CATALOGS MORPH IN TOUGH TIMES
Byline: Georgia Lee
ATLANTA — For catalogs, it’s a new world order.
Like all retailers this year, catalogs are facing an economic slowdown and the aftermath of Sept. 11. The anthrax threat, while never linked to catalogs, hasn’t helped matters either.
Some consumers were spooked by white powder on catalogs that turned out to be excess corn starch, which keeps the books from sticking together. Catalogers responded to anthrax quietly, answering consumer concerns with the assurance that catalog merchandise deliveries, handled by UPS and Federal Express rather than the U.S. Postal Service, are safe. Now that the hysteria has died down, most catalogers agree that anthrax could be the least of their worries.
More threatening is the slumping economy and consumer spending decline that began early in the year. Revising forecasts mid-year, or after Sept. 11, many catalogs cut back staff, circulation, inventory and prospecting. Holiday catalogs, which can’t adjust printed prices, are now competing with unprecedented discounts by brick-and-mortar retailers. Another possible postal rate hike is looming, after two this year.
“Catalog business is historically sensitive to national tragedies,” said Michael Tiernan, president of The Mark Group, a Boca Raton, Fla., company with Mark Fore & Strike, Boston Proper and Charles Keath catalogs. “But everything started much earlier. We’ve seen lots of catalogs exit, and others cut back.”
The Mark Group, which owns seven outlets and 13 full-price stores, cut circulation and staff by 10 percent and closed two stores this year. While sales picked up considerably since the week before Thanksgiving, the period between Sept. 11 and the first week of November was “the worst I remember,” said Tiernan.
Analysts predict that the current climate for catalogs should continue into 2002 — but that doesn’t necessarily foretell of dreadful results. The biggest houses, like Lands’ End, posted strong third-quarter numbers, and most companies reported some kind of turnaround since Thanksgiving, although business is still erratic.
Clear strategies are evolving out of a year of adversity, as catalogs find salvation through multichannel operations, branding, niche marketing and imaging.
For one, catalogs and the Internet have become highly compatible mates. Struggling catalog sales have been boosted by strong Internet numbers. Companies often use their catalogs to lure buyers to Web sites, and Web shoppers often request catalogs. Recently, pure-play Internet companies like Amazon.com have offered more catalogs to boost Internet traffic and sales.
On the Internet, prices can be adjusted and updated daily, while sophisticated search engines are making online shopping easier. Catalogs, however, still offer superior photo quality, portability and a live customer service rep, which is important to many consumers.
“The ‘Net is clearly working for catalogers and driving profitability,” said Bob Wientzen, president and chief executive officer of the Direct Marketing Association, a 5,000-member trade organization. According to DMA studies, Internet sales range from 15 to 16 percent of catalogers’ total sales, in some cases, 25 percent. Total direct mail sales are estimated at $580 billion.
While Internet sales might still be a small percentage of catalogers’ sales, many project a 50-50 split within five years. At the Mark Group’s Boston Proper.com, sales are up 50 percent from November to the present, and catalog sales have rebounded between 5 and 10 percent.
“The future is multichannel,” said Tiernan. “We have to give customers the option of phone, Internet and stores.” Catalogs also benefit from stores, both full-price and outlet, that allow them to gauge trends and clear inventory.
The Spiegel Group, which owns Spiegel, Eddie Bauer and Newport News catalogs, has 600 brick-and-mortar stores, including outlets. Total direct sales declined 21 percent in November, but within that, Internet sales were up 15 percent. Year-to-date ‘Net sales increased 55 percent compared with a nearly 8 percent decline for catalogs. The Internet, along with stores, allows for promotional activities, sales and stock clearing, according to Debbie Koopman, vice president of corporate and investor relations.
At L.L. Bean, the Web was more resilient than catalogs post-Sept. 11. Internet sales resumed within days of the attacks. L.L. Bean also uses the Web for “loyalty marketing,” with promotions and coupons offered to existing customers. For a Web site relaunch in October, the technology investment concentrated on making the site customer-friendly and more convenient, with more details and better views.
“We want to be leading edge, not bleeding edge,” said a spokesman. “The important things are security, back-end fulfillment, speed and accuracy.”
In addition to 225 million mailings a year, L.L. Bean also has three full-price stores and 12 outlet stores. In a forecast revised after Sept. 11, L.L. Bean projected flat sales to single-digit declines in total 2001 volume.
“It’s been a roller coaster,” said the spokesman. “October sales were up 4 to 5 percent over last year, which exceeded expectations, considering all the anthrax news, and then November was down 5 percent.”
Along with multichannel strategies, companies are increasingly brand-building to encourage consumer loyalty. For its 90th anniversary next year, L.L. Bean will play up its roots, heritage and authenticity, hoping to deepen brand identification.
Lands’ End, with its clearly defined brand and sophisticated Web site, saw its third-quarter total sales rise 4 percent. Bucking the trend of overall retail sales, U.S. volume increased 16 percent.
“We saw a dip after Sept. 11,” said a spokeswoman. “But overall, it’s been business as usual, and a rebound to record-breaking earnings. For the first four weeks of November, sales increased 3 percent.”
She attributed gains to a rejuvenated product line, an updated catalog presentation and more efficiency in operations. The company has also increased TV advertising, as ad rates have fallen.
Big catalogs, with established mail-order and fulfillment infrastructures, have made a smoother transition to Internet sales than some big brick-and-mortar retailers that are struggling with catalog and Internet operations, according to analysts.
“Big catalogs, such as Lands’ End, have smart inventory management, a warehouse instead of stores, great customer service, convenience and branding,” said Bill Dean, W.A. Dean & Associates, a San Francisco catalog management and consulting firm. Today’s catalogers should take advantage of niche markets, said Dean. “Opportunity is out there, in under-served markets, such baby-boomers, or large-sized teens, rather than all the Britney Spears looks.”
J. Jill, a Quincy, Mass. cataloger, targets women 35 to 55 with clothing that’s comfortable and fashionable.
“We went for a ‘pyschograph’ that nobody had addressed,” said Gordon Cook, ceo of the 15-year-old company. “We offered fashion appeal, lifestyle photography, and focused on branding and merchandising.”
J. Jill grew from $15 million total sales in 1995 to $300 million in 2001. Launching a Web site in 1999, the company also opened 51 stores in the past two years, and is adding 25 stores next year. Direct mail is $200 million, with $50 million of that from e-commerce.
Cook said 2000 was “the best year in company history, and 2001 was the second best. We saw a blip in sales after September of 8 cents a share, but that was absorbed. We’ve raised $28 million for our balance sheet and paid down $4 million in debt. If anyone stumbles at retail, we’ll take advantage.”
Most analysts would take that bet.
“By next spring, we’ll see plenty of companies looking for funding, or for white knights,” said Dean.
In these troubling times, some firms take an unusual approach to customer service. One such operation is San Francisco-based BeneFit Cosmetics, which has carved a niche using a humorous approach. Representatives are trained as makeup artists, and dabble in a little human nature, too.
“It’s more like therapy than selling,” said Jean Ford Danielson, who founded BeneFit with her identical twin, Jane Ford. “We pinpoint a customer’s need and take a genuine interest in them. Rather than ask them for an item code, we just ask what page they’re on. Customers don’t want to feel like a number.”
The small-sized 32-page BeneFit catalog features products such as “Kitten Shops New York,” a “magical” powder and puff that, when used before shopping, allows the wearer to find the perfect gifts, with no hassles and great service. A wide range of graphics and packaging are equally creative.
Besides its catalog, BeneFit is sold at 500 counters nationwide, including Federated stores, and four BeneFit boutiques in the Bay Area. BeneFit’s two-year-old Web site projects $2.8 million in sales for 2001. Catalog sales are projected at $3.6 million this year, up from $3.3 million last year. Buyer conversion rate from total catalog mailings is 12 to 13 percent, with a 32 to 33 percent rate for existing customers. Total company sales are $95 million, with no layoffs or cutbacks expected, Danielson said.
Based on recent results, BeneFit’s catalogs have touched a nerve, particularly with those who, like everyone, could use a little pampering and indulgence.
“Catalogs were our single strongest venue since Sept. 11,” said Danielson. “People have felt insulated, and the need for contact. We’re here to serve and entertain the public. We’ve had people call us, just to talk.”