When we helped launch Lands’ End in the United Kingdom in 1991, the European catalog market bore little resemblance to the market of today. Back then, logistics and fulfillment issues were complex, slow, and expensive to resolve; lists were nearly impossible to find; and local suppliers did not have a marketing infrastructure.
What a difference nine years makes. Today, the European mail order market more closely resembles the U.S. catalog industry in every area – customer acquisition, promotion, fulfillment, logistics. Improvements in the European catalog infrastructure have come about quickly for three reasons: 1) the arrival of U.S. companies such as Lands’ End and Viking Direct, bringing marketing innovations and setting new service standards; 2) a surge in domestic specialty catalog launches (primarily in the U.K.); and 3) the interest and investment generated by e-commerce.
Moreover, the European catalog industry continues to shift away from general merchandise “big books,” such as the old Sears catalog in the U.S., to higher-end specialty books. And these specialty catalog competitors are coming fast and furious. In the past two years, more than 500 catalog titles have launched in the U.K. alone.
Despite this level of specialty catalog start-up activity, opportunities still abound for U.S. marketers considering expansion into Europe. For one, most niches in Europe remain underserved compared to the U.S. Lingerie marketer Victoria’s Secret, for example, could achieve a dominant position within its niche in Europe. Smaller players, such as upscale children’s apparel cataloger Hanna Andersson or window treatments mailer Smith & Noble, could also move aggressively into developing a European customer base.
Also, many U.S. companies have let international expansion slip to a back burner, instead spending the past few years building their Internet efforts, so there’s hardly been an influx of American print catalogs. In other words, there’s a lot of room for U.S. brands.
As for the myriad infrastructure improvements in Europe, one of the more important is larger variety of segmented lists now available (directly attributable to the increasing specialization of the catalog marketplace). Today an average specialty catalog in the United Kingdom might have a rental list universe of around 1 million net names, compared to only 150,000 nine years ago. Germany boasts even bigger list universes, while the French list market is similar in size to the U.K.’s, and Scandinavia’s is not far behind.
List brokerage has also become substantially more aggressive, sophisticated, and cost-effective, thanks in part to the establishment of overseas divisions by U.S. firms. List costs are higher than in the U.S. – almost double, at $160/M for an average rental after selects – but sales per book tend to be higher to compensate. List exchanges are also becoming quite commonplace. Overall, the quality of brokerage services – long a focal point of complaint among companies used to blue-chip U.S. service – has improved substantially: The turnaround of lists from order to delivery is now often less than a week. In the early 1990s, catalogers needed to allow a month for list delivery.
Fulfillment shaping up
International third-party fulfillment has also advanced at warp speed. In 1991, Lands’ End had only one fulfillment house to choose from that could handle the myriad operator training, information systems, and parcel fulfillment services needed to support a high-volume quality catalog operation. Today, about a dozen companies could capably handle a catalog business with the same size and service requirements.
Many British-based call centers are now taking U.K. orders for American mailers, with operators working off the clients’ U.S. systems. Some fulfillment providers, such as U.S.-based Clientlogic, can take orders in all the main European markets in the local languages and currencies. What’s more, telecom deregulation has resulted in frantic competition, with prices spiraling downward. In fact, international toll-free tariffs from the U.K. to the U.S. are lower today than local U.K. phone calls were in 1991.
Postal systems across Europe have moved to much more business-oriented pricing and service packages, thanks largely to postal privatization. For instance, Germany’s Deutsche Post, which will be privatized this year, has already begun aggressively assembling a business that can provide cost-effective, end-to-end logistics and fulfillment services. Likewise, the U.K.’s postal system, Royal Mail, established a sales team in the U.S. in the mid-1990s to improve service and prices for U.S. companies mailing into and fulfilling in Britain.
Think global, act local
Whether you intend to head overseas via print catalogs or by launching an international Website (see “The Web climate,” right), approach your venture with the perspective of a global brand with local service. For instance, few French consumers will order in U.S. dollars, and none of them will want to deal with an English-only customer service operation.
The European market is becoming too big to ignore – a market this size naturally has its own quirks and nuances that must be understood before success can be a possibility. Step one in entering Europe is to carefully research the market and take some local advice. Too often U.S. companies try to run European start-ups from 5,000 miles away. This cannot be done successfully. Instead, take time to understand the markets, meet local suppliers, and create a launch plan with local input.
The good news is that the increasing maturity and sophistication of the European catalog market makes it easier for U.S. mailers to do a better job of targeting overseas customers. When Lands’ End took the plunge in 1991, the barriers to European entry were stacked high against American catalogers. Today, the barriers are a lot lower, while the market they are protecting is even more appealing to U.S. companies.
The Internet has sparked considerable interest in direct-to-consumer sales in northern Europe. The number of European Web users has soared to more than 50 million in 1999, with the Scandinavian countries boasting the highest proportion of Internet usage. Many consider the U.K. to be farthest along the curve on e-commerce development, partly because English is all but the lingua franca of the Internet, and also due to the popularity of “free” Internet access (with the purchase of a computer) through providers such as Freeserve, which with 1.5 million users is the largest Internet service provider in the U.K.
Within the European e-commerce space, three categories of players have emerged, each with its own strengths and weaknesses. First are the traditional store-based retailers. While they begin with good name recognition and established supply chains, most know little about order fulfillment and even less about the marketing economics of a direct-to-consumer business. They are also often hampered by the need to manage through a bureaucracy that fears the cannibalization potential of the Internet; U.K. retailer Marks & Spencer, for example, has only recently made its Website capable of handling transactions.
The next category is American transplants, and here the results and the potential are decidedly mixed. Those companies that have invested the time and funds necessary to offer a relevant, quality experience are well positioned for growth. Yahoo! is a prime example in this area of a U.S. company taking a local approach to global expansion. Other U.S. companies, however, have tried – at least initially – to do little more than a “dubbing” of their U.S. Websites, sometimes even maintaining U.S. dollar pricing. This is hardly a formula for success, as this limited effort diverts time and resources that would be better invested in a more serious, more strategic approach. For instance, after launching a U.K. auction site with U.S. dollar pricing, eBay quickly realized the implausibility of that platform and switched to an offer using local currency.
The final category of Web entrant is homegrown businesses, developed either as adjuncts to existing catalog businesses or as stand-alone Web start-ups. The former have tremendous potential, thanks to their existing fulfillment infrastructure and expertise, developed brands, sensitivity to local or regional preferences, and understanding of the direct marketing economics. In 1998, upscale men’s shirts cataloger Charles Tyrwhitt was one of the first U.K. marketers to launch an e-commerce site, and it has seen its e-commerce revenue expand to a substantial – and still growing – portion of its total sales.
At the end of the day, the rules for success on the Internet will be broadly similar to those for other channels: strong and differentiated merchandise offerings, supported by superior service and cost-effectively promoted to targeted audiences. Experienced direct marketers will have the Web advantage because they understand that lifetime value economics require sober analysis and discipline.