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QVC Vs. HSN: Taking Stock

NEW YORK -- Which is better, QVC or Home Shopping Network?<BR><BR>The battle between TV shopping's two giants pits the social climb (QVC) against the hard sell (HSN).<BR><BR>Growing pains are numerous for this relatively new selling medium, but the...

NEW YORK — Which is better, QVC or Home Shopping Network?

The battle between TV shopping’s two giants pits the social climb (QVC) against the hard sell (HSN).

Growing pains are numerous for this relatively new selling medium, but the numbers at stake are big — over $2 billion — and anxious vendors see room for improvement at both networks.

They point to clear strengths and weaknesses and conclude that HSN is cranked up to sell significantly more merchandise, while QVC, with its plans to diversify and upgrade, is the place to be if image is your game.

Here, some observations from various vendors.

HSN has 20,000 phone lines, which enables it to take nearly four times as many orders as QVC, which has 5,376. QVC vendors said the network could generate more sales if it added more lines.

QVC seems determined to sell upscale merchandise despite surveys that show its demographics to be similar to HSN’s middle-American audience. HSN is simply more comfortable at the lower end of the market.

While top designers like Donna Karan and Calvin Klein have stayed away from QVC, the network may yet lure big names for Q2, its new lifestyle channel, scheduled to debut this summer.

QVC’s management isn’t fully focused. Through its association with Barry Diller, QVC has developed a Hollywood cachet, but vendors said the entertainment mogul and his management team have been preoccupied with trying to take over Paramount Communications.

Both QVC and HSN strain normal vendor/retailer margins, particularly with high returns.

HSN has lower average prices than QVC, but is getting more aggressive with markups.

SN has built successful brands for a cavalcade of waning stars. For example, Connie Stevens sold more than $40 million worth of Forever Spring, a treatment line, on the network, last year. QVC, in contrast, isn’t viewed as a brand builder.

QVC sometimes operates on short notice, giving vendors little time to manufacture goods.

HSN has a more elaborate, customized fulfillment operation, with room for expansion. The network is even taking on an outside project: fulfillment for TV Macy’s.

QVC and HSN each do over $1 billion a year in sales, and both have an average return rate of about 20 percent.

HSN, which tends to have a lower average price point than QVC — $40 for apparel — must sell more merchandise to achieve the same volume. QVC’s average price point is between $40 and $60.

Profit margins are still an issue among retailers and manufacturers that sell to both shopping networks. Retailers gripe that they’re selling, in effect, to another retailer and merchandise gets a “double markup.”

Manufacturers, meanwhile, are finding it increasingly difficult to produce low-priced, quality goods in the short lead time sometimes demanded by QVC.

Stanley Warner, president of 77 World Design — which manufactures Adrianna Papell’s outerwear and sportswear, Ted Lapidus and Raphael and Adolpho for men — said, “We need alternatives.”

Warner, who dealt with QVC and HSN through his former company, Foremost Designers, said, “If you go to HSN they want to pay you $13 on a $30 item. Their markups are getting too big.” He added, “QVC is returning everything to everybody and saying the problem is quality. HSN returns stuff, but they don’t lie.

“We want to go on direct cable ourselves,” Warner explained. “With our own lines, we think TV is in the future.”

Bernard Holtzman, president of Harve Benard, said his firm has done well on QVC despite the slim margins.

“We work quite tightly and we make special groups for them,” he said. “We don’t get a piece back.”

But, according to a source close to Adrienne Vittadini Inc., the designer was interested in doing a project for QVC but had to abandon it. “They gave her target prices,” the source said. “She thought they were wholesale, but they turned out to be retail prices.”

Some experts said that by angling for upscale customers, QVC may be sacrificing sales for style.

“The bread-and-butter home shopping viewers have a more consistent vehicle in HSN than QVC,” said R. Fulton Macdonald, president of International Business Development, a consulting firm. “The consumer surveys for both networks that I have seen show downscale consumers not very different from each other. The upscale product offerings [on QVC] are more a matter of amusement than a realistic matching of buyer and seller.”

One upscale casualty may be Saks Fifth Avenue. The retailer’s sales have averaged $500,000 per show on QVC. But numbers can be deceiving, since QVC reportedly takes a 40 to 60 percent cut and Saks reportedly isn’t making money under the current formula.

According to Macdonald, Saks considered QVC a learning experience but “QVC has been very protective of the ‘mystique’ dimensions of selling on TV.

“The two sides are still dickering,” Macdonald added. “Barry Diller, [QVC’s chairman], is focusing on Paramount, so at the moment nobody is negotiating the [Saks] deal. There’s a lot of lack of leadership, and the evidence of Diller’s absence of the last two or three months is beginning to show.”

Philip Miller, chairman and chief executive of Saks Fifth Avenue, said, “I’m continuing my conversations with Doug Briggs [QVC executive vice president of electronic retailing]. We are scheduled to do a show in May of private label apparel.

“We went into QVC because we wanted to learn about shopping through cable,” Miller added. “We believe there is a future vis-a-vis cable or some interactive mechanism and we want to be a part of that. We also went into it for traditional business reasons, such as sales and profits.” Asked whether Saks has considered withdrawing, Miller said, “Withdrawing is not in the current scenario.”

HSN sometimes seems like the “Love Boat” of TV shopping, where old, familiar faces sail through for lucrative guest appearances. Frankie Avalon sells a vitamin and herbal supplement; Connie Stevens sells her Forever Spring treatment line, and Dick Clark offers a skin care line, called Geviderm.

According to sources, Shel Kepler, a soap opera actress, sold $1.3 million of her apparel on HSN in a weekend.

Adrienne Arpel, who will sell her cosmetics on HSN in April, spoke to both networks before making a decision.

“Ben White [president of celebrity marketing] and John Pinocci [vice president of celebrity marketing] were very persuasive in showing me what can be achieved,” Arpel said. “HSN not only pursued it, but explained clearly how carefully they would handle everything. I guess it was just that they held my hand.”

While many QVC vendors said they were happy, there have been some complaints. One vendor said the network is disorganized, doesn’t plan ahead and has no track record for building brands.

“They tell you they can only give you three weeks notice of when you’re going to be on,” the vendor said. “And they don’t ask, ‘What would be the best kind of format? What should the set look like?’

“HSN is into brand building,” the vendor continued. “I have seen them put inserts into bills and do fragrance sampling. That’s brand building. I sent a memo to QVC outlining a lot of these things, and I never even got a reply.”

HSN, in contrast, has an extensive sampling program. The network’s efforts have included sending a vial of Marylin Miglin’s Destiny fragrance along with a letter from Miglin to 1,200 customers; mailing vials of Shel Kepler’s Lacy Afternoon fragrance to 25,000 customers, and sending a group of home shoppers a pair of Vanna White pantyhose.

The capricious nature of the TV shopping business has not been lost on Georgette Mosbacher, who sells her Exclusives collection of color cosmetics on QVC. Mosbacher’s last visit to the network, on Aug. 27, reportedly produced $245,000 in sales in 31 minutes. After returns, the net was around $180,000.

Mosbacher makes no bones about her frustrations with the network. “You’re never happy,” she said. “It all comes down to how much exposure you can get and how much time you can get. For me, personally, it’s a very difficult situation.”

According to industry sources, Mosbacher does “exceptionally well on the front end,” but she said QVC thinks her return rates have been too high. The network reportedly has given her an ultimatum: Find a way to lower the return rates or don’t come back.

“I have a 25 percent return rate,” Mosbacher said. “My feeling is that’s going to turn out to be the norm for color cosmetics. QVC thinks that’s too high and that’s frustrating.”

QVC executives could not be reached for comment.

Mosbacher said she is trying to work out a strategy with the network.

Industry experts say return rates on color cosmetics are generally higher than returns for skin care products. Color cosmetics sold on television are grouped in kits that drive up the price to make the transaction cost-effective. But customers who buy the kits are often said to be disappointed to find only one or two shades they like.

Some of the problems cited by vendors are simply a sign of growing pains. For example, several QVC vendors lamented the fact that QVC doesn’t have more phone lines.

QVC has 5,376 phone lines with up to 800 operators working multiple lines, according to a spokeswoman.

With live operators and “Tootie,” an electronic order-taking system, HSN has 20,000 phone lines. There’s room for growth — the network said 50 percent of its order-taking capacity and about 75 percent of its fulfillment capacity is currently in use.

Randolph Duke, who designs a sportswear line exclusively for QVC, said, “We’ve had a great relationship. They’re very responsive. Part of it is them getting behind the people they work with.”

Duke would like to see more phone lines at QVC: “At one point in our show we had all 800 going and 350 people waiting. When you have that kind of backlog, you could use more lines.”

Tova Borgnine, who has been hawking her skin care and fragrance line on QVC for four years, said, “I am personally very happy with QVC. But QVC needs to expand its phone system. That’s where Home Shopping is way ahead. We could be doing more sales if we had the operators.”

The bottom line is that television home shopping, is, after all, still on a learning curve.

Diane Von Furstenberg, the designer who has built a thriving apparel business on QVC, said, “I really think it’s the product, the value and, of course, how much you believe in it.

“When I first started, I thought the time slot was really important, but I have since learned that it depends on the product,” she added. “For Surroundings [a line of home and body fragrances launched on Sept. 4], I had a great show at 1 a.m., and that was unexpected.”

But Surroundings was harder to launch than Von Furstenberg anticipated. “The first show was a little harder because it was still the end of the summer and people were not in the mood for buying fragrance,” Von Furstenberg said. “It did well, given what bath and body is doing in the marketplace,” said a cosmetics consultant. “Is it an instant hit? Not at all. It does about the same as Perlier [another bath line]. I don’t think bath and body fits on TV.”

One reason Von Furstenberg wanted to launch Surroundings was to attract new customers. Her apparel line — sportswear separates called Silk Assets — has a loyal following, but has not drawn as many new buyers as she would like.

“With Silk Assets, we have a high repeat business,” Von Furstenberg said. “The whole trick and challenge in home shopping is to get new names. That’s the next goal for the whole industry.”