Life After Boo

Hip fashion sites say it isn't over - but venture capitalists aren't so sure

BY JENNIFER COUZIN

Unless you're a teenage girl, you probably haven't heard of the designer brands that stock Girlshop: Eugenia Kim hats, NM70 footwear, Jussara dresses and more. Girlshop has been around for two years, takes in about $100,000 a month and has never sought funding beyond a small friends-and-family round a year ago. In its offices at the edge of New York's trendy meat-packing district, the 12-person company is pouring revenues back into the business. This year, it expects to break even.

Girlshop's low-key operations, run on a relative shoestring, made it something of an anomaly when online retailers were taking in tens of millions of dollars from investors and spending that money lavishly. These days, though, Girlshop is starting to look like a trendsetter. After the crash and burn of Boo.com, other pure-play apparel firms are treading cautiously, running pared-down operations. Boo made that approach a matter of necessity, not just because its demise underscored the folly of free spending, but also because it left investors wary of online retailing.

"The Boo.com situation has hurt us not necessarily in sales but in perception," says Lynn McPhee, the CEO of Xuny, which sells "street-wear fashions" targeted at young people. Xuny has raised $2.5 million so far, and McPhee says it expects to close another round later this summer. But the company hasn't raised enough to sustain itself with its site alone. It has cobranded some of its merchandise with content providers and is working on deals with several mainstream department stores, which will sell Xuny brands. These imaginative approaches provide the company with 85 percent of its revenue; only 15 percent comes from the site.

When it comes to high-end apparel in the post-Boo era, imagination supplies vital fuel to any Web venture. Smartcasual.com, which targets professional men whose dress codes have recently shifted from suits to casual wear, is slated to launch this fall. Gazelle.com went online in February, and sells only hosiery. With $8 million raised so far - $5 million from Minotaur Partners in Chicago - the company is ahead of many competitors. But the Boo debacle scared off potential European investors, and Gazelle is focused on containing marketing costs. "We're working our damnedest to get on Oprah," says Allen Levenson, president and cofounder, without a trace of irony. "It is, as you know, the pinnacle of great - i.e., free - marketing."

Admittedly, the difficulties online apparel companies face go far beyond Boo. Unable to touch and try on the clothing, or even get a good look at it on their computers, customers may simply prefer to shop at their favorite boutique, or navigate to a Web site with a familiar brand.

"I have a big concern about the viability of being able to sell high-end apparel on the Internet," says Jerome Chazen, the founder and former CEO of Liz Claiborne (LIZ) who now runs Chazen Capital, an investment and consulting firm in New York. Chazen invested his money in the Fashionmall.com portal. (Fashionmall also purchased the Boo brand name.)

While Chazen and others argue that no one will go online to buy brands they don't know, several apparel pure-plays are betting that fashionistas are tired of well-publicized brands with stores on every street corner. "What these women share is a passion for fashion," says Natalie Massenet, the founder of Net-A-Porter, a London-based high-fashion site that launched in June. "They're not afraid to experiment with fashion; they're not followers."

These sites are counting on a must-have mentality among customers. Raj Pamnani, a managing member of Quantum Venture Partners, which invested $100,000 in Xuny, is convinced that young people are desperate for hip urban wear. Nicole Murray, the founder and CEO of NM70 footwear in New York, adds that she's so overwhelmed with orders she can't handle them all on her own site - so she also sells through Xuny and Girlshop.