hollywood Exxtreme Cleavage bra and Captivating Lace Babydoll online and at its mostly mall-based stores.
Customers at its flagship store on Hollywood Boulevard are greeted by scantily clad mannequins in come-hither poses. Racks of bright-colored corsets, chemises and teddies stand front and center. The storefront evokes the company’s signature red color scheme. Although some companies have emphasized everyday wearable undergarments, the Frederick’s line tilts more toward that of a boudoir costume shop, especially online, with Halloween-ready outfits including its French maid and Shanghai girl get-ups.
The company reported sales of $119.6 million in 2011, posting a loss of $12 million. Its full- and part-time staff numbered 1,922 in 2008; there are now 1,032 employees. It has 117 stores, including recently opened locations in the United Arab Emirates.
Outside the Hollywood store recently, Mount St. Mary’s College students Elizabeth Garza and Joanna Palma said the company’s wares tend to skew more toward women in their 30s.
Garza, 19, said Victoria’s Secret hooks a wider demographic with merchandise for shoppers ranging from teenagers to middle-aged women.
“When you’re young and trying to be sexy, it’s not as serious” as when you’re older, Garza said.
Victoria’s Secret has dominated sales of lingerie the last two decades by turning it into an everyday fashion statement rather than a bedroom novelty, said Richard Jaffe, a retail analyst at Stifel Nicolaus & Co. “Victoria’s Secret never really got into the whole indoor sports apparel kind of game,” Jaffe said.
With competitors including American Eagle’s Aerie brand, the Gap, H&M and others entering the marketplace in recent decades, Frederick’s has had a hard time differentiating itself.
Frederick’s had been the Victoria’s Secret of its time. Inspired by a World War II pinup, the late Frederick Mellinger opened a lingerie business in New York in 1946 and the next year moved it to Los Angeles. Renamed Frederick’s of Hollywood, the company soon became famous for its mail-order catalogs featuring curvy models.
But it earned a sleazier image as it became as well known for racy undergarments and sex toys as for push-up bras, panties and corsets. Mellinger died in 1990 and his family sold its interest in the company in 1997 to an investment bank that took the company private. The company declared bankruptcy in 2000, having been trounced by competitors such as Limited Brands’ Victoria’s Secret. Frederick’s emerged from bankruptcy in 2003 and went public in 2006. It long ago dropped the sex toys business.
Success in the apparel retail sector requires constant reinvention, and Frederick’s hasn’t adjusted to trends, said retail analyst Ron Friedman of Marcum LLC. “It all starts with management and how you market your product,” he said, “and they really haven’t stayed current with the times.”
Friedman said even companies such as Macy’s, which lost customers during the recession, rebounded when the economy started improving. The trick for a retailer is knowing your customer, and Frederick’s hasn’t done that, he said. “There’s no reason Frederick’s couldn’t be successful if they knew who their customer was.”
Shopping at the Glendale Galleria, Miriam Pichardo said she frequents Frederick’s and Victoria’s Secret. Frederick’s reputation doesn’t dissuade her.
“It’s the idea that some people find it more dirty, more sexual, or whatever,” she said. “For me, I don’t care. I’ll shop anywhere.”