THE DAY AHEAD: Alloy Online relishing outsider status

5 min read

COMMENTARY--Alloy Online never really fit in with the "cool" Internet crowd that chose flash over substance with their big-dollar advertising campaigns and blind—almost cult-like—allegiance to the online world and nothing else.

Alloy Online was the rebel. The company that was teased by the media, the three-piece suits on Wall Street and the rest of the dot-com followers because it dared to use something as square as a catalog to generate sales.

In many ways, it has a lot in common with the free-spending customers it attracts by the millions each month to its Web site.

It doesn't matter that these Generation Y consumers don't recognize the similarities as long as they keep buying skirts, belts and everything else this unheralded dot-com has to offer.

It's just gravy that all types of companies can also use the site to extract instantaneous feedback from a willing and--dare I say--impressionable market research group.

Try putting a price on that.

Alloy Online is offering a whole lot more than a teenie-bopper site where visitors can find out about the Backstreet Boys, set up another e-mail account, ask relationship questions of people named Tucker and Fiona and buy shoes all in about a half an hour.

It’s offering a direct pipeline into the hearts and minds of an extremely nebulous customer pool that every company—New Economy or Old—wants to get a piece of.

After spending about 20 minutes on the site it was pretty obvious that it's the kind of place teen-age girls would bookmark.

The company says it's a place for teens and young adults of both genders but—at the risk of offending some readers and the company itself—it's a chick site.

There's nothing wrong with that, according to analysts, when you consider Alloy Online's targeted demographic will spend about $250 billion on this, that and the other this year. I don't know where these kids are getting this kind of scratch, but they're using a credit card to buy this stuff.

You'd think a fair percentage of these parents, particularly mothers, would at least take a look at the site before signing off on the orders these girls are placing.

And these girls grow up to be women.

Bear market. Bull market. It doesn't matter what kind of market we're in. It's an unassailable fact that women have and always will find the urge and means to shop for clothes. It may not be as predictable as the increased business movie theaters and bars enjoy—in good times and bad—but it's close.

Abercrombie & Fitch (NYSE: ANF), Hot Topic (Nasdaq: HOTT) and Pacific Sunwear (Nasdaq: PSUN)—all clothing retailers catering to young women—have all enjoyed enviable gains despite the onset of this bear market.

Dot-com stocks have taken the brunt of this 60-percent drop in the Nasdaq composite in the past year but Alloy Online--the company some said couldn't survive because it didn't put all its eggs in the online basket--sits at $10 a share, up 43 percent for the year. After closing at $7 a share Jan. 2, the stock actually peaked above $13 a whack for a brief period in mid-February.

It might only be three bucks but what would any individual or institutional holder of Cisco Systems (Nasdaq: CSCO), Yahoo (Nasdaq: YHOO) or virtually every other stock—tech or otherwise—do for a gain of 300 cents a share in the past three months?

Whatever that unthinkable act is, they'd probably do it just to salvage a loss of $3 a share in this same period.

People forget Alloy Online is the company that suffered through a miserable initial public offering way back in May 1999, primarily because it was tainted by the collapse of a company called iTurf which eventually became Delia's (Nasdaq: DLIA).

Sell-side analysts such as WR Hambrecht's Derek Brown and Robertson Stephens' Lauren Levitan rave about the potential of both the stock and the company, lauding Chief Executive Officer Matt Diamond and his 30-something management team for "sticking to their business model" while all the other dot-coms lost their heads.

Both Brown and Levitan work for firms that helped bring Alloy public but it would be fair to say that all the analysts following the stock are enamored with its possibilities.

It's a good storyline but I suspect it's not quite that simple or premeditated.

Unlike the overwhelming majority of those other advertising-mad, portal-partnering online retailers, Alloy Online was a bit late to the party and never had the benefit of that valuation to start getting itself into trouble like so many other defunct or moribund dot-coms.

Sometimes what initially appears to be a tough break turns out to be a godsend.

To Alloy Online's credit, it didn't panic. It reacted. Most likely out of fear.

Someone within that organization realized that while it had a great and highly marketable idea, it was going to need sales and profits in a hurry to survive.

So it launched a catalog and took the hazing from people wondering why the hell an online company would start a catalog when everyone knew the Internet was the end-all, be-all of the universe. It just didn't make sense.

It was as if the entire world took leave of its senses and decided that multiple revenue sources were something to avoid.

Quietly, Alloy Online has met or topped analysts' estimates in each of its quarters as a publicly traded company, capped by Thursday's impressive fourth-quarter results.

Wall Street has yet to embrace the company despite its steady growth mainly because it's associated with three of the most fickle words in our lexicon: Internet, fashion and teens.

Whether it can meet its goal of slight profitability on an operating basis by the end of the current fiscal year remains to be seen. Who can be sure about anything in the current economic climate?

But if it can find a way to cash in on its extensive marketing and research strengths to complement its surging merchandise and advertising base, this could be one of those rare dot-com survivors everyone has been looking for amid all the rubble.

That would be appropriate considering—whether by design or happenstance—Alloy Online has always been the outsider of the group.