<SEC-DOCUMENT>0001133796-13-000013.txt : 20130408
<SEC-HEADER>0001133796-13-000013.hdr.sgml : 20130408
<ACCEPTANCE-DATETIME>20130225115255
<PRIVATE-TO-PUBLIC>
ACCESSION NUMBER:		0001133796-13-000013
CONFORMED SUBMISSION TYPE:	CORRESP
PUBLIC DOCUMENT COUNT:		1
FILED AS OF DATE:		20130225

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			BLUEFLY INC
		CENTRAL INDEX KEY:			0001030896
		STANDARD INDUSTRIAL CLASSIFICATION:	RETAIL-CATALOG & MAIL-ORDER HOUSES [5961]
		IRS NUMBER:				133612110
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			0403

	FILING VALUES:
		FORM TYPE:		CORRESP

	BUSINESS ADDRESS:	
		STREET 1:		42 WEST 39TH ST
		CITY:			NEW YORK
		STATE:			NY
		ZIP:			10018
		BUSINESS PHONE:		2129448000

	MAIL ADDRESS:	
		STREET 1:		42 WEST 39TH ST
		CITY:			NEW YORK
		STATE:			NY
		ZIP:			10018

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	PIVOT RULES INC
		DATE OF NAME CHANGE:	19970305
</SEC-HEADER>
<DOCUMENT>
<TYPE>CORRESP
<SEQUENCE>1
<FILENAME>filename1.htm
<TEXT>
<HTML>
<HEAD>
     <TITLE></TITLE>
</HEAD>
<BODY STYLE="font: 10pt Times New Roman, Times, Serif">

<P STYLE="margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 5in">February 25,
2013</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 253pt">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase"><U>Via EDGAR AND email</U></P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Securities and Exchange Commission<BR>
100 F Street, N.E.<BR>
Washington, D.C. 20549<BR>
Attention: Mara L. Ransom</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 38.5pt">Re:</TD><TD STYLE="text-align: justify">Bluefly, Inc., Form 10-K for Fiscal Year Ended December 31, 2011, Filed April 6, 2012 (the &ldquo;<U>Filing</U>&rdquo;),
File No. 1-14498</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Dear Ms. Ransom:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="color: black">Set
forth below are our responses, on behalf of Bluefly, Inc. (the &ldquo;<U>Company</U>&rdquo;), to the comments contained
in the letter of the Staff (the &ldquo;</FONT><U>Staff</U><FONT STYLE="color: black">&rdquo;) of the Division of
Corporation Finance of the Securities and Exchange Commission (the &ldquo;<U>Commission</U>&rdquo;) dated December 3, 2012 to
James Gallagher, Chief Financial Officer of the Company (the &ldquo;</FONT><U>Comment Letter</U><FONT STYLE="color: black">&rdquo;),
as supplemented by the oral comments of the Staff, with respect to the above-referenced filing. The numbered responses set
forth below correspond to the paragraphs of the Comment Letter, which bear the same numbers. </FONT>For your convenience,
we have repeated the Staff&rsquo;s comments below in bold face type before each of our responses.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Management&rsquo;s Discussion and Analysis
of Financial Condition and Results of Operations, page 14</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top; text-align: justify">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in; text-align: left">1.</TD><TD STYLE="text-align: justify"><B>In its current
                                                                                  form, your discussion appears relatively brief.
                                                                                  In future filings, please expand your disclosure,
                                                                                  as applicable, to fully address Item 303 of
                                                                                  Regulation S-K. In this regard, your discussion
                                                                                  should address your past and future financial
                                                                                  condition and results of operation, with particular
                                                                                  emphasis on the prospects for the future. Your
                                                                                  discussion should also address those key variable
                                                                                  and other qualitative and quantitative factors
                                                                                  which are necessary for an understanding of
                                                                                  your operations. For example, please discuss
                                                                                  any known trends, events or uncertainties that
                                                                                  have had or are reasonably expected to have
                                                                                  a material impact on your short-term and long</B></TD>
</TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<!-- Field: Page; Sequence: 1 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font-size: 10pt"><TR><TD STYLE="text-align: center; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%"><TR><TD STYLE="text-align: left; width: 50%">&nbsp;</TD><TD STYLE="text-align: right; width: 50%"></TD></TR></TABLE></DIV>
    <!-- Field: /Page -->
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0"><B>term
liquidity, as well as on your net sales, gross profit or operating results. Please see Release No. 8350 for additional guidance.</B></P>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Expanded disclosure will be provided in
future filings. For illustrative purposes, the following revisions to portions of the Results of Operations and Liquidity and Capital
Resources Sections of our 2011 Form 10-K more fully address Item 303 of Regulation S-K (underlined portions indicate additions):</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Results of Operations</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">For The Year Ended December 31, 2011 Compared
To The Year Ended December 31, 2010</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Cost of sales: Cost of sales consists of
the cost of products sold to customers, in-bound and out-bound shipping costs, inventory reserves, commissions and packing materials.
Cost of sales for the year ended December 31, 2011 totaled $67,997,000, resulting in a gross profit margin percentage of approximately
29.4%. Cost of sales for the year ended December 31, 2010 totaled $55,360,000, resulting in a gross profit margin percentage of
37.5%. The decrease in our gross profit margin percentage was attributable to an increase in inventory reserves of $2,184,000 (of
which $1,382,000 relates to inventory written off as it was deemed unsellable) during the fourth quarter of 2011, a write-off of
$1,013,000 related to merchandise credits from suppliers that we now believe may not be collected, as well as an increase in promotional
incentives <FONT STYLE="text-underline-style: double"><U>of approximately $&nbsp;&nbsp;&nbsp;&nbsp;</U></FONT> and the negative impact of currency fluctuations
between the U.S. dollar and the Euro related to our luxury designer merchandise <FONT STYLE="text-underline-style: double"><U>of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U></FONT>. The increase in inventory reserves was primarily the result of a shift in our strategy <FONT STYLE="text-underline-style: double"><U>that
began in the first quarter of 2012</U></FONT> with a view to accelerating our inventory turns <FONT STYLE="text-underline-style: double"><U>instead
of emphasizing gross margin percentage</U></FONT>. <FONT STYLE="text-underline-style: double"><U>The purpose of this strategy is
to use our capital more efficiently.&nbsp; As a result, gross margin percentages may be lower than they have been historically
as we expect to increase our promotional activity in 2012 in order to increase our inventory turns. </U></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Marketing expenses: Marketing expenses
decreased by 13% to $10,877,000 for the year ended December 31, 2011 from $12,576,000 for the year ended December 31, 2010. Total
marketing expenses for the year ended December 31, 2011 include $334,000 of marketing expenses related to Eyefly.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

<!-- Field: Page; Sequence: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font-size: 10pt"><TR><TD STYLE="text-align: center; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%"><TR><TD STYLE="text-align: left; width: 50%">&nbsp;</TD><TD STYLE="text-align: right; width: 50%"></TD></TR></TABLE></DIV>
    <!-- Field: /Page -->
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Marketing expenses include expenses related
to (a) online marketing programs, which consist of social media programs, online integration partnerships, paid search, fees to
marketing affiliates and comparison engines and (b) offline marketing programs, which consist of direct mail campaigns, television
advertising and production costs, as well as staff related costs. As a percentage of net sales, our marketing expenses decreased
to 11.3% for the year ended December 31, 2011 from 14.2% for the year ended December 31, 2010.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Total marketing expenses (excluding staff
related costs) related to online advertising for the year ended December 31, 2011 totaled $6,985,000, compared to $7,213,000 for
the year ended December 31, 2010. The decrease in online advertising is primarily attributable to a decrease in fees to marketing
affiliates of $413,000, social media programs of $367,000 and partner email programs of $92,000.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Total marketing expenses (excluding staff
related costs) related to offline advertising for the year ended December 31, 2011 totaled $2,310,000 compared to $4,120,000 for
the year ended December 31, 2010. The decrease in offline advertising expenses are primarily attributable to a reduction in offline
marketing expenditures related to television advertising and production costs.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="text-underline-style: double"><U>As
part of our overall change in strategy in 2012, we expect our overall customer economics to improve by testing and optimizing
in new and existing marketing channels, which we anticipate will increase customer traffic to both Bluefly.com and Belle
&amp; Clive and convert visitors to subscribers of our email marketing program. This, in turn,  is excepted to enable us to
more cost effectively market to our customers without spending significantly more marketing dollars, which would lower
our customer acquisition costs on a per member basis. As our customer membership file increases, we expect total
marketing expenses related to online advertising to also increase in 2012 due to the increase in new members.</U></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Liquidity and Capital Resources</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: normal 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0in">General</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">At December 31, 2011, we had approximately
$4.4 million in cash and cash equivalents compared to $10.4 million and $10.0 million at December 31, 2010 and 2009,</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

<!-- Field: Page; Sequence: 3 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font-size: 10pt"><TR><TD STYLE="text-align: center; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%"><TR><TD STYLE="text-align: left; width: 50%">&nbsp;</TD><TD STYLE="text-align: right; width: 50%"></TD></TR></TABLE></DIV>
    <!-- Field: /Page -->
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">respectively.
Working capital, which is computed as total current assets less total current liabilities and represents a measure of operating
liquidity, at December 31, 2011, 2010 and 2009 was $20.7 million, $26.5 million and $19.4 million, respectively. As of December
31, 2011, we had an accumulated deficit of $162.5 million. We have incurred negative cash flows and cumulative net losses since
inception.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Changes in cash and cash equivalents at
December 31, 2011, compared to December 31, 2010, are primarily attributable to increases in cash used in operations related to
normal increases in working capital requirements, an increase in inventory reserves resulting from a shift in Company strategy
with a view to accelerating our inventory turns, related changes in operating assets and liabilities including net increases in
our inventory balance of approximately $9.5 million and the launch of our new web site, Belle &amp; Clive, and an investment in
property and equipment of $4.8 million. These changes in operating assets were partially offset by approximately $6.4 million in
net proceeds we received from the equity financing described below.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="text-underline-style: double"><U>Working
capital levels at any specific date are subject to variability based upon seasonality, inventory management and sales levels. These
factors, in turn,` affect the levels of accounts receivable and inventory.</U></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We believe that our existing cash balance,
combined with working capital and the funds available from our existing credit facility will be sufficient to enable us to meet
planned expenditures through at least the next 12 months. There can be no assurance that we will achieve or sustain positive cash
flows from operations or profitability.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="text-underline-style: double"><U>Our
needs for liquidity have been primarily to cover operating losses, satisfy our working capital requirements, make capital expenditures,
and make principal and interest payments on debt obligations. Historically, such requirements have been funded through normal operations
and through the use of the Company&rsquo;s financing arrangements. During the first quarter of 2012, we embarked upon a new strategic
initiative that focuses on lowering our customer acquisition costs, increasing the lifetime value of our customers, and increasing
our overall return on invested capital. To increase our return on invested capital, we have focused on improving our inventory&nbsp;turns
by changing our inventory mix and by being more competitive with our pricing. Management believes that these initiatives will take
several quarters to materialize. </U></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="text-underline-style: double">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

<!-- Field: Page; Sequence: 4 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font-size: 10pt"><TR><TD STYLE="text-align: center; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%"><TR><TD STYLE="text-align: left; width: 50%">&nbsp;</TD><TD STYLE="text-align: right; width: 50%"></TD></TR></TABLE></DIV>
    <!-- Field: /Page -->
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="text-underline-style: double"><U>We
have implemented certain cost containment measures and continue to monitor and evaluate our liquidity needs and alternatives. In
the near term, we expect that working capital requirements and capital expenditures will continue to represent our primary needs
for liquidity. The main portion of our capital expenditures consists of, and is expected to continue to be, software and systems
development. In the long term, our working capital requirements and capital expenditures are expected to increase if we succeed
in growing our business based on our new strategic initiatives, however, our ability to repay certain borrowings under our credit
facility, and execute on our new long term strategic initiatives, is dependent on our ability to achieve profitable operations,
and/or find alternative funding. </U></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="text-underline-style: double"><U>Unforeseen
increases in expenditures or shortfalls in estimated revenues could significantly impair our ability to fund future operations.
Should we experience unanticipated losses, shortfalls in revenues or expenditures that exceed current estimates, management would
implement a cost reduction plan, that includes a reduction in work force as well as reductions in overhead costs and capital expenditures
and/or an attempt to raise additional debt or equity financing. There can be no assurance that we will achieve or sustain positive
cash flows from operations or profitability. </U></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="text-underline-style: double"><U>We
believe that in order to grow the business, we will need to make significant investments in marketing, business and technology
development, and inventory.&nbsp; To that end, in the normal course of business we have entered into agreements with suppliers
and other business partners pursuant to which we commit to significant expenditures or make payments if minimum levels of purchases
are not made.&nbsp; However, our budget and our ability to make such expenditures are subject to a number of factors, including
our results of operations.</U></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><B>2.</B></TD><TD><B>In your analysis of results of operations, you often attribute period-to-period changes to a combination of several different
factors, such as your discussion of cost of sales, gross profit margin percentage and operating expenses associated with selling
and fulfillment expenses. When you list multiple factors that contributed to changes, please quantify, if possible, the impact
of each factor that you discuss to provide better insight into the underlying reasons behind the changes in your results. Refer
to Item 303(a)(3) of Regulation S-K and our Release No. 33-8350.</B></TD></TR></TABLE>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<!-- Field: Page; Sequence: 5 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font-size: 10pt"><TR><TD STYLE="text-align: center; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%"><TR><TD STYLE="text-align: left; width: 50%">&nbsp;</TD><TD STYLE="text-align: right; width: 50%"></TD></TR></TABLE></DIV>
    <!-- Field: /Page -->
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Additional information quantifying the
impact of each factor where multiple factors contribute to period-to-period changes will be provided in future filings where possible.
For illustrative purposes, the following revisions to portions of the discussion of &ldquo;Results of Operations For the Year Ended
December 31, 2011 Compared To The Year Ended December 31, 2010&rdquo; Section of our 2011 Form 10-K would reflect the type of disclosure
that would be made for future periods to quantify individual factors where multiple factors contribute to a change in the period
over period comparison (underlined portions indicate additions):</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">For The Year Ended December 31, 2011 Compared
To The Year Ended December 31, 2010</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Net sales: Gross sales for the year ended
December 31, 2011 increased by approximately 6% to $153,045,000, from $144,544,000 for the year ended December 31, 2010. The increase
in gross sales was primarily attributable to the continued demand for our luxury designer merchandise<FONT STYLE="text-underline-style: double"><U>,
which increased gross sales by approximately 3%,</U></FONT> and <FONT STYLE="text-underline-style: double"><U>a 3%</U></FONT> increase
in customer orders in 2011<FONT STYLE="text-underline-style: double"><U>, compared to the year ended December 31, 2010.</U></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The provision for returns and credit card
chargebacks and other credits was approximately 37.1% and 38.7% for 2011 and 2010, respectively, of gross sales resulting in a
provision of $56,763,000 and $55,981,000 for the years ended December 31, 2011 and 2010, respectively. The decrease in this provision
as a percentage of gross sales resulted from a reduction in our <FONT STYLE="text-underline-style: double"><U>product</U></FONT>
return rate <FONT STYLE="text-underline-style: double"><U>to 37.3% during 2011 from 38.6% in 2010,</U></FONT> however, there can
be no assurance that this trend will continue.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">After the necessary provisions for returns,
credit card chargebacks and other discounts, our net sales for the year ended December 31, 2011 was $96,282,000. This represents
an increase of approximately 9% compared to the year ended December 31, 2010, in which net sales totaled $88,563,000. The increase
in net sales resulted primarily from a 3% increase in customer orders<FONT STYLE="text-underline-style: double"><U>, a 3% increase
in each customer orders average order size</U></FONT> and a decrease in the <FONT STYLE="text-underline-style: double"><U>product</U></FONT>
return rate <FONT STYLE="text-underline-style: double"><U>of 1.3%, which increased net sales by 3% </U></FONT>compared to the prior
year<FONT STYLE="text-underline-style: double"><U>, as discussed above</U></FONT>. Shipping and handling revenue (which is included
in net sales) increased by 8% to $4,345,000 for the year ended December 31, 2010, from $4,037,000 for the year ended December 31,
2010. Shipping and handling revenue increased at <FONT STYLE="text-underline-style: double"><U>relatively</U></FONT> the same rate
as net sales <FONT STYLE="text-underline-style: double"><U>of 8%</U></FONT> as a result of <FONT STYLE="text-underline-style: double"><U>a
3%</U></FONT> increase in customer orders.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

<!-- Field: Page; Sequence: 6 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font-size: 10pt"><TR><TD STYLE="text-align: center; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%"><TR><TD STYLE="text-align: left; width: 50%">&nbsp;</TD><TD STYLE="text-align: right; width: 50%"></TD></TR></TABLE></DIV>
    <!-- Field: /Page -->
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Cost of sales: Cost of sales consists of
the cost of products sold to customers, in-bound and out-bound shipping costs, inventory reserves, commissions and packing materials.
Cost of sales for the year ended December 31, 2011 totaled $67,997,000, resulting in a gross profit margin percentage of approximately
29.4%. Cost of sales for the year ended December 31, 2010 totaled $55,360,000, resulting in a gross profit margin percentage of
37.5%. The decrease in our gross profit margin percentage was attributable to an increase in inventory reserves of $2,184,000 (of
which $1,382,000 relates to inventory written off as it was deemed unsellable) during the fourth quarter of 2011, a write-off of
$1,013,000 related to merchandise credits from suppliers that we now believe may not be collected, as well as an increase in promotional
incentives <FONT STYLE="text-underline-style: double"><U>of approximately $___</U></FONT> and the negative impact of currency fluctuations
between the U.S. dollar and the Euro related to our luxury designer merchandise <FONT STYLE="text-underline-style: double"><U>of
$___</U></FONT>. The increase in inventory reserves was primarily the result of a shift in our strategy <FONT STYLE="text-underline-style: double"><U>that
began in the first quarter of 2012</U></FONT> with a view to accelerating our inventory turns <FONT STYLE="text-underline-style: double"><U>instead
of emphasizing gross margin percentage</U></FONT>. <FONT STYLE="text-underline-style: double"><U>The purpose of this strategy is
to use our capital more efficiently.&nbsp; As a result, gross margin percentages may be lower than they have been historically
as we expect to increase our promotional activity in 2012 in order to increase our inventory turns. </U></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Gross Profit: Gross profit decreased by
approximately 15% to $28,285,000 for the year ended December 31, 2011, from $33,203,000 for the year ended December 31, 2010, as
a result of the decrease in gross margin percentage.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Selling and fulfillment expenses: Selling
and fulfillment expenses increased by over 13% for the year ended December 31, 2011 compared to the year ended December 31, 2010.
Selling and fulfillment expenses, which include a total of $592,000 of costs related to Eyefly, were comprised of the following:</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; padding-right: 0; padding-left: 0; text-indent: 0">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; font-weight: bold; padding-right: 0; padding-left: 0; text-indent: 0">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="14" STYLE="font-size: 10pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Year Ended December 31,</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-size: 10pt; font-style: italic; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-style: italic; text-align: center; padding-bottom: 1pt">Percentage</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; font-style: italic">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; padding-bottom: 1pt; padding-right: 0; padding-left: 0; text-indent: 0"><B>&nbsp;</B><SUP>(All data in thousands)</SUP></TD><TD STYLE="font-size: 10pt; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-size: 10pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-size: 10pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-size: 10pt; font-style: italic; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-style: italic; text-align: center; padding-bottom: 1pt">Difference</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; font-style: italic">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; font-weight: bold; padding-right: 0; padding-left: 0; text-indent: 0">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-size: 10pt; font-style: italic">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-style: italic; text-align: center">As a % of</TD><TD STYLE="font-size: 10pt; font-style: italic">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-size: 10pt; font-style: italic">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-style: italic; text-align: center">As a % of</TD><TD STYLE="font-size: 10pt; font-style: italic">&nbsp;</TD><TD STYLE="font-size: 10pt; font-style: italic">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-style: italic; text-align: center">Increase</TD><TD STYLE="font-size: 10pt; font-style: italic">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; font-weight: bold; padding-right: 0; padding-left: 0; text-indent: 0">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold; text-align: center">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-size: 10pt; font-style: italic">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-style: italic; text-align: center">Net Sales</TD><TD STYLE="font-size: 10pt; font-style: italic">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-size: 10pt; font-style: italic">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-style: italic; text-align: center">Net Sales</TD><TD STYLE="font-size: 10pt; font-style: italic">&nbsp;</TD><TD STYLE="font-size: 10pt; font-style: italic">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-style: italic; text-align: center">(Decrease)</TD><TD STYLE="font-size: 10pt; font-style: italic">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; font-weight: bold; padding-right: 0; padding-left: 0; text-indent: 0">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; font-style: italic">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-style: italic">&nbsp;</TD><TD STYLE="font-size: 10pt; font-style: italic">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; font-style: italic">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-style: italic">&nbsp;</TD><TD STYLE="font-size: 10pt; font-style: italic">&nbsp;</TD><TD STYLE="font-size: 10pt; font-style: italic">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-style: italic">&nbsp;</TD><TD STYLE="font-size: 10pt; font-style: italic">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="width: 30%; font-size: 10pt; padding-right: 0; padding-left: 0; text-indent: 0">Operating</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">8,622</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt; font-style: italic">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; font-style: italic; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; font-style: italic; text-align: right">8.9</TD><TD STYLE="width: 1%; font-size: 10pt; font-style: italic; text-align: left">%</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 10%; font-size: 10pt; text-align: right">7,976</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt; font-style: italic">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; font-style: italic; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; font-style: italic; text-align: right">9.0</TD><TD STYLE="width: 1%; font-size: 10pt; font-style: italic; text-align: left">%</TD><TD STYLE="width: 2%; font-size: 10pt; font-style: italic">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; font-style: italic; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; font-size: 10pt; font-style: italic; text-align: right">8.1</TD><TD STYLE="width: 1%; font-size: 10pt; font-style: italic; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; padding-right: 0; padding-left: 0; text-indent: 0">Technology</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">5,852</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; font-style: italic">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; font-style: italic; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; font-style: italic; text-align: right">6.1</TD><TD STYLE="font-size: 10pt; font-style: italic; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">5,426</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; font-style: italic">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; font-style: italic; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; font-style: italic; text-align: right">6.1</TD><TD STYLE="font-size: 10pt; font-style: italic; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; font-style: italic">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; font-style: italic; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; font-style: italic; text-align: right">7.9</TD><TD STYLE="font-size: 10pt; font-style: italic; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="font-size: 10pt; padding-bottom: 1pt; padding-right: 0; padding-left: 0; text-indent: 0">E-Commerce</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">4,658</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; font-style: italic; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; font-style: italic; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; font-style: italic; text-align: right">4.9</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; font-style: italic; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">3,479</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; font-style: italic; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; font-style: italic; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; font-style: italic; text-align: right">3.9</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; font-style: italic; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; font-style: italic; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; font-style: italic; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; font-style: italic; text-align: right">33.9</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; font-style: italic; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 2.5pt; text-indent: 0; padding-left: 0.12in; padding-right: 0">Total selling and fulfillment expenses</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">19,132</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; font-style: italic; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; font-style: italic; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; font-style: italic; text-align: right">19.9</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; font-style: italic; text-align: left">%</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">16,881</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; font-style: italic; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; font-style: italic; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; font-style: italic; text-align: right">19.0</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; font-style: italic; text-align: left">%</TD><TD STYLE="font: italic 10pt Times New Roman, Times, Serif; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font: italic 10pt Times New Roman, Times, Serif; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; font: italic 10pt Times New Roman, Times, Serif; text-align: right">13.3</TD><TD STYLE="padding-bottom: 2.5pt; font: italic 10pt Times New Roman, Times, Serif; text-align: left">%</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

<!-- Field: Page; Sequence: 7 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font-size: 10pt"><TR><TD STYLE="text-align: center; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%"><TR><TD STYLE="text-align: left; width: 50%">&nbsp;</TD><TD STYLE="text-align: right; width: 50%"></TD></TR></TABLE></DIV>
    <!-- Field: /Page -->
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As a percentage of net sales, our selling
and fulfillment expenses increased to 19.9% for the year ended December 31, 2011 from 19.0% for the year ended December 31, 2010.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Operating expenses include all costs related
to inventory management, fulfillment, customer service, and credit card processing. Operating expenses for the year ended December
31, 2011 increased by approximately 8% compared to the year ended December 31, 2010 as a result of increases in variable costs
associated with fulfillment costs (e.g., picking and packing orders and processing returns) <FONT STYLE="text-underline-style: double"><U>of
$111,000</U></FONT>, salary and salary related expenses related to Eyefly personnel <FONT STYLE="text-underline-style: double"><U>of
$162,000</U></FONT> and fees associated with our customer service call center <FONT STYLE="text-underline-style: double"><U>of
$184,000</U></FONT>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">Technology expenses consist
primarily of staff related costs, amortization of capitalized costs and web site hosting expenses. For the year ended December
31, 2011, technology expenses increased by approximately 8% compared to the year ended December 31, 2010. This increase was attributable
to increases in short-term staffing expenses of $188,000, an increase in stock-based compensation expenses of $149,000 and an increase
in web site hosting expenses of $129,000. These increases were partially offset by a decrease in software support expenses of approximately
$112,000.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">E-Commerce expenses include expenses related
to our photo design studio, image processing and design related to our Web Sites. For the year ended December 31, 2011, e-commerce
expenses increased by approximately 34% compared to the year ended December 31, 2010 primarily as a result of increases in expenses
associated with photo shoots related to launching Belle &amp; Clive and Eyefly of $750,000 and increases in salary and salary related
expenses of $313,000.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Marketing expenses: Marketing expenses
decreased by 13% to $10,877,000 for the year ended December 31, 2011 from $12,576,000 for the year ended December 31, 2010. Total
marketing expenses for the year ended December 31, 2011 include $334,000 of marketing expenses related to Eyefly.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

<!-- Field: Page; Sequence: 8 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font-size: 10pt"><TR><TD STYLE="text-align: center; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%"><TR><TD STYLE="text-align: left; width: 50%">&nbsp;</TD><TD STYLE="text-align: right; width: 50%"></TD></TR></TABLE></DIV>
    <!-- Field: /Page -->
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Marketing expenses include expenses related
to (a) online marketing programs, which consist of social media programs, online integration partnerships, paid search, fees to
marketing affiliates and comparison engines and (b) offline marketing programs, which consist of direct mail campaigns, television
advertising and production costs, as well as staff related costs. As a percentage of net sales, our marketing expenses decreased
to 11.3% for the year ended December 31, 2011 from 14.2% for the year ended December 31, 2010.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Total marketing expenses (excluding staff
related costs) related to online advertising for the year ended December 31, 2011 totaled $6,985,000, compared to $7,213,000 for
the year ended December 31, 2010. The decrease in online advertising is primarily attributable to a decrease in fees to marketing
affiliates of $413,000, social media programs of $367,000 and partner email programs of $92,000.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Total marketing expenses (excluding staff
related costs) related to offline advertising for the year ended December 31, 2011 totaled $2,310,000 compared to $4,120,000 for
the year ended December 31, 2010. The decrease in offline advertising expenses are primarily attributable to a reduction in offline
marketing expenditures related to television advertising and production costs <FONT STYLE="text-underline-style: double"><U>of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U></FONT>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="text-underline-style: double"><U>As
part of our overall change in strategy in 2012, we expect our overall customer economics to improve by testing and optimizing in
new and existing marketing channels, which we anticipate will increase customer traffic to both Bluefly.com and Belle &amp; Clive
and convert visitors to subscribers of our email marketing program. This, in turn, should enable us to more cost effectively market
to our customers without spending significantly more marketing dollars, which would lower our customer acquisition costs on a per
member basis. As our customer membership file increases, we expect total marketing expenses related to online advertising to also
increase in 2012 due to the increase in new members.</U></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

<!-- Field: Page; Sequence: 9 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font-size: 10pt"><TR><TD STYLE="text-align: center; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%"><TR><TD STYLE="text-align: left; width: 50%">&nbsp;</TD><TD STYLE="text-align: right; width: 50%"></TD></TR></TABLE></DIV>
    <!-- Field: /Page -->
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Company hereby
acknowledges that: (a) the Company is responsible for the adequacy and accuracy of the disclosure of the Filing; (b) Staff comments
or changes to disclosure in response to Staff comments do not foreclose the Commission from taking any action with respect to the
Filing; and (c) the Company may not assert Staff comments as a defense in any proceeding initiated by the Commission or any person
under the federal securities laws of the United States.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 224.65pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 4.5in">Very truly yours,</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 224.65pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 4.5in">/s/ James Gallagher</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 224.65pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 4.5in">James Gallagher</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 4.5in">Chief Financial Officer</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 4.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 4.5in"></P>

<!-- Field: Page; Sequence: 10; Options: Last -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font-size: 10pt"><TR><TD STYLE="text-align: center; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 4.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>



<P STYLE="margin: 0">&nbsp;</P>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
