When Rod Stewart wanted to promote his first-ever album of
Christmas music, he chose a seemingly unusual outlet -- a live
concert on home shopping channel HSN.
The event paid off, with Stewart selling nearly 30,000 copies
of his CD titled "Merry Christmas, Baby" before its official
release four days later on Oct. 30.
"Being at the intersection of entertainment and retailing
makes a lot of sense," said Wunderlich Securities analyst Matthew
Harrigan. BothHSN (
) and larger rival QVC, owned byLiberty Interactive Group (
), "have done a really good job with event programming."
For instance, QVC has created programming around New York's
Fashion Week as a way to promote its proprietary clothing
As traditional brick-and-mortar retailers have faltered,
consumer goods companies have turned to HSN and Liberty
Interactive's QVC to push their products -- from apparel, shoes
and accessories to consumer electronics and toys.
The two shopping networks are able to spend time explaining
and demonstrating products to shoppers through their broadcasts
and online videos. On-air hosts promote items with excitement to
their core market, affluent women over 30.
Home shopping channels have come a long way from the days of
selling knickknacks on cheesy cable broadcasts. Now the services
boast top-brand merchandise and exclusive wares from celebrity
HSN and QVC often use star power to attract customers to their
cable and online sales channels. Celebrities frequently appear on
the air to pitch their fashion and beauty products and other
For example, HSN has musician Randy Jackson selling watches
and guitars, actress Kate Walsh promoting perfume and actress
Susan Lucci pushing health and beauty items. The network also has
celebrity chefs Cat Cora, Emeril Lagasse and Wolfgang Puck
pitching cooking supplies.
QVC boasts fashions by celebrities Kim Kardashian, Elisabeth
Hasselbeck, Jennifer Hudson and Joan Rivers.
"If you go back five years, there are a lot of designers who
wouldn't have been caught dead associated (with home shopping
channels)," Harrigan said. "That's certainly changed and this is
a more acceptable form (of retailing)."
Social Media & Shopping Culture
Investors have driven up shares of HSN more than 50% so far
this year, although the stock is still thinly traded. Liberty
Interactive shares are up 36%, despite a five-month correction
through the second and third quarters. Those gains helped power
the retail-mail order and direct sales industry group to a top 20
ranking among IBD's 197 industry groups on Friday, up from a No.
109 ranking at mid-year.
Others in the eight-stock group include home shopping
serviceValueVision Media (
), which sells products under the ShopNBC label. Online
), apparel sellerDelia's (
) and school supplies dealerSchool Specialty (SCHS) are also in
the group (all trading below 5 a share).
HSN and QVC are competitors as well as cousins, with Liberty
Interactive owning 36% of HSN. The direct-sales networks compete
against a broad range of retailers, including online leaders such
HSN and QVC sell a broad range of items, including jewelry,
apparel, shoes, handbags, beauty products, kitchen items,
electronics, home appliances, decor and crafts. More than 70% of
the products they sell are exclusive, which reduces the risk of
consumers price-comparison shopping online, says Topeka Capital
Markets analyst Victor Anthony.
Both shopping channels have made a smooth transition to
selling products online, he says. They now get roughly one-third
of their sales via the Internet.
HSN and QVC also have embraced new consumer technologies like
social networking and mobile apps to engage customers. They're
active onFacebook (FB), Twitter and Pinterest and have apps
forApple 's (AAPL) iPhone and iPad andGoogle (GOOG) Android
devices. They're also streaming video through their websites and
"They embody everything that's interesting on the Internet
right now," said Lazard Capital Markets analyst Barton
HSN and QVC have created online communities for its customers
to "like" items on Facebook and share their thoughts on
"There is a big social media aspect to shopping," Harrigan
said. "People really get into it ... . Shopping for women
sometimes can be like sports are for men."
About 85% of customers on the home shopping channels are
women, he says. The average customer is a 55-year-old woman with
an annual income of $69,000, Piper Jaffray analyst Neely Tamminga
said in a Nov. 14 research note.
"Where the real game is for someone like HSN is what they call
the regular "her" categories (of) beauty and fashion with high
repeat activity, proprietary products and very good margins,"
The Art of Online Sales
HSN and Liberty Interactive have attracted investors not only
through growth potential, but also because they are "solid
businesses that trade at inexpensive multiples," Crockett said.
Both companies have done a good job returning cash to
shareholders through stock buybacks and, in HSN's case,
HSN shares have consistently pressed to new highs throughout
the year. Liberty Interactive has been consolidating below a
five-year high notched on Nov. 6.
Combined, HSN and Liberty Interactive hold less than 2% of
U.S. retail sales in their categories, Harrigan says. HSN has
generated $3.24 billion in sales over the last four quarters and
Liberty Interactive has brought in $9.89 billion.
HSN and QVC's use of video to hawk products -- the infomercial
approach -- translates well from cable and satellite TV to
online, Crockett says.
"They can use video in a way that Amazon andMacy's (M) can't,"
Crockett said. "You have a television host telling you about the
product, why it's interesting, showing the product on video. They
do that with a level of quality and depth that nobody else can
match ... They're bringing the art of selling to the
On the competitive front, Amazon has the potential to give HSN
and QVC fits with its free shipping offers. Historically the home
shopping channels have made profits from shipping and handling
charges, Anthony says.
In addition to Amazon, HSN and QVC compete againsteBay (EBAY)
and "daily deals" websites, such asGroupon (GRPN) and Living
While HSN is staying focused on the U.S., Liberty Interactive
is expanding internationally. Liberty's QVC has operations in
Germany, Italy, Japan and the U.K. It has a new joint venture in
China and has plans to spread into Brazil, France and Spain over
the next few years.
In addition to their home shopping channels, HSN and Liberty
have other businesses. HSN has a catalog business called
Cornerstone that sells home and apparel lifestyle brands led by
Ballard Designs, Frontgate and Garnet Hill. Liberty Interactive
owns other e-commerce businesses, such as Backcountry.com,
Bodybuilding.com and Celebrate Interactive, which includes