Time Warner: Upscale Upstart

NEW YORK -- In the burgeoning field of interactive home shopping, where the learning curve is steep, even several months can be a significant head start.<BR><BR>Right now, that edge belongs to Time Warner, which seems to have pulled ahead of the pack...

NEW YORK — In the burgeoning field of interactive home shopping, where the learning curve is steep, even several months can be a significant head start.

Right now, that edge belongs to Time Warner, which seems to have pulled ahead of the pack racing to bring home shopping to the upscale customer.

Catalog 1, a home shopping joint venture between Time Warner and Spiegel Inc. consisting of upscale catalogers, will be launched next month. In April, Time Warner will test an interactive home shopping service, modeled after a mall and featuring Burdine’s, Miami, on its Full Service Cable Network in Orlando, Fla.

That puts Time Warner a few months in front of Q2, which plans to launch a lifestyle shopping channel this summer, and TV Macy’s, which is to begin testing in the fall. Nordstrom’s interactive shopping service is still several years away. A Bergdorf Goodman-NYNEX test will start this month, but on a very small scale.

Time Warner will have an outlet for Catalog 1. It owns or has an interest in franchises covering 12 million homes.Time Warner has another edge. While some of the new home shopping ventures are run by executives with broadcasting experience, Catalog 1 has a true merchant at its helm.

Gordon Cooke, whose 20-year career with Bloomingdale’s included 15 years as chief executive officer of Bloomingdale’s By Mail, joined Time Warner in November as president of interactive merchandising. He has already met with Peter Strom, vice chairman of Polo Ralph Lauren Corp. and heads of various Ralph Lauren divisions.

The meeting was initiated by the Ralph Lauren organization to discuss the alternatives in electronic retailing.

“I would be very happy to work with Ralph Lauren as I have over my 20 years at Bloomingdale’s,” said Cooke. “I think they obviously bring an aura of prestige to any venture.

“I have a lot of friends there and would love it if we had the opportunity to work together. But it has to be appropriate for both parties and the timing has to be in sync. I didn’t try to sell them anything. I think they’re looking at what role the Ralph Lauren company might play in interactive.

“Obviously, I have a lot of contacts in the retail and manufacturing worlds,” Cooke added. “There are people who are leaders in the industry, and if they see a new medium come along they want to be made aware of it. Hopefully, at Time Warner they’ll find an ally in the communications industry who understands their business.”

While other shopping networks struggle to define themselves and their audience, Catalog 1 is producing programs at its studio, here, which operates 24 hours a day.

“Hopefully, some things are going to be a little off the wall,” Cooke said. “Programming for the Warner Bros. Studio Store [featured on the interactive system] will be fully animated. You’ll have Bugs and the Tazmanian Devil leading you through the store, then cartoon characters randomly coming at you.”

The sarcastic rabbit and monster personify the spunk that Cooke thinks is disappearing from retailing.

“Time Warner reminded me of Bloomingdale’s in the late Seventies and early Eighties,” said Cooke, explaining that the department store’s mail- order venture at that time was adventuresome and willing to try new ideas. By all accounts, Catalog 1 is well financed by two deep-pocketed firms with an interest in expanding the horizons of retailing and entertainment.

Cooke would not discuss Time Warner’s investment, other than to say, “Spiegel and ourselves have put a fair amount of money into this. Time Warner has made a commitment in capital.”

The companies participating in Catalog 1 include Spiegel’s, Neiman Marcus, Crate & Barrel, Williams Sonoma, Eddie Bauer, The Sharper Image, The Nature Co. and Viewer’s Edge.

“We haven’t gone after any companies that are not in the catalog business,” said Cooke. “Catalogers create demand and try to fill it,” Cooke added. “That is diametrically opposed to retailing, where [consumers] buy what the store has to offer.” For instance, he said, a store will buy a specific number of styles in a given size and once they run out, they are seldom reordered. A catalog, on the other hand, will often reorder based on customer response.

Most of Catalog 1’s programming will be taped in a studio or on location. The network will be able to rerun merchandise that hasn’t sold. As Cooke explains: “If something doesn’t sell in a department store, they put it on sale. Catalogers rerun the picture or reshoot it. We bleed it to death, until it sells.”

A critical difference between Catalog 1 and other home shopping networks is that the catalogers will control their own data bases.

“All orders coming in go directly to the company,” Cooke said. “They own the customer.

“You can only grow your business through your house file,” Cooke continued. “If you’re on QVC or Home Shopping Club, you don’t know who you shipped to. If you are Spiegel’s, you want the order on your credit card so you can send the customer your catalogs.”

Time Warner and Spiegel’s relationship with participating catalogers also differs from typical home shopping agreements.

The catalogers will pay Catalog 1 a percentage on shipped merchandise. Cooke said they incur no other charges unless they produce special segments for their shows.

“We tried to equate that with the cost of printing and distributing a catalog,” Cooke said. “We took the expense of mailing a catalog and put it into TV.

“We’re saying the cost only comes when you deliver product to a customer,” Cooke continued. “We’re not even saying there has to be a high response rate. There will be a flat percentage, period.”

Cooke declined to discuss specific volume projections, but said Catalog 1 could potentially be as successful as “businesses in the upper end of cataloging.”

“Spiegel is a $2 billion business,” he added. “We won’t be looking for that initially. If we got to the QVC and HSN level we’d be ecstatic.”

QVC and HSN each do over $1 billion a year in volume.

As a communications and entertainment entity, it behooves Time Warner to gain a foothold in the interactive shopping arena.

“Interactive is important because the programming we’re creating for Catalog 1 has the opportunity for wide distribution,” Cooke said. “If we flip Catalog 1 into an interactive format, the cost is very low. That is critical because there is no financial justification for interactive other than the test mode now.” Cooke was referring to the fact that interactive systems probably won’t be available to consumers on a widespread basis for several years.

The interactive mall will be tested in Orlando, Time Warner’s second largest cable system after New York. In addition to Burdine’s, Time Warner hopes to engage the Altamont Mall, whose anchor stores include Sears Roebuck, J.C. Penney and Gayford’s.

“We wanted to bring in local retailers,” Cooke said. “Burdine’s has traditionally been one of the leading experimenters in production and marketing techniques. Hopefully, the Burdine’s experiment will lead to other regional retail experiments.”

For all the hype, Cooke believes traditional retailers are still wary of home shopping. “Electronic retailing is a buzzword and a hot topic and no retailer wants to say they haven’t looked at it,” Cooke said. “But how many are really doing it?

“There’s a reason why catalogers are getting involved with TV and not retailers,” Cooke said. “Testing, testing, testing. They understand putting a lot of money into testing.” Cooke was referring to the fact that catalogers have long used sophisticated data bases layered with research to analyze response rates.

“Traditional retailing doesn’t have enough entrepreneurs in the areas of promotion and advertising,” Cooke said. “A lot of people are good at numbers and structure. I believe you can do both.