Ms. Grossman: HSN is a 32-year-old company and, interestingly, I actually believe it's more relevant today than any other period in its history. I joined the company in May 2006. I had spent the prior six years at Nike running their global apparel business and before that was with Ralph Lauren for 10 years. What really excited me about the platform and the opportunity at HSN were three things that were happening. One, I believe that the direct-to-consumer model and ability to hone the experience end to end in today's world with the consumer were very important, creating more than just a transactional relationship - a much broader relationship. And having worked for some great brands and knowing the challenges that come with distributing your product through other places and not always having that direct-to-consumer experience, I knew that that was very important.
The second thing was businesses that are really going to be able to engage with and take advantage of emerging technology and innovation, and there is no one platform anymore for consumers to engage with both experiences and products. So to have a business that was not a linear platform but could actually create experiences across multiple platforms because of what was happening on the Web - ultimately in mobile and on third-party sites, and the fact that, in addition, HSN was a vehicle that could actually create content, and today that content can be leveraged and can live beyond just the linear TV show - it's very different today. And then certainly for me, another big part of it was that I believed that it could and needed to be reinvented in a way where it had to move from just being about commerce and selling to become a true network of more lifestyle and entertainment, and education and experiences that then could provide the commerce platform. So to give you a context, imagine if you had Food Network and HGTV, you had Style, you had DIY, but you couldn't buy any of the products. So how could we improve it and say, "Okay, we are going to give you this lifestyle element, which we know our customers are engaging with, but we are also going to be able to provide you with the product." So that is what was so compelling to me to come in and certainly join, at the time IAC, with Barry [Diller]. Barry very much supported and believed in evolving to this new strategy and becoming more modern, more relevant, more viewable and more content-rich in everything that we did. So I came in and we had to make a lot of changes to be able to execute on that vision, and they were very broad-sweeping. We had to look at what we didn't want to do anymore, and we got out of 150-plus million worth of business that we didn't feel belonged in this new environment. We had to completely revamp our customer service profile if we were really going to deliver a great experience. We moved anything from our offshore call center back to the U.S. We created work-at-home programs. We had to start a whole new pipeline of products and proprietary products, and new brands, new personalities.
Although we had some terrific existing talent in the company, it wasn't across all areas. And where we really needed to build the new team was on the front end of the business, to bring talent in from television, and create a marketing and merchandising team that would understand how to make this transition. Then finally, we had to significantly invest in the new platforms, whether that was making sure that HSN.com was very much in sync with what we were trying to accomplish on the TV experience, have an innovation agenda to ensure that we would look to be first to market in a lot of these things that we were doing. So in July 2007, we really look at as the relaunch of HSN and, as you know, we have two sides of our business. We also have a catalog portfolio, but I'll speak to the businesses separately because we do run them as separate businesses. So we relaunched HSN, we relaunched HSN.com, and what was exciting was that it was truly a moment where we turned the lights off and turned the lights on. Every set, every graphic, every visual piece, everything we did was established against this new strategy, and what was the most compelling to us when we did this was our goal to get our customer base growing again and get our business growing again. And the first customer to actually respond was our existing customer base, which told us they wanted more. They wanted more variety, they wanted to ensure they had a great experience, they wanted to ensure we had quality. So we were very fortunate that those strategies took hold, and we had tailwinds in the HSN business coming into the current environment, which I believe is why we have been able to perform better than much of the retail world out there. So if you fast-forward to pre-last September, we had very strong double-digit comps in the first and second quarters, and even a plus four in third quarter.
So I think the combination of the strategy is taking hold, the tailwinds and then the fact that throughout this whole year and going forward we've had a maniacal focus on being able to leverage what really is unique about our business model, which is that we manage our business in real time. We have a fast-moving machine. We have flexibility within the business. We see changes in consumer demand in real time, and we look to make the appropriate shifts based on that. We have a lot of information on our consumer, certainly over many years, but then certainly because our access to information - a very robust CRM team. So we have been able to really look to use this environment as an opportunity to gain share because of the unique aspects of our business model. As you mentioned, we went public in August 2008, probably one of only a few others that did. I think that year one was inventing the business; year two was really relaunching and maximizing the new strategy; year three was do all that but also be able to manage the business effectively, and stay strong and profitable, and maintain a very healthy cash position in the year since going public. What was certainly interesting being in that time frame, we just said, "We are going to consistently deliver on what we said were the fundamental strengths of our business." We rode the wave of the housing market - and these are fantastic brands, and they are terrific, and they are in consumers' consciousness - but not everybody was deciding to renovate their entire pool area with 1,000 lawn chairs. So what we really had to do is manage those businesses differently. On the HSN side, it was about strategic investing to keep the strategy going and growth, as well as leveraging the business model. On the Cornerstone side, it was cutting back circulation, making sure we protected our brand throughout this period, creating new marketing concepts around different products at different price points to be able to manage through. And that's basically what we have done throughout the past year. So what you've seen is the HSN side has, again, held up extremely well.
In the last two quarters, we were only down 1% or so - almost flat, which very few people can say, and significantly more profitable. While doing that year-on-year, we've in both businesses been very aggressive in managing our inventories, but not to the detriment of not being able to satisfy demand. So if you look at the second quarter, HSN inventories were down 15% and Cornerstone's were down in the 20s, and we have also been able to manage the other demand levers of the business to be able to have a very strong cash position at this point. We have worked very diligently to be able to come out of this as strong as possible. Now that we've lapped that one-year anniversary of going public, I think we are hopefully, finally getting credit for the unique aspects of our business model - the strategies we have put into place, the execution against those and the performance. And hopefully that's why we have seen the improvement in the stock price of late.
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