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For HSN customers jewelry is out, work out gear is in

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By RICHARD MULLINS | The Tampa Tribune

Published: May 7, 2009

TAMPA - Pilates equipment is in, diamonds are out.

That's one consumer trend singled out by home shopping company HSN Inc., as it presented evidence to investors that the consumer market (theirs at least) has stopped getting worse.

"We feel the business has stabilized," said HSN Chief Executive Mindy Grossman.

HSN customers, almost all of them women, are spending more on products they can use to improve themselves, use with their families, or can save them money, Grossman said. Anything carrying a whiff of selfish indulgence tends to sell worse.

That trend showed up in HSN's first quarter earnings, released to investors Thursday.

For good news, HSN sales in its core television shopping division were nearly flat at $474.9 million. In today's retail market, flat counts as a good accomplishment. Operating income in that division rose seven percent to $26.2 million.

And the company seems to have reversed a long-rise in the number of products customers send back to the company. Return rates fell to 17.3 percent, compared to 20 percent a year ago, or one in five items.

The bad news: Sales fell 22 percent to $154.7 at HSN's catalog business called Cornerstone Brands, which publishes catalogs such as Frontgate, Smith+Noble and Territory Ahead.

In response, HSN intentionally reduced circulation of its catalogs by 30 percent and discounted products heavily to reduce inventory. Operating losses grew 30 percent to $12.3 million. As Grossman told investors Thursday, affluent home owners just aren't renovating their pool areas and buying outdoor furniture like they used to.

Significant discounting and other changes at the catalogs are starting to take effect, Grossman said, and results should improve over time.

Grossman said she wants HSN to find new ways to engage people new to the channel. Along those lines, she senses a desire among stay-at-home moms to become entrepreneurs. HSN will help launch a show this fall with Kelly Ripa and TV channel TLC called "Mom Inc." that features real-life moms inventing products.

Given the awful consumer spending market, the results somewhat pleased Wall Street investors, and HSN stock rose 13 percent Thursday to $8.15 in mid afternoon trading.

Reporter Richard Mullins can be reached at (813) 259-7919.

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