Risk Management

Talent Loss, Tech Breakdowns Worry Dot-Com CFO

Why Bluefly's Patrick Barry says his biggest risk is losing good people.
David KatzApril 26, 2001

You’re the CFO of an E-tailer selling high-end clothes by designers ranging from Amy Chan to Zegna.

Early this year, your company was frighteningly close to a Nasdaq delisting. Currently, the stock market’s in a downturn, with your own stock hovering at a little over a buck; department store inventories are glutted.

Here’s a simple question: What are your biggest worries?

You’d think an inability to get financing or move your goods onto the bodies of buyers would be high on the list, right?

Nope.

In fact, if you’re Patrick C. Barry, the CFO and chief operating officer of Bluefly.com, the E-tailer in question, what keeps you up at night are the risks of losing talented people and having your site go down during the Christmas rush.

Backed by the likes of George Soros and Peter Lynch, New York City- based Bluefly has been able to shoo away financing worries. All told, Soros, Lynch, and others have pumped about $40 million into the company since July 1999.

Most recently, in March, the company got $10 million from affiliates of Soros Private Equity Partners, who were issued 4,273,504 shares of common stock at a price per share of $2.34. That amounted to an 87 percent premium paid to the dot-com on its $1.25 per-share closing price on March 30.

A prior round of funding announced in February by the Soros organization, which now owns about 78 percent of Bluefly, enabled the retailer to comply with Nasdaq’s net-tangible-assets requirement and get the delisting threat off its back.

Barry, 38, says that in addition to financing hazards, general stock- market risk and economic perils out of his control “are not where I lose my sleep.” In fact, he told CFO.com in an interview last week, “we’d benefit by a recession.”

Currently, general department stores, like Macy’s and Saks, which piled up inventories during the previous economic expansion, are “choking on product,” Barry says.

For Bluefly, however, that’s a favorable supply situation. “We can negotiate much better price[s],” he adds, “and that helps my gross profit margins.”

Barry maintains that his customers will still want to dress fashionably if there’s a severe downturn. At the same time, the discounted prices Bluefly offers would stand it in good stead in a recession, he adds.

Despite his optimism amid the gloom, the CFO’s mood darkens when he talks about retaining people in the continuing tight labor market. He says his biggest fear is that the company, which with its 90 or so employees is “not overstaffed,” is a loss of talent.

Barry, who runs human resources at the company and participates in about 70 percent of its job interviews, stresses a good working environment as a way of retaining talent, rather than pay and benefits— although he insists those are competitive. Bluefly, which grants stock options annually, has chosen not to do a repricing.

As part of its retention strategy, Bluefly recently launched a “touchpoints” program, encouraging rank-and-file employees to submit ideas about improving customer relations. The program offers recognition to employees for ideas that are used.

Recently, for instance, as part of the program, an accounts-payable clerk was recognized for suggesting the idea of printing the company’s logo on refund checks it sends to customers, he says.

One thing Barry uses to pitch the company to current and potential employees is the stability of its executive group. His definition of stability shows how rare a thing it is in the dot-com world: Bluefly has 10 executives at the vice president level or higher who have been with the company two years or more, he says with pride.

In his own case, he recalls the temptations of July 2000, when some forecasters were giving Bluefly little chance to survive the month. Like other company executives, “I must have gotten 10 calls from a headhunter a day,” Barry says. The recruiters commonly asked him, “Do you want to go to a brick and mortar?”

But Barry says he’s stuck it out because he likes the company’s business model, touting its high average-order size— over $125—and the loyalty of its customers. The company earned 50 percent of its revenue from repeat customers in the fourth quarter of 2000, according to Barry.

The CFO also thinks the management-by-objective (MBO) program he’s working on will help retain existing employees. He acknowledges that some employees have been frustrated by a certain randomness in the company’s operations. Under the MBO program, employees will receive awards and bonuses for meeting their objectives.

The MBO program could be “a big retention tool, plus a selling point [for potential hires] because people want to know what the objectives are,” he thinks.

While Bluefly has no formal bonus, it has a three-year history of paying bonuses “loosely based on merit” in January and February, according to the CFO.

Besides the risk of losing good people, Barry’s brow is furrowed these days by possible mishaps in the company’s planned technological renovation of its Web site.

“The biggest worry is, `What are we going to get the day it goes live,’” he says.

Tied to the technological risk is a severe timing risk. “If we miss our end-of-October time frame,” Barry says, “then we’re into the holiday season.” Launching a new technology platform during peak buying season would be particularly perilous.

But the project would have a big payoff in terms of transparency and efficiency. While Bluefly doesn’t see itself installing a true enterprise resource planning system, it envisions buying software that would include the company’s purchase-order system, its inventory operations, and certain databases.

Long-term customers would be able to see two years of their order histories, Barry notes. More importantly, the system would put “pop- out capabilities in the hand of the business user,” he says.

He explains that under the planned renovation, a marketing executive, for instance, could construct a promotion campaign without getting Bluefly’s technology department involved.

What would be the difference? A campaign that would take two hours if the marketing executive put it together would take a month and a half if the technology department became involved.

Bluefly is currently negotiating with three software vendors, whom Barry refused to name. In terms of the integration for the $2 million project, the firm “could go with an [Arthur] Andersen integrator or a five-person shop,” depending on the software Bluefly chooses, he says.

Risks, however, aren’t the only thing on Barry’s mind these days. On the heels of the Soros financing, the company is also making a major push to boost its brand image. The CFO points with excitement to the ads Bluefly is running in Vogue as evidence of his company’s feistiness in the downturn. The ads appear twice in the magazine’s May issue in space usually reserved for upscale fashion brands.

In Bluefly’s first offline catalog offering, a 16-page catalogue printed in midnight blue and called “Join the Shopping Revolution” is inserted opposite the table of contents in issues sent to subscribers as well as in newsstand copies sold in California and New York, The New York Timesreported last week.

“We’re telling people we’re still in business,” Barry says of the promotion.

In the current economy in general, and in the dot-com world in particular, that could be the closest thing to a message of stability.