SHORT ORDER

Feb 01, 2008 10:30 PM  By

The fact that gifts cataloger Lillian Vernon laid off 25% of its staff on Dec. 20 was a sure sign that this was not going to be a great season.

It was, in fact, the worst holiday since 2002. Retail sales for December, excluding cars, gas, and restaurants, rose 1.7% unadjusted over 2006 and decreased 0.4% seasonally adjusted from November, according to the U.S. Commerce Department.

Combined November-December holiday sales totaled $469.9 billion, a 3% increase that fell short of National Retail Federation’s earlier prediction of 4%.

How bad was it? In a word, “Gruesome,” says fulfillment consultant Curt Barry, president of F. Curtis Barry & Co. Many retailers fell well short of sales plans that were fairly conservative to begin with, he notes.

Take Lillian Vernon, for example. Although its fall 2007 sales were better than 2006 fall sales, results did not meet the company’s plan. “We were hopeful with our fall activity that these things would all pan out, but we have to react” with the layoffs, says president/CEO Michael Muoio.

It wasn’t just that consumers weren’t buying enough. The decrease in value of the U.S. dollar also put a crimp in Lillian Vernon’s profitability, Muoio says.

But the most damaging factor was the postal rate increase of 20%, he notes, plus the parcel carrier rate increase of 25%. “Basically, FedEx and the U.S. Postal Service reached down into our pocket and took out $8 million,” he says.

Lillian Vernon’s holiday sales did increase — 1.2% — for its latest quarter ended Dec. 31, but they were “less than expected,” Muoio says. The Virginia Beach, VA-based company had increased circulation by 6%.

“Clearly, the economy is bad, and people were waiting for later offers,” he notes. Consumers with less discretionary spending money seemed to be buying electronics “and not traditional gifts.”

Specialty apparel PajamaGram also fell short of its plan, albeit only slightly. “Our sales were up more than 20% over last year, while we were less than 5% below our plan,” says Sarah Pribram, director of sales and marketing information for PajamaGram parent company The Vermont Teddy Bear Co.

The cataloger had added more styles of men’s and baby pajamas, she says, “and had a very successful introduction of boys, girls and dog PJs.”

Like the fall, holiday spending got off to a slow start. “Everything about the season was tough. People didn’t buy until the third or fourth week, plus higher postal and paper costs affected catalog prices,” says Tony Cox, founder of Richardson, TX-based food catalog consultancy 5th Food Group.

“Really, the overall cost of doing business was that much more, which is why we had such aggressive plans” for clients, he says.

How aggressive were the plans? “We were hoping for our [clients'] books to grow between 15% and 20% over the last holiday season, and most of them did about 10% better than last year,” Cox says.

Food segment fares fine

There were indeed a few bright spots, and the food category was one of them. Chukar Cherries met its sales plan, which was 15% higher than holiday 2006, says chief financial officer J.T. Montgomery. The merchant had increased circulation by 15% by digging deeper into its house files and prospecting.

“We’re still in the process of going through all the data and seeing where our successes were, but overall, we’re pleased with the results,” Montgomery says.

The company this year did a better job with the price point variety in its catalog by including “a broader range of offerings,” Montgomery says. “Typically in the holiday season, people wait until the last minute to send a $50 fruitcake to Aunt Ida, and we wanted a nice set of offerings at various price ranges to support that.”

Chukar also expanded the book from 24 to 28 pages, and upgraded its Website to make it user-friendlier for customers. “This year we had a lot of positive comments about ease of navigation and use, and the presentation of products,” Montgomery notes.

Sales for Baltimore-based upscale food cataloger Mackenzie Ltd. rose 30% during the holiday season, says president Laura McManus, which was above plan by 5%. “Our average order was over plan by 5%, but the total number of orders anticipated was down slightly,” she says.

Web sales increased about 5%, she says, due to an increased effort to drive business online. “We increased circulation with the intent to grow the fall/holiday business by 25%,” she says. “The majority of the increase came from increased prospecting with some new affiliate Web marketing.”

Mackenzie Ltd. was “very selective” on list rentals and exchanges for prospecting, McManus says. “I would say we get a nine out of 10 every year in terms of performance on database lists and rentals/exchanges with other companies,” she adds. “This makes a huge difference in the return on prospecting.”

During the holiday season McManus says her company used a flat-rate shipping fee, which “showed some lift. We also increased our ‘order early’ discount from 5% to 10% to try to entice customers to purchase earlier.”

Sales for multititle mailer Swiss Colony rose about 5% compared with last year. President John Baumann says the Monroe, WI-based company saw a small increase in Web sales as a percentage, which accounted for about 30% of sales.

In addition to its food titles Swiss Colony and The Tender Filet, the $500 million-plus company mails apparel catalogs Monroe & Main, Midnight Velvet Style and Ashro Lifestyles; home decor books Through the Country Door and Room for Color; and general merchandise titles Ginny’s and Seventh Avenue.

Baumann says this year’s marketing plan was similar to last year, but about twice as much was spent on Internet search. “The game plan seemed to work well,” he says. “Swiss Colony food/gift business seems to generate a fair amount of media coverage. Media seems to like to know about new products offered each year, as well as traditional favorites.”

Less than stellar

L.L. Bean had not officially received its fourth-quarter numbers at press time. But spokesperson Carolyn Beem says that the outdoor apparel, gifts, and home goods merchant is “cautiously optimistic that our sales were good, but not stellar.”

Considering L.L. Bean offered free shipping and handling to all customers beginning on Sept. 28 and running through Dec. 21, with no minimum purchase required, and ran a free $10 gift card with $50 purchase promotion, it might have hoped for better than “good.”

Then again, nobody expected the holiday to be stellar, says Glenda Shasho Jones, president of Shasho Jones Direct, a New York-based catalog consulting firm. She’s heard that holiday sales were “soft. Not necessarily a disaster, but not stellar.”

Catalogers are dealing with all kinds of merchandising issues, she notes, “trying to make more unique, hard-to-find, exclusive merchandise. It’s getting harder to do that and to price merchandise well.”

December sales figures from the public companies reflected the numerous challenges. J.C. Penney’s direct sales were down 12.9% for the month. That includes a 5.1% drop in Internet sales for the general merchant.

Victoria’s Secret Direct’s December sales fell 11% on a fiscal basis due to one less pre-holiday week vs. last year. (On a calendar basis, the apparel cataloger/retailer said Victoria’s Secret Direct sales slipped 9%, compared with 10% growth last year.)

Home furnishings and decor merchant Restoration Hardware said its holiday sales were flat. That’s not too bad, considering it cut its circulated catalog page count by 17%.

Direct sales for upscale jewelry and tabletop items merchant Tiffany & Co. were flat for the holiday at $69.9 million. Its worldwide sales increased 8%, to $867.3 million, for the period between Nov. 1 and Dec. 31, and U.S. retail sales were up 4%, to $449.1 million, for the period. But many observers saw the lackluster results as a sign of vulnerability in the typically strong luxury market.

There were a few winners — even in the much-challenged apparel segment. Urban Outfitters’ total sales total sales climbed 27% for the month of December. Better still, the company, which includes the Anthropologie, Free People, and Urban Outfitters brands, saw a 39% jump in direct-to-consumer sales for the period.

While Eddie Bauer’s sales for the fourth quarter ended Dec. 29 increased just 3.4%, to $378 million, its catalog and Internet sales were up 9.7%.

Abercrombie & Fitch, too, saw a big lift in its direct business. Its December sales rose 9%, to $657.0 million, compared with $603.6 million in December 2006, while same-store sales for the month fell 2%. But A&F’s total direct-to-consumer sales rose 35%, to $51.4 million.

It’s the merchandise, stupid

There’s no question that consumers are concerned about the economy and as a result, they’re spending less.

And with the sharp increase in postal rates last May and paper prices on the rise, catalogers have been further challenged to turn a profit.

But many multichannel experts believe that lackluster merchandising is a huge problem for marketers as well, and one that needs addressing immediately.

“Besides the cost of production and postage, merchandising is the biggest challenge,” says Shasho Jones. “You look through holiday catalogs, and so much of it is what’s expected.” In this kind of economy, she notes, “we need to have superior merchandising.”

Curt Barry agrees. “We had two of 20 active clients that met plan” for the holiday, he notes. What was significant about the two merchants that met their goals? Unique product. They had more than 50% new from prior years, Barry says.

Business-to-business mailers, too, need to step up their merchandising efforts. Sarah Fletcher, creative director of Charlestown, RI-based consultancy Catalog Design Studios, notes that “it seemed that it was a tougher year for b-to-b gifting than b-to-c.”

Retail packaging and promotions cataloger Action Bag Co.’s holiday sales were in fact “much lower” than planned, says marketing manager Jaimey Alumbaugh. But the mailer has been working to freshen its merchandise. “Our customer wants what is new. We are constantly adding new and exclusive products to our line,” Alumbaugh says. “In 2007, we increased new product creation and significantly increased our inventory investment.”

It’s not just merchandising that needs to be freshened up, but creative as well. Nobody is doing “out of the box” thinking that is brand consistent and really makes a catalog stand out from the pack, Shasho Jones says. “People have to experiment with covers, back covers, and inside in terms of how to present items.”

Indeed, Mackenzie Ltd. credits much of its success to a better product offering and presentation, McManus says. Not only were the cataloger’s holiday-specific products such as cookies and petit fours a hit, “we cleaned house last year on slow-moving products, spending 35% more time at our photo shoot to replace them.”

That made a big difference, she says, “as there were relatively few products that didn’t pull their weight.”
Additional reporting by Monica Kitchen, Tim Parry, and Jim Tierney.

HOLIDAY RESULTS: Naughty Nice or

Company Holiday sales vs. last year Notes
Abercrombie & Fitch
(apparel)
direct sales up 35% total sales up 9%
Charming Shoppes
(apparel)
direct sales increased 1% total sales down 5%
Chimpfeet
(pet products)
sales up 47% for Nov. and Dec. Did not mail a catalog; focused on SEO, e-mail
Chukar Cherries
(food gifts)
sales up on a 15% circ hike offered more price points, added pages
Eddie Bauer
(apparel)
direct sales up 9.7% includes Internet and catalog
J.C. Penney
(general merchandise)
direct sales down 12.9% Web sales slipped 5.1%
Jos. A. Bank Clothiers
(men’s apparel)
direct sales up 14.3% for December
Lillian Vernon
(gifts, home goods)
sales increased 1.2% on a 6% circulation hike laid off 25% of staff on Dec. 20
Mackenzie Ltd.
(upscale foods)
sales rose 30% above plan by 5%
Neiman Marcus Direct
(luxury goods)
sales were up 8.4% for December
PajamaGram
(apparel, gifts)
sales increased 20% below plan by less than 5%
Swiss Colony
(food, gifts, home goods)
sales up about 5% spent twice as much on Internet search
Tiffany & Co.
(jewelry, gifts)
direct sales flat worldwide sales up 8%
Urban Outfitters
(apparel)
direct sales up 39% For November and December
Victoria’s Secret Direct
(women’s apparel)
sales fell 11% on a fiscal basis sales slipped 9% on a calendar basis