Backchannelmedia

St. Petersburg Times

By Mark Albright, St. Petersburg Times, Fla.

May 3--What's now officially been declared a prolonged sales slump at HSN is probably going to take months to fix.

"We've found a seasoned executive with wide and deep experience in every aspect of retailing and told her find the right product mix and run the h---- out of it at HSN," said Barry Diller, chairman and chief executive of HSN-parent IAC/InterActiveCorp. "But it is not going to be done in a flash."

Recently lured away from Nike Inc. to be chief executive of the retailing unit at Diller's far-flung e-commerce conglomerate, Mindy Grossman stepped right into the hot seat upon her arrival at the St. Petersburg TV shopping network this week.

Sales at HSN, which employs about 4,000, declined 2.6 percent in the quarter that ended March 31, and the downward trend has not been reversed.

The slump at IAC's largest cash generator helped drag the parent company's first-quarter earnings down 32 percent to $47-million, or 14 cents a share, from $69-million, or 19 cents a share, in the year ago quarter. Revenues jumped 36 percent to $1.5-billion, thanks to the acquisition of Cornerstone Brands, a catalog and online retailer, in April 2005. Profits were also squeezed sharply by IAC-owned LendingTree.com thanks to higher interest rates, added spending on advertising and downturns in home sales and mortgage refinancing activity. Those three factors combined to drive up the average cost of acquiring a LendingTree customer by 50 percent.

Because Diller alerted the market to HSN's continued weak performance a month ago, the performance still slightly beat analysts earning forecasts by 3 cents a share. IAC stock closed Tuesday at $29.10 a share, up 8 cents.

Diller and his top lieutenants are convinced that after clicking like clockwork for two years, HSN lost its touch last fall while feverishly integrating Cornerstone Brands product lines.

"There is nothing fundamentally wrong at HSN," said Tom McInerney, IAC chief financial officer, who had been heading Diller's retailing unit. "We failed to execute on multiple levels. Sales were weak across the board. So we don't expect an immediate recovery." The TV shopping network's core audience of 5-million has been tuned in, but not biting on HSN's product picks.

Inventories had purposely been shrunken, meaning even products in demand could not be fully exploited, and customers returned more products for refunds than usual.

It can take three months to a year for the new teams' merchandise decisions to begin appearing on TV.

IAC Retailing revenues, which included Cornerstone's catalog sales, rose 28 percent to $769-million. The company does not break out HSN's sales, but they continue to migrate to the network's Web site, hsn.com, which accounted for 26 percent of HSN sales, up from 18 percent a year ago.

Diller reiterated why HSN and its TV retailing discipline remain critical to pull off his vision of e-commerce.

"As broadband continues to expand, TV shopping services like HSN will be transformed so people make far more purchasing decisions in the home," he said.

"We are only a few years away from having multiple screens linked to the Internet in the home that will offer all sorts of services. Long term, HSN's understanding of retailing by the minute, 24 hours a day, is a very good discipline for the future of commerce."

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