Bluefly, Inc., an electronic commerce company founded by E. Kenneth Seiff in 1998, is the

Executive Summary Corporation Bluefly, Inc., an electronic commerce company founded by E. Kenneth Seiff in 1998, is the online retailer of designer brands, fashion trends and superior value. They launch more than 350 brands of fashion with a 40% to 70% discount. With the development of online transactions, Bluefly grew very rapidly. But due to the costly marketing cost greatly exceeded the sales, Bluefly lost so much. Faced with this situation, Bluefly actively seek opportunities to develop. Bluefly has its competitive advantages, such as low prices, fast speed of delivery and high level of customer services. However, it has so many disadvantages, such as unstable supply, the existence of non-authentic goods and low brand name recognition. E-Commerce Apparel Industry The e-commerce industry is an emerging industry, and the apparel industry is a mature and enduring industry. They also have huge potential. With the Internet, the websites can keep in touch with customers more closely. With the accelerated pace of life, people have no time to shop in the physical stores, online shopping caters to these people. There are more advices online for customers to find the product that really suitable for them. The customers also can compare prices among the various sites and choose the right product with a superior value. However, fashion trends can change rapidly, the company can't correctly capture the trends sometimes. Moreover, many people mistrust the transactions over the Internet. And the existing laws can't solve the online issues. 1

Competitors The competition in e-commerce retail apparel and fashion accessories market is very intense. E-commerce industry is an emerging industry, it has huge potential, so many creative companies want to occupy a place in e-commerce market. And the fashion industry is a mature and enduring industry, and there are so many large companies in this market. For example, land-based retailers like The Gap, Inc., department store chain like Dillard's and some brand owners like Chanel and Gucci. Recommendations The short-term recommendations including maintaining the supply of goods, selling mother-child apparel, improving inventory, and enrolling sensitive people to fashion. And there are some long-term recommendations, including establishing the business reputation, establishing brand name recognition, leading the fashion trends, opening physical stores, and paying attention to men. History Bluefly, Inc. is an electronic commerce company founded by E. Kenneth Seiff in 1998, it owns an Internet outlet store, bluefly.com. Bluefly, Inc is one of the first online retailers of designer brands, fashion trends and superior value. The headquartered is in New York. The website offers men's and women's apparel as well as fashion accessories with more than 50,000 different styles. They launch with over 350 brands of designer apparel, including such fascinating brands as Prada, Ralph Lauren Collection, Diesel, Dolce & Gabbana, Diane Von Furstenberg, Gucci, and Versace. They claims that the products they sell at prices 40 to 70 2

percent cheaper than retail. 1 Bluefly's primarily target is women around 30 years of age. The company's predecessor is Povot Rules, a golf-inspired apparel company, founded by E. Kenneth Seiff in 1991. In 1997, Povot Rules performed the initial public offering. Due to the industry trends, Seiff discontinued the business of golf apparel in favor of Internet business. He sold the Pivot Rules trademark and changed its name to Bluefly, Inc in October 1998. It was developing rapidly just like its name. At first, Bluefly received only 96 orders, but 3 months later, it received over 2,700 orders. By the end of 1998, the visitors grew from 28,000 to 660,000, and registered users also increased from 1,572 to 26,048. The company became the No.3 apparel retail website in terms of sales at the end of 1999. 2 Current & Future Profile With the development of online transactions, Bluefly grew very rapidly. The transaction to the website increased dramatically. The company established an alliance with the Yahoo shopping site. They created a co-branded store which made the stock price of Bluefly increased 40%. In addition, the partnerships with AOL, MSN, Lycos and Excite made it to become the largest discount fashion e-commerce website. 3 It advertised in some fashion magazines, such as Marie Claire, Harper's Bazaar and Metropolitan Home. As show in Exhibit A, the price of Bluefly stock was more than $100 from 1998 to 2000. It's very close to the Amazon's stock price. This is the heyday of Bluefly. However, because of the expenditure to publicize the website greatly exceeded the output of sales, so they had difficulty to turn a profit and achieve stability. By the end of 1999, Bluefly losses nearly 1 en.wikipedia.org/wiki/bluefly 2 fundinguniverse.com/company-histories/bluefly-inc-company-history.html 3 en.wikipedia.org/wiki/bluefly 3

$13.2 million, 4 there is serious problem with cash flow. Due to the investment by George Soros, layoff policy and reduction of marketing expenses, Bluefly reduced the loss, and maintained the normal operation. But the stock price was always below the $50, and it is only $2 to $3 in recent years. In addition, the 90 percent of Bluefly is owned by Soros, so Soros is the money manager, he can influence the decision-making of Bluefly. Faced with this situation, Bluefly actively seek opportunities to develop. They will establish a new online eyewear company which named Eyefly, cooperate with A+D Labs, a premier designer and manufacturer of fashion eyewear. 5 It will be a developing direction with huge potential for Bluefly in the future. SWOT Analysis Strengths The discounted price is the most strength of Bluefly, people always tend to buy things at lower prices especially women. They can get a fashion with a discount of 40% to 70% cheaper than luxury department stores. Why don't they choose Bluefly? Moreover, Bluefly's shipping is very fast, In December 2009, most of their orders were shipped in one business day from receipt of the customer's order during the peak weeks of the holiday season. 6 In addition, they have a high level of customer service, the help center is easy to use, and it opens 7 days a week. They allow returning for any reason within 60 days after buying and they will give customers a full refund. 4 fundinguniverse.com/company-histories/bluefly-inc-company-history.html 5 nasdaq.com 6 secfilings.nasdaq.com 4

Weaknesses The investors have a large amount of Bluefly's common stock, so they can affect the company's decision-making. Soros, the money manager of Bluefly, owns approximately 25% of their common stock. That's a bad thing to Bluefly's operation. Moreover, Bluefly purchase most of inventory from one supplier. If their relationship with this supplier deteriorates or terminates, Bluefly is unable to maintain the supply of goods. They have no long-term contracts with their supplier and don't restrict the supplier from selling products to other companies. So the price of the product may not be unique. The brand owners can limit Bluefly's ability to purchase their products indirectly. In addition, Bluefly purchases products from retailers and third party distributors sometimes. It increases their risk of the litigation due to the non-authentic goods. Opportunities With the improvement of living standard, more and more people no longer content with living comfortably, they began to focus on personalization. Famous Brands become the symbol of status or individual. People are always willing to pursue fashion no matter how much they spend. In addition, with the popularity of network knowledge and the upgrade of network security, more and more people shopping online. People may have no time to shop in the mall due to the faster pace of life, online shopping is a good choice for them. So Bluefly has huge potential. Threats Fashion and e-commerce are both the industry which has huge potential. Although the fashion industry is an old industry, the number of competitors is increasing all the time. And 5

more and more companies want to occupy a place in the electronic market. The competition of the e-commerce apparel retail industry is very intense. In addition, there is a growing emphasis on business reputation and brand awareness, so they may shop on the official website. It's a huge threat to Bluefly. Maybe, it will have no place in the complicated network world. Unique Sales Strategies Lower Price Bluefly claims that the products they sell at prices 40 to 70 percent cheaper than retail. It's their goal to offer customers the latest fashion trends and best designers brands with superior values. Customers can find any on-trend and in-season designer merchandise the same like the products in luxury department stores. They can get the same thing at discounted prices in Bluefly. Bluefly buy products from designers directly and other third party resources indirectly, so they can reduce the cost and sell the products with a lower prices. But buy products from indirect form has huge risk, they may get the non-authentic goods. This will decrease Bluefly's credibility. Closet Confession In April 2010, Bluefly launched the Closet Confession video series. It is an exclusive access to the closets of fashionistas. They create a unique platform for fashionistas to share their personal style and it brings them a huge profit at the same time. The Closet Confession video series obtained 2 million pageviews. The website becomes very popular, so sales will be significantly improved. In the video, the celebrities encourage their fans to showcase their 6

personal style, so fans will pursue their idols' personal styles due to the worship to idols. Bluefly can lead the fashion trend rely on this platform because the celebrities are the wind vane of the fashion, the company can seize the initiative by selling the same thing with the celebrities'. This is an excellent sales strategy can bring huge profit. Fragrance Boutique Nowadays, Bluefly launched with a fragrance boutique. It contains the newest releases and best sellers from the world's most fascinating brands. All the fragrances are 40% off retail prices. Fragrance boutique offers hundreds of fashionable fragrances, including classic and nostalgic, such as Chanel, Hermes, and Calvin Klein, and modern popular favorites, such as Sarah Jessica Parker, and Juicy Couture. It becomes a major feature of Bluefly, attract a large number of customers. People can find fragrances really suits for themselves in a lot of brand perfumes at superior values. Shopping becomes a great pleasure for the fashion-conscious customers. So the fragrance boutique will enhance the sales successfully. Advertising Bluefly started a national advertising campaign that focus on both print and television. It aligned itself with entertainment, such as Project Runway, Bravo TV, Lifetime TV and popular shows on The CW including Gossip Girl and America's Next Top Model. 7 It also advertised in some fashion magazines, such as Marie Claire and Metropolitan Home. These TV programs and magazines have thousands of viewers every day. It means that Bluefly advertised in these places increased a thousand of opportunities for customers to visit it every day. This is helpful for improving brand awareness. 7 secfilings.nasdaq.com 7

Retain Existing Customers Bluefly owns complete system committed to retain existing customers. Most of the sales by old customers are driven by Bluefly's customer emails. The emails show new promotions and products to attract old customers to shop again. They also offer special previews to customers who have asked to be included in their email list and it's very convenient for them to find the products they want. In addition, due to the presentation, merchandise selection and product search ability, Bluefly brings an upscale shopping experience to customers, so the customers will continue to shop on Bluefly. Bluefly has unique membership system, members can enjoy more preferential. It is very effective to retain existing customers. Affiliate Program An important channel for Bluefly to acquire new customers is their affiliate program. The affiliate program is free to join. The partners simply need to place the fabulous array of banners, text links and product shots on their site, so they can earn the commissions. The partners can get a referral fee because the visitors buy the products from the Bluefly.com through their site's link. The commission is 6% of the net purchase amount for every sale. It's higher than most sites, so most websites are willing to establish an alliance with Bluefly. More sites can link to Bluefly, more opportunities the company can get the viewers, and more possibility the company can get the new customers. This sales strategy is very useful. Competitors The competition in e-commerce retail apparel and fashion accessories market is very intense. E-commerce industry is an emerging industry, it has huge potential, many creative companies 8

want to occupy a place in e-commerce market. And the fashion industry is a mature and enduring industry, and there are so many large companies in this market. For example, land-based retailers like The Gap, Inc., department store chain like Dillard's and some brand owners like Chanel and Gucci. The Gap, Inc. The Gap, Inc. is a clothing and accessories retailer based in America. Donald G. Fisher and Doris F. Fisher established it in 1969, Gap's sales of up to $2 million in one year. The company owns five primary brands, including the namesake Gap banner, Banana Republic, Old Navy, Piperlime and Athleta. Gap, Inc. has 3,076 stores and 135,000 employees around the world. It is the largest apparel retailer in America. In 2003, Gap spent over 2% of its marketing budget for online marketing. 8 Due to the brand awareness built by Gap's physical stores, the online Gap grew rapidly. The Gap, Inc. has longer operating history and greater brand name recognition than Bluefly. So, it's a strong competitor to Bluefly. Dillard's Dillard's is a department store chain in America founded by William T. Dillard in 1938. It has 330 stores in 29 states. Most stores are located in Texas and Florida. Dillard's launches so many brands, such as Chanel, Clinique, DKNY, Dior, Jones New York, Levi's, and Ralph Lauren. 9 The chain grew rapidly as a leader in shopping mall, it acquire competitive advantage by purchase smaller chains. Dillard's also develops online business, so the customers can choose the manner of shopping and enjoy it. For these reason, Dillard's is also the competitor of Bluefly. 8 en.wikipedia.org/wiki/gap_(clothing_retailer) 9 en.wikipedia.org/wiki/dillard%27s 9

Brand Owners The brand owners like Chanel and Gucci, also have their physical stores and official website. People prefer to shop in their physical stores and official website. They can try products and find the real goods for their own in the physical stores. Most people believe that the retailers have non-authentic goods more or less, so they would like to buy the products from the official website. And most official website's shipping is free. In addition, the brand owners can limit the retailers' ability to purchase their products indirectly and several brand owners have legal rights to provide them the specified legal importer of their respective brands. For these reason, the brand owners is not only the limiter of bluefly's resources, but also the huge competitor of Blurfly. Industry Analysis The e-commerce industry is an emerging industry, it is built on the basis of technological development. And the apparel industry is a mature and enduring industry. They also have huge potential. So the online retail apparel and fashion accessories market is a dynamic and high-growth market. The e-commerce industry grows continuously. According to projections published by emarketer, by 2010, United States online retail sales are promised to grow 7.5% to $141 billion, and it will continued increases through 2013 to over $189 billion. 10 Actually, it increased 12% in 2010. Online apparel sales especially well in November 2010, increasing 22.2%, it is the largest growth rate in 2010. The sales of children's clothes increased very fast. And the Women's online apparel sale has a more modest growth rate, 7%. 11 10 secfilings.nasdaq.com 11 internetretailer.com/2010/12/02/e-commerce-sales-increase-12-november-mastercard-says 10

With the Internet, the websites can keep in touch with customers more closely, and they can grasp customers' needs in time, provide some relevant promotion information. The company can automatically update the database of products' information. They can save the costs of employees and stores. With the accelerated pace of life, people have no time to shop in the physical stores, and maybe they just don't like the crowds, online shopping caters to these people. So it has the customer group. In addition, on the Internet, there are so many customer reviews about the product, the reviews can help the new customers know whether this is the product they need. There are more advices for customers to find the product that really suitable for them. The customers also can compare prices among the various sites and choose the right product with a superior value. However, fashion trends can change rapidly, the company can't correctly capture the trends will lead to insufficient or excess inventory. Moreover, many people mistrust the transactions over the Internet, they think that's unsafe. It will damage the online business. In addition, the existing laws can't ensure the online issues such as property ownership, sales and other taxes, libel and personal privacy and may take years to resolve. Even, the adjustment of existing laws may increase the cost of doing business online. Short-Term Recommendation Maintaining the Supply of Goods Bluefly need to seek alternative sources of supply for their products in order to resolve the problem of supply if the relationship with current vendor deteriorates. They can establish long-term contracts with the vendors and restrict the suppliers selling products to other 11

companies. Prepayments and agree to shortened payment terms can help Bluefly keep the relationship with vendors. Bluefly also can establish contracts with brand owners and give them appropriate commission to obtain their consent to purchase their products indirectly. Selling Mother-child Apparel According to the industry analysis, the sales of children's clothes increased very fast, so Bluefly can launch the mother-child apparel. Bluefly's primarily target is women around 30 years of age. 30-year-old women mostly have children, they may not be willing to buy things for themselves, but they are certainly willing to spend money for their children. Moreover, the mother-child apparel is very popular now, it is the object pursued by most fashion mom. Improving Inventory The fashion trends change rapidly, so Bluefly exist a problem of insufficient or excess inventory. To address this issue, Bluefly can improve inventory system, establish contracts with vendors, don't to deliver large quantities of goods at once and automatically replenish when there is a shortage of goods just like Wal-Mart. And the Bluefly also can purchase products after receipt of the customer's order. Of course, the measure needs to be built on the basis of close relationship with vendors. Enrolling Sensitive People to Fashion Talent is the first productivity, so Bluefly should enroll the sensitive people to fashion. The people are the rookie with a unique vision and insight to fashion. They can identify the fashion trends for Bluefly and promote their sales. They may are the fashion designers. 12

Long-Term Recommendation Establishing the Business Reputation Bluefly purchases products from retailers and third party distributors sometimes, so there may be some non-authentic goods among Bluefly's merchandises. These events affect the business reputation of Bluefly. In response to these events, Bluefly need to develop rigorous monitoring system to eliminate the non-authentic goods throughout the whole purchasing and selling process. They also need to check the goods returned by customers. Establishing the business reputation is a long process and without any non-authentic goods. Establishing Brand Name Recognition Brand name recognition is a critical aspect of company's success. Many competitors have higher brand awareness than Bluefly. So the Bluefly must establish the high brand name recognition. They can use some manners, such as offering high level of customer service, keeping the low prices, guaranteeing speed of delivery, eliminating non-authentic goods and maintaining the potency dimension of advertising and marketing. Bluefly should build the reputation with the quality. Brand name recognition is an intangible asset of a company, but it also needs a long time to build. Leading the Fashion Trends To a certain extent, customers' preference depends on the fashion trends, so Bluefly can catch the customers through catch the fashion trends. However, the fashion trends change rapidly, if the company doesn't want to fail, they must stay ahead of the fashion trends. It means creating and leading the fashion trends. The Closet Confession video series is an effective method to lead fashion and enrolling sensitive people to fashion is also a good idea to catch 13

the fashion trends. If a company can become the wind vane of fashion trends, its managers would not worry about sales issues. Opening Physical Stores Bluefly has no any physical store, customers may not be able to determine whether the goods suit for them just with the aid of products' pictures. The physical stores allow customers to try the clothes to find the appropriate clothes. In addition, the physical stores can increase customers' confidence to Bluefly. They will believe the quality in the physical store as well as the website's. In order to become a competitive company, opening physical stores is necessary to Bluefly. Paying Attention to Men Bluefly's primarily target is women, why so many companies in the fashion industry ignore men? Men have more fashion sense than women. Women identify fashion, but men identify women. In addition, who hates shopping more than men? So shopping online is a good choice for men. They are willing to shop online in order to avoid spending more time to shopping with their girl friends or wives. And if possible, they would like to buy gifts for their girls online. So Bluefly should pay more attention to men, they can establish a linked site for men. Conclusion Bluefly's birth meets the tendency of financial market. It is a company with huge potential. It has been thriving for a short time. Due to the costly marketing cost greatly exceeded the sales, Bluefly lost so much. The investment by George Soros carried Bluefly through but Soros 14

became the money manager of Bluefly. Bluefly has its competitive advantages, such as low prices, fast speed of delivery and high level of customer services. However, it has so many disadvantages, such as unstable supply, the existence of non-authentic goods and low brand name recognition. The e-commerce industry has good momentum of development, shopping online is gradually become a part of people's lives, and it will be fully integrated into people's lives in the future. So selling online is a wise decision. In addition, the fashion industry is a top industry, and it will always be pursued by people. So Bluefly's direction is correct. The problem following the direction is how to do it well. Bluefly has many excellent sales strategies, such as Closet Confession video series, fragrance boutique, advertising strategy, and affiliate program. But they must do more improvement to aim at solving the drawbacks. First, Bluefly need to get the absolutely controlling rights back from George Soros, so they can improve the strategies without interference. Therefore, Bluefly still can recover thrive situation at the beginning time if they can use the right sales strategies. The globalization of industry is more and more obvious. Bluefly need to expand international awareness, and take a place in the international market. 15

Exhibit Exhibit A 12 Bluefly, Inc. Interactive Stock Charts 12 nasdaq.com/aspx/dynamic_charting.aspx?selected=bfly&symbol=bfly 16