Once a source for cheap household gadgets, miracle face cream and impulse-purchase jewelry, home shopping channel HSN has undergone a makeover over the past few years that has transformed the $2.8 billion company into a key cog in the fashion retailing wheel.
With top designers and celebrity television hosts romancing products like Lancome moisture cream and Badgley Mischka ready-to-wear, and selling tons of it in the process, the company has shed a lot of its downmarket image and become a go-to distribution channel for brands wanting to tell a story.
HSN Inc. is an interactive multi-channel retail company offering third party and private label merchandise experiences on TV, online, in catalogs and in 23 retail and outlet stores via its two operating segments. It morphed into its current form in May 2008 when spun off from former parent company IAC/Interactive Corp.
Its predecessor company began broadcasting television home shopping programs from its studios in Florida in 1981. It began conducting business online in 1994 and formally launched HSN.com as a shopping portal for the television network in 1999. The network broadcasts live customer-interactive programming 24 hours a day, 7 days a week, by means of satellite uplink facilities which it owns and operates. At last count, the network reaches approximately 94 million US homes, or 82% of those with a television set.
The Cornerstone Catalog Division In 2001 the company purchased Improvements, a catalog featuring thousands of home, patio and outdoor products (which also provides merchandise for the TV channel) in 2001, and in 2005 acquired Cornerstone, a portfolio of upscale catalog businesses including Frontgate, Ballard Designs, Smith+Noble, Travelsmith and The Territory Ahead. Cornerstone did $740 million in sales last year through its catalogs and eight websites.
Products and Brands HSN’s major product categories are home products, with 55% of sales in 2009, up from 52% in 2008, and health and beauty, at 18.5% of sales, down from 19% in 2008. Jewelry and apparel/accessories were 15% and 11% of sales in 2009, respectively.
The brand roster runs the gamut from mainstream labels to luxury brands, and includes Martha Stewart, Neutrogena, Nate Berkus, Coty, Bissell, Emeril Lagasse, Reem Acra, Loulou de la Falaise, Twiggy and Lladro.
Marketing Strategy At the core of HSN’s customer list are women over 35 with $75,000+ household incomes. Rather than just sell them stuff, HSN aims to enhance their shopping experience and promote customer loyalty by partnering with visionaries, experts, and design authorities to and bring brands and products to life in unique, compelling informative and entertaining ways. Imagine being invited into Wolfgang Puck’s kitchen or Tori Spelling’s dressing room to “sample” and view new items. This strategy has worked. HSN has 5 million active “subscribers,” or regular customers, who buy 50 million items annually.
Changing Channels HSN is not just one television channel, however, and is not just about television. As mentioned at the outset, it is a multi-channel shopping interactive retailer. In addition to inventing television shopping in the early eighties, HSN is the industry leader in technological innovation, having developed services such as Shop by Remote (which allows registered members to click on the TV screen with their remote control to order a product) and HSN on Demand, channels specializing in particular product categories such as Beauty. It has developed tremendous synergy between the web site and television platform. HSN.com is one of the top-ten trafficked e-commerce sites in the world, with over a quarter million unique visitors each day. Online versions of special events or programs are shown on the website for a limited time following their broadcast on TV, and now 30% of sales come from the web. Also on the site are thousands of video demonstrations of products available for sale. HSN was even the first to develop an iPhone app.
Financials Sales declined 3% from 2008 to 2009, but are poised to rebound to $2.95 billion this year. Last year, operating income almost doubled as cost-cutting and restructuring effects were realized. In the first half of 2010, total revenue rose 8%, with a 6% gain in television sales. Year-to-date gross margin is tracking ahead of last year’s by about 110 basis points. Sales growth this year has been primarily unit-driven, as the ever-value-conscious consumer drives down average prices.
Secret Weapon HSN’s major competitor is Liberty Media’s QVC, the $7 billion shopping network based in Pennsylvania. Both companies are battling in similar ways for share gains in interactive shopping, but HSN seems to have an edge in the fashion arena. In its corner is CEO Mindy Grossman, a 30-year apparel veteran who held top positions at Nike, Polo, and Warnaco, and whose stellar management and leadership skills, combined with her product and segment knowledge, has earned her the kudos of both peers and investors. Grossman decided early on to de-emphasize Veg-o-matic slicers and instead focus on things like designer handbags and celebrity chefs, elevating HSN’s wares from needs to wants and solidifying its customer relationship. She has developed partnerships with fashion magazines such as Vogue, and has many other potential programs in the works. The moves have paid off: HSN stock has more than quadrupled since early 2009.
The Star Power of Television Perhaps nothing proves the soundness of this strategy more than an event that took place in August, in which R&B star Mary J. Blige debuted her fragrance My Life exclusively on HSN, and sold out of 60,000 bottles during her six-hour appearance, busting previous HSN fragrance records, and making it one of the most successful prestige fragrance launches in history.
What’s Next? Designers are clamoring to show their stuff on the network. With opportunities to grow topline sales becoming increasingly rare in other channels, can you blame them? HSN’s strategy of bringing the entire shopping mall to living rooms, offices and people-on-the-go everywhere is obviously working, and in many ways represents the future of retailing.