HE’S YOUNG, GOOD-LOOKING and vicariously adored by approximately 4 million teenage girls. What more could Steve Kahn, the 33-year-old founder/CEO of Delia’s catalog, want?
Only this: a 25-million-name database and a business worth about a couple of billion dollars. Before he’s 40.
Maybe four years ago, fellow catalogers would have laughed. That’s when Kahn, together with former Yale roommate Chris Edgar, launched Delia’s as an underwear/athletic wear catalog for college-age girls, largely distributed by sororities.
Now, in less time than it takes to get a college degree, Kahn and his cohorts run a company whose total revenues will approach $180 million by year end. Capped by the now $100 million Delia’s teen apparel book (which mails 55 million books annually) the company consists of 26 Screem/Jean Country unisex apparel stores (acquired last month), three Delia’s retail outlets, and a Delia’s home accessories catalog, Contents. Last December, the company also picked up the gURL interactive Web site and TSI Soccer apparel catalog. Since its IPO in December 1996, it’s netted about $40 million from two public offerings, and can point to at least nine straight quarters of profits.
In an industry where a three-year breakeven plan is considered gangbusters, Delia’s is a breakout. For nearly two years, it’s received 3,000 to 5,000 catalog requests per day. It’s constructed the largest teen list in the business-about a million boys and four million girls-mostly through space ads and word-of-mouth. It gets about 11 million page views a month on its Web site. It’s even spawned an entirely new subgroup of catalogs in the teen market, from teeny Airshop to Fulcrum Direct’s Zoe catalog to Just Nikki, a launch led by J. Crew’s Brian Doyle.
With its tank-topped, toe-ringed models sporting baggy pants that end somewhere below street level, Delia’s has clearly hit a girl nerve rivaled only by Leo DiCaprio.
“The company has been a force to be reckoned with the in field,” says David Leibowitz, managing director, Burnham Securities. “It’s well known, has a good consumer franchise, it’s put some pretty good numbers up on the board.”
It’s also ambitious. Kahn, for instance, speaks not only of launching a boys fashion catalog this fall-another DM first-but of using its huge teen database to create possible spinoff catalogs for older and even younger kids. Kahn also cryptically mentions “other products and services” for college-age adults, like, for instance, credit cards. Meanwhile, the Screen/Jean Country purchase will push Delia’s into the mall business, where Kahn envisions creating both Screem-and Delia’s-branded stores.
Frankly, it’s made Wall Street, among other observers, a bit nervous. Since the day Delia’s announced its Screem purchase in June, the stock tumbled 30% in six weeks, to less than $16, with no recovery in sight at press time.
“There’s concern about how much we have on our plate,” Kahn admits from his office of mismatched furniture. One second later, however, he shifts to high gear. “But I see a multibillion dollar opportunity. We’ve operated in a dynamic environment since day one, and I want to be able to do things people haven’t done before.”
You don’t need Kahn’s hip rectangular glasses to see that Delia’s, located in a former lightbulb factory, is a young and hungry place. With its thrift-shop desks, stained walls and industrial carpeting, the West Village space has the look of a downscale college dorm, sans bunk beds. To one side is the general counsel’s office, strewn with paper piles and occupied by Alex Navarro, a man in khaki shorts who appears barely old enough to shave. Nearby, CFO Evan Guillemin, with fashionable sideburns, holds a meeting with COO Chris Edgar, whose ample hair needs repeated brushing from his forehead. A man in waist-length braids runs the mail division; the blonde Mary Obert, chief fashion designer, sports a delicate ring through her right nostril.
Delia’s, Kahn says, supports “fluidity,” which means most people have at least two major areas of expertise. The general counsel runs the Internet division. Edgar heads both marketing and the nascent retail channel. Seth Walter, head of inventory control, works with systems planning. Meanwhile, Kahn himself, who drifts through in white polo shirt and jeans, appears amply fluent in any catalog topic, whether marketing, fulfillment, systems, personnel or finances. If intellect is an asset in this business, Delia’s clearly holds a strong balance sheet.
Building a business is “fascinating,” says Kahn, who originally studied classics at Yale and modern history at Oxford. Having enamored himself of capitalistic theory while researching the Industrial Revolution, Kahn’s short explanation for his business entree is this: “I decided becoming a capitalist is a lot more fun than reading about it.”
Initially, Kahn took the traditional route to gratification: He joined a management training program at Paine Webber. He decided he’d had enough of Wall Street’s “uniformity and obsession with money.” Says he, “I was bored.”
Sensing a market niche among college kids, he took a sabbatical and lured Edgar from his own comparative literature Ph.D. program at Columbia. He poured in his savings, made up a name and distributed 20,000 catalogs to colleges.
Results: “Lukewarm,” Kahn recalls. So the two ran a classified ad for Delia’s in the back of teen magazines. Revelation: College girls, who already had J. Crew, Allen Allen and Victoria’s Secret, weren’t ripe for a new book. Their little sisters were. “We got a huge response from high school kids,” says Kahn. “So basically the market found us.”
Delia’s had walked into a wide-open niche. “We have three or four thousand catalogers out there, and all of them to a person never thought about teens,” says Bill Dean, presidents of Dean Associates. Reason: Few junior-high names had existed on the market, short of magazine subscription lists. Teens also lacked credit cards, or so many catalogers believed. Moreover, teen girls generally treat shopping as a social event, an opportunity to congregate around malls, not order forms.
In hindsight, however, Delia’s arrived right on schedule. The number of teens, now 31 million, has been growing for six years and will continue until 2010. “At which time,” says Michael Wood, director of syndicated research, Teenage Research Unlimited, “there will be more teens than ever before.” Moreover, the ripe economy has created indulgent parents. Currently, teens spend about $109 billion annually, and, according to Kahn, influence another $200 billion in family spending. “And obviously,” he says, “every dollar they earn or receive is disposable.”
Meanwhile, credit cards have become as common as pierced lobes. It’s not just that finance companies today flood kids with preapproved cards; it’s that parents consider it convenient. “Today, you would not conceive of sending a student to college without a credit card,” Dean notes.
Finally, Kahn latched onto another open secret among teenagers: Girls love print. “They bond with magazines,” says Wood. “They depend on them for fashion advice, beauty tips and how to get along with friends and family-and they don’t necessarily differentiate between editorial and advertising. They see it all as information.” Implication: Anyone who could master the art of teenspeak could likely command a large, loyal pass-along audience.
To sharpen Delia’s appeal, then, Edgar and Kahn introduced girl-friendly models and design, via Mademoiselle art director Charlene Benson. Customers themselves supplied merchandising feedback to Delia’s in-house operators, who, likewise, were generally NYU college students. To keep up with trends, Kahn relied on MTV, Seventeen magazine and other arbiters of teen taste. Says he, “This market is more programmed than you think.”
Strategically, Kahn also took an unusual step for a newborn direct marketer: He plowed every dollar possible into systems. The company’s five-million-name database contains every piece of order history to each name, enabling precision mailings. Ordering, customer service and inventory control all operate in-house, one floor from executive offices. “You can’t make money on outsourcing,” says Kahn, with an intended dig at his competitors.
Delia’s scalable operating system and call center, moreover, are live with the company’s Pennsylvania warehouse, which means the home office can stay on top of inventory. The system is also predictive, which allows the call center to staff precisely according to need. “
Not everyone, however, has been thrilled with Delia’s service. A few cranky moms queried for this story note that Delia’s backorders had become so frequent last year that they now throw the catalogs away. On the other hand, teens themselves have typically proven more patient. The author’s 16-year-old niece, for instance, was less aware of backorders than of Delia’s “super-nice” operators-in itself, a memorable contrast to a typical retail experience, in which teenage girls are often treated like recent parolees.
There’s no doubt, too, that the Delia’s concept has near-infinite growth possibilities, and Kahn believes the catalog won’t max out until it reaches $300 million to $400 million in sales. Moreover, “the majority of buying in this [market] happens in malls,” says Kahn. “That’s just a place where we’ve got to be.” According to Kahn’s vision, will feature an entire Delia’s lifestyle product array, from tank tops to tattoos.
At this point, not even Delia’s “imitators,” as Kahn calls them, have proven a threat. Some, like two-year-old Airshop, are still in financially precarious territory. Others, like Just Nicky and Zoe, appear to have less of the edge and cool that characterize Delia’s. “People will try to play catch-up,” says Kahn, who addresses the topic by toying with the laces of his shoe. “There will be a shakeout on the imitator side. Most of these guys will lose a lot of money for a long time.”
Realistically, however, there’s room for all. Airshop, for one, has been receiving 3,000 catalog requests per day. It’s also lured away a J. Crew executive, is locating to larger space, and is about to secure venture capital. Just Nicky, for its part, can rely on the financial backing and promotional appeal of its owner, Claire’s Stores, Inc. (which reportedly had tried to buy Delia’s). That catalog, in its third drop, is already mailing two million names. “We have 1,750 [Claire’s] stores that act like newsstands for us,” says Doyle, now president and COO of Just Nicky.
To some extent then, the question isn’t who’ll do well in the direct-to-teen market. It may be that the question is how many. This is a $4 billion mail-order market,” says Doyle. “That’s a lot of open space.
Still, there’s no doubt which catalog will continue to remain head of the class-at least for a long while. “Let me put it this way,” says Doyle.” If Claire’s had been able to acquire Delia’s, I wouldn’t have had this job.
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