CEO Interview: HSN, Inc. - Mindy Grossman

• On 5:36 pm EDT, Tuesday October 20, 2009

67 WALL STREET, New York - October 20, 2009 - The Wall Street Transcript has just published its Online And Direct To Consumer Retailing Report offering a timely review of the sector to serious investors and industry executives. This 38-page feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Online Retailer Profit Margins Vs. Bricks-And-Mortar Retailers - Uptick In Internet Commerce - Secular Shift In Market Share To Internet Retailers - Post-Crunch Consumer Confidence - Growing Market Share For Online Travel Agents - Possible Consolidation Of HSN, Inc. - Amazon As The "Wal-Mart Of The Internet" - Online Marketing Vs. In-Store Marketing - Maximized Markdowns - Online Traffic Conversion Rates - Social Networking To Drive Brand Awareness - Online Sales Holiday Outlook - E-Commerce As A Path To International Expansion

Companies include: Abercrombie & Fitch (ANF); Amazon (AMZN); Ann Taylor (ANN); Apple (AAPL); Ask.com (IACI); Bebe (BEBE); Best Buy (BBY); Bidz.com BIDZ); Dell (DELL); Dick's Sporting Goods (DKS); Expedia (EXPE); GSI Commerce (GSIC); GameStop (GME); Gap (GPS); General Motors (GM); Google (GOOG); HSN (HSNI): Hot Topic (HOTT); Interactive Corp. (IAC); Liberty Media Interactive (LINTA); LivePerson (LPSN); MercadoLibre (MELI); Move Inc. (MOVE); Orbitz (OWW); Pacific Sunwear (PSUN); Quiksilver (ZQK); Ralph Lauren (RL); ShopNBC/ValueVision (VVTV); South Korea's Gmarket (EBGMy); Sport Supply Group (RBI); Staples (SPLS); Starbucks (SBUX); Target (TGT); Timberland (TBL); Urban Outfitters (URBN); VeriSign (VRSN); Wal-Mart (WMT); WebMD (WBMD); eBay (EBAY); hhgregg (HGG); priceline.com (PCLN).

In the following brief excerpt from the 38-page report, Mindy Grossman, CEO of HSN, Inc., discusses the outlook for the sector and for investors.

TWST: You saw the biggest consumer demand in the first half of 2009 in crafts and fitness with a decline in fashion. Where do you project the biggest growth in 2010 and how are you preparing for it?

Ms. Grossman: So let me update on what we have seen and what we are seeing now. If you look at, starting in this year, when things started to get more challenging externally, what we did notice was a certain shift in consumer behavior. What were they buying? Things that were going to save them time and save them money. New technology was still selling, kitchen was selling and more people were eating at home. Fitness business was very strong, as was wellness and beauty. We have a very loyal and rabid crafts customer. It's a great customer. It's actually a fairly young customer who is still doing things in scrap booking, making things, young mothers, etc., and where we saw a much more discretionary level of buying was in what you will consider the more indulgent category. So let's call it jewelry, fashion, home decor. I mean, look, people are still going to buy those products. They are going to buy fashion, they are going to buy accessories, they are going to buy jewelry. But how did we adjust our product offerings to have them make sense in this environment? What we are seeing is somewhat of a polarization. We are seeing the customer gravitate to a great value. But trust me, they still expect quality. So it's not just price, it's price-value. And then they also are gravitating to things that are really unique and really different, even if it's a little higher price point. And it's the stuff in the middle that - you know what? - it's not as compelling a reason to buy. So we've refocused our efforts, and what we have seen - particularly in the fall season - our fashion business is very strong, which for us is very important because engaging with our customer and what we call the "her" side of the equation is very important. We want her shopping with us across multiple categories. So I would say what we see going forward is a more discerning customer across the board, and we don't see that changing. Definitely a focus on price-value. I am always careful not to say "value" without that caveat. Whether a customer is buying a $79 handbag or a $600 handbag, I want her to feel that this has been a great spend of money and she is thrilled with it. Because the last thing anybody wants to do right now in retail is disappoint a customer. If they are parting with that dollar, they want to feel great about it, and that's very important to us throughout this. So we have been working across all our product categories to say, "Okay, if she has decided to buy a piece of jewelry, how do we make it so compelling that she wants to buy it with us?"

TWST: With the increased number of players in your industry and with traditional retailers increasing their online selling, what is your strategy to maintain your competitive advantage?

Ms. Grossman: The way I look at it is opportunities. More people are engaging and really being comfortable across the board with the e-commerce platform as a means of shopping. Then particularly, as people are time-starved and they want efficiency, they want to be able to engage with what they want. But here is what's differentiated about us - first of all, about 70% of our product is proprietary. You can't get it anywhere else and that could be a product from Todd English or Wolfgang Puck or IMAN, or we are launching Molly Sims or any of the brands and products. Even if the brand is not proprietary, often the products from that brand will be exclusive or proprietary. Second, we don't look at ourselves as an aggregator of product. We are not trying to be everything to everyone. We feel what our strength is curating products, and we know our customer. How do we kind of cut through this incidence of abundance? You go on, and you type something and then every single vacuum in the universe comes up. So it's a little overwhelming to a lot of people. What we have done is said, "Okay, here's the curated assortment that we sell, here are the features and benefits of every one of these. We feel they are great quality, great price-value, here are multiple price points and here are all the things. What is your need, and we will solve it for you." I think lastly, as I mentioned before, we are the most video-pervasive e-commerce site. So not only can you see the product, but you can hear either the creator of the product or an expert on the product showcase the product, tell you why it works, how it works, what those features and benefits are, how they compare to other things. So it's a very different experience. We also have a very robust community on that site. Certainly, we post all the reviews, have community boards, blogs, etc. So it really is about tailoring the experience online and using our content in a very different way that I believe definitely differentiates us.

TWST: Looking forward to 2010, what are your top goals? What can investors look for to know that you are on track to achieve them?

Ms. Grossman: I think what is critical is that we continue to deliver on our stated strategies, which inherently are going to create more and more value in the business. We absolutely have a significant focus on our customer and how we are going to continue to gain share and absolutely create greater opportunities for us in this market. And if the customers are going to spend, have them spend with us. We are very focused on the strategic utilization of both our capital and operating expenses. People have seen throughout the year and very much will continue to have an eye on making sure we are in a very strong cash position. Our business is such that the way our costs are aligned to our growth, both in sales and in margin, we can leverage to the bottom line, and that's what we are going to be focused on.

The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This 38-page special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online .

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