Frederick’s of Hollywood Inc.

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Frederick’s of Hollywood Inc.

6608 Hollywood Boulevard
Los Angeles California 90028-6259
U.S.A.
(213) 466-5151
Fax: (213) 463-8847

Public Company
Incorporated: 1962
Employees: 1,500
Sales: $142.93 million (1995)
Stock Exchanges: New York
SICs: 5632 Women’s Accessory & Specialty Stores; 5961 Catalog & Mail-Order Houses

With over 200 retail outlets in 39 states and a rejuvenated mail order business, Frederick’s of Hollywood Inc. has been selling lingerie for over 50 years. Having endured its first-ever annual loss in the mid-1980s, the company underwent a thorough makeover in the later years of the decade. Under the direction of Chairman and Chief Executive Officer George W. Townson, the company transformed its product lines, remodeled its stores, and redesigned its catalogs.

Postwar Foundation

The company is named for its founder and longtime president Frederick Mellinger, who conceived of his lingerie business while serving in the armed forces during World War II. After his discharge, Mellinger established a mail order undergarment operation in New York City. Known as Frederick’s of Fifth Avenue, his shop offered racy black bras and panties embellished with lace and appliqués.

Mellinger took his fancy foundations to more permissive California in 1947, changing the name of the catalog business to Frederick’s of Hollywood that same year. Tinseltown’s glitz and glamour provided the perfect backdrop for the groundbreaking retailer, and a parade of starlets and models provided a ready customer base.

Mellinger, who came to be known as “Mr. Frederick” among his clientele, soon began to specialize in figure-enhancing foundations and accessories. He designed his first pushup bra, dubbed the “Rising Star,” in 1948. Fanny pads, girdles, sky-high heeled shoes, hosiery, wigs, false eyelashes, even head pads to achieve the illusion of height—anything necessary to achieve “Frederick’s figure balancing act”—followed in the years to come. The company even offered an inflatable bra that came complete with a “free straw.” The catalogs and stores later added glamorous evening wear, much of it designed by Mr. Frederick himself. The garments featured daring necklines, high slits, and sheer fabrics intended to appeal to men as much as women. In fact, Mellinger once wrote that his goal was to offer “the most alluring, body-hugging, figure-enhancing outer fashions … always aimed at men.”

Mr. Frederick opened his first retail stores in California in the early 1950s. The flamboyant Art Deco flagship store soon became known as “the purple palace.” Mellinger also started advertising his catalog and garments in nationally-circulated magazines using saucy taglines like “Fashions Change—But Sex is Always in Style.” After incorporating in 1962, Frederick’s continued to expand its product offerings in the sexually permissive environment of the 1960s and 1970s. Soon pasties, anonymously-written sexual guides, and other “sexually oriented non-apparel products” appeared in the catalogs.

Although Frederick’s offered its stock to the public in 1972, the Mellinger family continued to control a majority of the company’s stock through the early 1990s. By the end of the decade, the chain had expanded to over 150 stores, accounting for over half of overall sales. The company enjoyed peak prosperity during the mid-1970s. Sales more than doubled, from $9.7 million in 1971 to $24 million in 1976, while net income tripled, from just under $500,000 to $1.5 million. It was to be Frederick’s highest-ever profitability, as a combination of societal changes and management problems converged on the lingerie retailer.

Americans’ sexual mores and their tastes in lingerie grew increasingly conservative in the 1980s. However, the septuagenarian founder and his management team were slow to realize these trends. (Unbeknownst to the board of directors, in fact, Mellinger was afflicted with Alzheimer’s disease during this time.) While company sales rose from $39.3 million in 1981 to $45.3 million in 1984, net profits slid from a high of $2.2 million to $627,000. This dramatic decline in profitability was reflected in the company’s eroding stock price, which dropped from $7 in mid-1983 to less than $2 by mid-1985. By the time Mellinger retired in September 1984, his company had experienced its first-ever loss, a $148,000 shortfall on sales of about $45 million. In 1985, Forbes magazine’s Ellen Paris speculated that Frederick’s dip into the red meant that sex must be “going out of style.” Nevertheless, when Mellinger died in 1990 at the age of 76, he was praised as a brave pioneer of intimate fashions and groundbreaking foundations.

Former Executive Vice-President Robert W. Hansen assumed the presidency on an interim basis while Frederick’s board of directors sought a replacement for the venerable founder. In May 1985, they hired former Carter Hawley Hale home furnishings division chief George Townson to take the reigns at Frederick’s. Townson brought two decades of experience in mail order retailing, although none of it was in apparel, let alone lingerie.

From Raunch to Romance in the Late 1980s

It didn’t take Townson long to pinpoint Frederick’s problems. He later enumerated the shortcomings to Direct Marketing’s Mollie Neal: “outdated business assumptions, deteriorating conditions of our stores, ineffective management, inadequate merchandising and financial reporting systems, a dwindling core customer base, more sophisticated competition, archaic structures and antiquated policies.” The new CEO immediately mapped out a ten-year plan for what he called the “desleazification” of Frederick’s.

Store renovations shunned the traditional garish purples and hot pinks for more subtle lavenders and mauves, while softer lighting and new carpeting in the stores made for a more romantic, less burlesque atmosphere. The high profile, $300,000 renovation of the “purple palace” was a prime example of this physical repositioning. Not only did the company redecorate, but it also celebrated its heritage with the opening of the world’s first Lingerie Museum, featuring some of Frederick’s earliest designs as well as undergarments of the stars. Los Angeles Mayor Tom Bradley declared “Frederick’s of Hollywood Day” on the occasion of the grand reopening, November 8, 1989. The vast majority (80 percent) of Frederick’s nearly 200 stores had been redecorated by 1991.

CEO Townson hired marketing consultant Walter K. Levy, to assess the company’s product line and target audience. A new merchandising scheme emerged from his observations. Frederick’s pared what had become an excessively broad and (in the eyes of many Americans) lewd line, dropping such items as explicit videos and bawdy games. Frederick’s stores also stopped carrying certain lines of apparel and accessories, including wigs, sportswear, and swimwear (although these last two categories continued to be offered in mail order catalogs). At the same time, the company expanded its loungewear and men’s undergarment lines.

The revamp—or, as many company observers punned, “devamp”—of Frederick’s of Hollywood catalogs also focused on bringing the publication out of the fringes and into the mainstream. Even into the 1980s, the catalogs had featured explicit black and white photos interspersed with exaggerated and cartoonish line drawings. The new catalogs featured heavier paper, a new logo and motto (“An Intimate Experience”), and tasteful color photographs of models wearing Frederick’s lingerie. Although catalog sales slid by about five percent with the first new issue, they quickly began to recover, with sales and profits gaining by double-digit percentages in the latter years of the decade. Frederick’s move from mail-order’s “red-light district” enabled it to buy mailing lists from catalogers who would have previously been embarrassed to be associated with the lingerie merchant. As a result, catalog circulation more than tripled from 7.5 million in 1985 to 26 million by 1990.

Behind the scenes, CEO Townson purged the executive ranks, bringing in 18 new managers within his first two years at the top. He also invested in a new computer hardware, including cash registers and data processing equipment and software. Frederick’s retail rebirth clearly followed the lead of upstart competitor Victoria’s Secret, a subsidiary of The Limited Inc. By 1988, Victoria’s Secret had more than triple the annual sales volume with about the same number of stores. But while Frederick’s had shed much of its most explicit merchandise and imagery, the company still managed to maintain its “naughty” cachet. Townson reflected on this factor in a 1996 interview with Marianne Wilson of Chain Store Age Executive magazine, noting that “Generally speaking, Victoria’s Secret is more mainstream and romantic. Frederick’s is fun and sexy.” The new CEO’s turnaround was effective and quick. Frederick’s sales more than doubled from $45.2 million in 1985 to $114.1 million in 1991 and profits burgeoned to an historic high of $5.2 million.

Company Perspectives

Although Frederick’s of Hollywood has changed … to conform to the tastes of contemporary America, the company’s fashions have remained distinctive. Today’s fashions are romantic, feminine and quality-oriented, sometimes playful, and still sexier than anything else available on the market, but always in good taste. The company’s customers are teenagers, young adults, homemakers, career women and senior citizens. Most of Frederick’s customers are women, but at holiday time, Frederick’s also becomes the place to shop for the men who love them.

Furtive Growth in the Early 1990s

Sales increased from $117 million in fiscal 1992 to nearly $143 million in 1995, while profits declined from $5.1 million to a loss of $903,000 in 1994, then rebounded to $2.7 million in 1995. Townson blamed Frederick’s difficulties on rising postage and paper costs, a generally soft retail environment, and increasing competition. Indeed, Townson’s 1995 letter to shareholders noted that “department stores, mass merchandisers and specialty stores have significantly expanded their intimate apparel lines.” By this time, Victoria’s Secret alone had $1.8 billion sales and 600 retail outlets, and was expected to be spun off from The Limited in 1996.

In 1995, the company made its first international foray, circulating a holiday catalog in Canada. In 1996, on the occasion of the company’s 50th anniversary, CEO Townson hoped to bring Frederick’s of Hollywood full circle by launching its first-ever store in New York City. Given its well-established brand, reinvigorated growth, and young, savvy management team, Frederick’s of Hollywood Inc. appeared poised for another 50 years of growth.