MERCHANDISING

The world is a merchant’s oyster, according to respondents of Multichannel Merchant’s 2005 Benchmark Report on Merchandising. Sixty-nine percent of respondents this year, up 10 percentage points from last year, sourced outside the U.S., indicating that more are looking abroad for unique merchandise. The percentage taking domestic sourcing trips decreased a statistically insignificant three percentage points, to 87% from 90% in 2004.

Those surveyed reported finding a mean 20.5 products on international sourcing trips and 13.9 products on domestic sourcing trips. But while the number of products found on international sourcing trips rose from 19.1 products among 2004’s respondents, the mean amount of products respondents selected on all sourcing trips that actually made it into the catalog remained all but flat: 41.0%, compared with 40.1% last year.

Sourcing

Despite a rise in international sourcing trips, respondents did not rank traveling abroad as a top method of sourcing products. On a scale of one to five, with five being the best, manufacturers were rated the number-one source of new items, with a ranking of 3.7. Overseas sourcing trips followed with a 3.5 ranking, and domestic sourcing trips and customers tied with a 3.4 ranking. The most common form of sourcing for new products, internal brainstorming, was used by nearly all respondents this year — 98% — yet ranked fourth as a method of sourcing new products.

Where respondents sourced remained consistent with last year’s findings. The U.S. topped the list, with 98% of respondents sourcing domestically. Sixty-six percent of those surveyed sourced products in the Far East, 43% in Canada, and 41% in Europe.

This year’s respondents shared their sourcing tasks with more people. An average of 5.0 people sourced for respondents’ primary catalogs, up from 3.3 people last year. More than three-fourths (77%) of those who sourced for the catalog did the same for the Web.

Perhaps because of increased sourcing internationally, sourcing time prior to a catalog mailing increased to a mean 6.3 months from last year’s mean 5.9 months.

Buying and manufacturing

Respondents to this year’s survey said they purchased items an average of 5.1 months in advance of a mailing. That’s further in advance than last year’s respondents, who bought on average 3.9 months prior to a mailing.

Riding on the crest of increased international sourcing trips, 44% of those surveyed this year said they planned to increase their import activity, compared with 28% of last year’s respondents. Plans to decrease importing held steady at 6%.

Respondents bought a mean 49.0% of projected volume initially, compared with 37.3% in 2004. The number of rebuys on an item tracked with the increased initial purchase volume, dropping to a mean 3.0 rebuys per item a year. In 2004 respondents said they made 3.9 rebuys on an item.

Similar to the number of people sourcing for a company, the number of people making purchases increased to an average of 4.0 people from 2.7 last year. Of the individuals making purchases for their primary catalog, 88% also bought for their Website.

Not surprisingly, respondents ranked reliability and quality of product of top importance when rating vendors. Each quality received a score of 4.4 on a scale of one to five. Profit potential trailed closely with a 4.3 ranking, while advertising allowance brought up the rear with an importance ranking of 2.4. (Nearly 46% of respondents, however, didn’t receive any advertising allowance from vendors.) Exclusivity of product climbed in importance to 4.1 from 3.8 last year.

Analysis

Respondents proved their reliance on exclusivity, as 77% requested product modifications for exclusivity from vendors. A mean 16.6% of respondents’ products were modified, compared with a mean 13.6% of products among last year’s participants.

But the percentage of items that were manufactured by respondents’ companies or for them under contract decreased to a mean 25.8% from 30.1% last year. Dollar sales volume from these products dropped over eight percentage points to 39.7%. And only 30% of this year’s participants planned to increased their manufacturing efforts, compared with 42% of last year’s survey participants.

Following forward-shifting sourcing and buying times, respondents also reported a longer lead time before a catalog mailing date for manufacturing items. On average, respondents manufactured items 5.8 months in advance, whereas last year they reported manufacturing 4.1 months prior to the mail date.

New items introduced during the past year represented a mean 28.4% of this year’s respondents’ merchandise mix. A year ago respondents reported a mean 26.6% of new products. Trending with that data, 36% of those surveyed this year planned to increase the amount of new products during the next 12 months by more than the usual rate, while 42% planned for the same amount.

A merch pro weighs in

The plurality of those surveyed — 48.5% — said they planned to maintain the average price point, while 6.1% planned to decrease the average price point.

Thirty-nine percent of respondents expanded their product niche during the past 12 months. Of those, the majority — 91% — added new categories to their primary catalog; 36% added a special section to their primary catalog, and 27% launched a spin-off catalog.

The most common method of analyzing merchandise among respondents was category analysis, with 87% using the technique. Respondents also used page/spread analysis (74%), square-inch analysis (55%), and price-range analysis (45%).

We asked Jacksonville, FL-based catalog merchandising consultant Leila Griffith, to comment on our survey findings.

Q. Results from our Benchmark on Merchandising show that respondents are sourcing and buying further in advance to a catalog’s mail date. Respondents reported that they sourced items a mean 6.3 months in advance of a catalog mail date in 2005, compared with 5.9 months in 2004. And those surveyed this year reported buying products a mean 5.1 months prior to the mail date this year, compared with 3.9 months in 2004. Why is this?

A. There seem to be more and more people in the organization, from CEO to fulfillment to customer service personnel, who need to pass off on merchandise and categories, so the further the advance planning when sourcing, the better. There may be field-testing needed for the product as well. Advance sourcing also gives purchasing additional time to project inventory requirements.

As far as the purchasing time, longer lead times are often required for special product, and more time for negotiations is always welcome. Most domestic vendors require 60 days’ lead time for initial orders and 30-45 days for reorders, and if they don’t get the orders, they don’t ship. Imported items always have longer lead times, so it’s absolutely necessary to purchase months ahead.

Q. The mean number of both domestic and international sourcing trips has increased from 2004, with respondents making a mean 4.7 domestic trips in 2005, up from 4.0 last year, and a mean 3.0 international trips in 2005, up from 2.5 last year. Additionally, more of those surveyed made international sourcing trips. What accounts for the increase in sourcing trips?

A. It’s so important to take advantage of the myriad trade shows available to us. It’s also advantageous to see what our competition is seeing and buying or not buying. Trade shows are also a good place for buyers to touch base with vendors and address past and current problems and issues. The merchants have more leverage than anyone else in the company when it comes to vendor relations.

Plans for new items in the next 12 months

International sourcing trips may be increasing because there are always foreign vendors who show overseas but don’t come to markets here. So traveling to foreign markets provides opportunities for unique products.

Plans for import activity

If catalogers are willing to commit for more inventory with longer lead times and pay for the product in advance of receipt, there are clearly margin benefits to be had. Merchandise made in Asia is much less expensive than product made in other areas like Europe or Britain, but the panache or quality can be questionable. For any exclusive designs or manufacturers’ items that are modified, it’s imperative to get production samples in advance and to test everything.

Percentage of products modified by vendors

Foreign markets are great for spotting trends and getting ideas. Some of the major markets in Frankfurt or Cologne or Milan can be shopped for unique items. Even if the merchandise is too expensive and/or the perceived value isn’t there, it can be inspiration for product development in Asia. Of course this takes time and money, and planning is essential.

“Do the same people who buy for your catalog also buy for your Website?”

Will increase by more than usual rate 36%
Will increase by usual rate 21%
Will keep about the same number 42%
Total does not equal 100% due to rounding

“Do the same people who buy for your catalog also buy for your stores?”

2005 2004
Plan to increase importing 44% 28%
Plan to decrease importing 6% 6%
No changes planned 50% 64%
Totals may not equal 100% due to rounding

Where respondents sourced product

5% or less 11%
6%-10% 26%
11%-15% 6%
16%-20% 6%
21%-30% 3%
More than 30% 26%
We don’t request modifications 23%
Mean: 16.6%
Total exceeds 100% due to rounding

“How much of projected volume do you buy initially?”

Yes 88%
No 5%
We don’t sell online 8%
Total exceeds 100% due to rounding

People responsible for merchandise analysis

Yes 40%
No 8%
We don’t have stores 53%
Total exceeds 100% due to rounding

“How do you analyze merchandise?”

United States 98%
Far East 66%
Canada 43%
Western Europe 41%
India 18%
South America 16%

Methodology

1%-19% 5%
20%-39% 40%
40%-59% 24%
60%-79% 18%
80%-99% 8%
100% 5%
Mean: 49%

Merchandiser 50%
Buyer 25%
Consultant 6%
President/owner 19%
Other 34%

Category analysis 87%
Page/spread analysis 74%
Square-inch analysis 55%
Price-range analysis 45%
Do not use analytical techniques 7%

Between Aug. 3 and Sept. 6, Primedia Business e-mailed invitations to participate in an online survey to 1,655 Multichannel Merchant subscribers. Respondents were offered a chance to be entered into a drawing for one of four $50 Amazon.com gift certificates. Three follow-up e-mails were sent to nonrespondents to encourage response. Of the 1,439 deliverable surveys, 49 usable surveys were received, for an effective response rate of 3.4%.

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MERCHANDISING

When it comes to sourcing and manufacturing merchandise, the U.S. is still the number-one place to turn to, at least among participants in the Catalog Age Benchmark Report on Merchandising. While this is hardly a new trend, the survey did turn up a few unexpected results. For one, trade shows are no longer the most valued source for products among respondents. For another, more catalogers are offering new products in their books, perhaps in response to increased competition from online marketers. As for turn rates, percentage of goods that are self-manufactured, the most popular merchandise analysis techniques, and other product-related issues, keep reading….

SOURCING The U.S. remains the favorite sourcing location for respondents, with 89% rating the States a “very good” or “good” sourcing locale. The mean number of domestic sourcing trips took a dip, however, from 6.7 trips last year to 4.4 this year. The Far East is the second most-popular location, with 35% of respondents rating it “very good” or “good,” up from 30% last year. Canada is close behind, with one-third rating it “very good” or “good.”

The mean number of products sourced on a domestic trip is 11.1, though 24% of respondents usually find more than 20 items each trip. On overseas sourcing trips, respondents find a mean 15.5 products, though an impressive 49% come up with more than 20 items.

The big news is that respondents no longer rate trade shows as their best source of new product. Only 63% of this year’s respondents give them “very good” or “good” marks, down from 76% last year. Visits to manufacturers are more popular, with 67% of survey participants rating them “very good” or “good.” Other top-ranked product sources are internal brainstorming (deemed “very good” or “good” by 51%), customers (38%), and the competition (38%).

BUYING Respondents may be sourcing goods a little later – a mean 6.2 months in advance to the catalog mailing date, down from 6.7 months among last year’s respondents – but they’re buying merchandise a bit earlier: a mean 4.0 months in advance, compared to 3.6 months last year. Respondents are initially buying an average of 43% of projected volume, virtually the same as last year’s 44%.

The mean percentage of products that respondents import rose from 22.1% last year to 28.7%. What’s more, the imports generate a mean 28.1% of dollar sales volume, up slightly from 26.1%. Nearly one-quarter, or 24%, of respondents say they plan to increase their import business, while 71% say they have no changes planned.

MANUFACTURING The mean percentage of products that survey participants manufacture themselves or contract for a manufacturer is 27.3%, down about two percentage points from last year. The overall mean percentage of dollar sales volume garnered from self-manufactured items slid from 32.8% among last year’s respondents to 30.4% this year.

While the mean percentage of projected volume manufactured initially is virtually unchanged at 41.4%, 13% of respondents manufacture enough merchandise to cover all of their projected volume from the get-go.

The U.S. remains the most popular place to manufacture or contract for manufacture of products: Among the 78% of respondents that manufacture/contract for manufacture, 94% do so in the U.S., up from 92% last year. The Far East has lost ground, with only 19% of respondents manufacturing there, down from 24% in 1999. The smallest respondents (those with annual sales of less than $1 million) are just as likely as the largest (those with sales of at least $50 million) to manufacture their own products: Only 18% of each group did not manufacture/contract to manufacture any of their own products.

PRODUCT STRATEGY Nearly one-third (31%) of the products in respondents’ catalogs are new, up from 24% among last year’s survey participants. But fewer respondents – 56%, down a full 10 percentage points from 66% last year – will increase the number of new items they offer in the coming year.

Fifty-one percent of respondents expanded their merchandise niche into a new category over the past 12 months, up only slightly from 49% last year. Among those who did, 39% launched a spin-off catalog, up from 35% in 1999, while 46% added new categories to their primary catalog, up from 40% last year. Launching a special section in respondents’ primary catalogs was less popular, with only 9% doing so, down a hefty 15 percentage points from 24% last year.

Though the mean number of items per page has held steady for the past five years at roughly six, 13% of respondents plan to increase the number of items per page in the next 12 months, up from only 5% last year. Only 6% will decrease the number of items, down from 16% last year.

METHODOLOGY In June 2000, the Catalog Age subscriber file was sorted on an nth-name basis to extract a representative sample of 1,000 catalog presidents. These subscribers received a letter of explanation, an 87-question survey, and a postage-paid envelope in which to return the survey to an independent marketing/research firm. Of the 990 deliverable questionnaires, 114 were completed and returned, resulting in a response rate of approximately 12%.

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Merchandising

They say that behind every great catalog is a great merchant-many of whom are the owners or founders of the company. In fact, 48% of the participants in the 1998 Catalog Age Benchmark Report on Merchandising say that the catalog’s president or the owner is responsible for sourcing merchandise. Still, this percentage has fallen considerably from the 66% of respondents last year who said the president or owner was the chief sourcer. Part of this trend may be due to the fact that our survey sample this year included more large catalogers than in previous years. But, it’s also likely that more catalog founders are turning the sourcing duties over to merchandising specialists or hiring more employees to find products. For instance, the percentage of respondents who say that only one person sources for the primary catalog fell from 28% last year to 11% this year. The largest group-46% of respondents-say they have two people sourcing, while the percentage of respondents who have at least six employees sourcing doubled from 6% last year to 12% this year.

Trade shows remain the top source for finding products, with 80% of survey respondents rating them a “good” or “very good” merchandise source. But while the shows are popular, catalogers aren’t overly thrilled with them-the percentage of respondents rating shows as “very good” fell from 43% last year to 34% this year.

Several catalog merchandising experts who attended a whirlwind of shows this summer are not surprised that trade show ratings tumbled. “It’s discouraging-there’s not a lot of new stuff out there,” says Leila Griffith, an Atlanta-based consultant. The merchandise shows were “very unexciting,” says Sunnyvale, CA-based consultant Kathy Revello, adding that even some of the shows in major markets were downright “terrible” in terms of product selection and innovation.

One sourcing method that has picked up considerably is surfing the Internet. More than one-fifth (21%) rated the Web a “good” or “very good” source for products, up from 12% last year, and nearly 67% of the books and music catalog respondents rated the ‘Net a “good” or “very good” merchandise source. Still, 36% of total respondents have yet to try the Web as a source for new products, although that figure is down from 42% last year.

Where catalogers travel to find merchandise hasn’t changed much. The U.S. still rules, with 97% of all respondents rating it a “good” or “very good” place to find product. Interest in the Far East has dropped, with 35% this year rating it “good” or “very good,” compared to 46% last year. Although the lingering financial crisis in parts of Asia could mean bargains for U.S. merchants buying goods there, the pitfalls of sourcing in Asia-high travel expenses, long lead times, up-front commitments to carry inventory-haven’t changed, Griffith says.

But some mailers, such as jewelry and home decor products marketer Ross-Simons, have indeed found better pricing and profit margins from suppliers in the Far East as a result of the economic turmoil. The Cranston, RI-based mailer, which sources goods in Europe, China, the Philippines, Indonesia, Japan, and Taiwan, has added an additional sourcing trip to furniture factories in the Far East to its merchants’ overseas schedule, says vice president of merchandising Mary Morris. But the price tag for a trip to Asia can be prohibitive, she notes. “You could spend $5,000 on one airline ticket, plus another $5,000-$10,000 on hotels depending on the length of the stay,” she says.

Respondents take a mean of 4.6 domestic sourcing trips a year. Consumer catalog respondents travel domestically a mean of 5.5 times a year, while business-to-business respondents take a mean of 4.2 onshore trips, and hybrids-those that sell to both consumers and businesses-take a mean of 3.8 trips per year. About 30% of the total respondents say they increased domestic sourcing trips in 1997 over 1996, and 58% plan to take the same number of domestic sourcing trips in 1998 as they’ve taken this year.

This year’s b-to-b catalog respondents are more likely to source overseas-they take a mean of 5.4 international trips-than are consumer catalog participants, who take a mean of 1.6 overseas trips, and hybrids, who leave the U.S. to source goods a mean of 4.2 times.

Respondents overall find a mean of 10 products on each sourcing trip-both domestic and overseas-which is about the same as last year. Survey participants look for products a mean of 6.4 months before the mailing date, and they buy goods a mean of 3.4 months before the mailing date. Overall, respondents initially buy a mean of 37% of the projected volume.

Slightly more than half of all respondents (51%) employ a buyer specifically to purchase catalog products, while 27% say the president or the owner handles the buying duties. Company size makes a difference here: 55% of the consumer respondents with annual sales of less than $1 million say the president does the buying, compared to 29% of consumer participants with sales from $1 million-$9 million and 21% of those with sales of at least $10 million.

Overall, respondents say they make a mean of 4.1 rebuys on an item. But a whopping 68% of b-to-b respondents say they typically make five or more rebuys on an item, compared to 58% of hybrids and 26% of the consumer respondents.

Respondents consider product quality and vendor reliability the most important criteria for selecting merchandise vendors-98% of the respondents rate product quality “important” or “very important,” and 97% rate reliability “important” or “very important.” Profit potential is the next most critical vendor trait (rated “important” or “very important” by 88%), followed by uniqueness of product (83%), product back-up capability (81%), price (80%), and product exclusivity (54%).

Although only 28% of respondents rate an advertising allowance as an “important” or “very important” vendor criterion, 61% receive this type of discount, up from 51% last year. Ad allowances-merchandise discounts extended to help offset the production costs of putting a vendor’s item in the catalog-are more prevalent in the consumer sector; 68% of consumer respondents get an ad allowance, compared to 64% of business mailers and 50% of hybrids. On the other hand, b-to-b catalogers are more likely to negotiate a photo allowance; 22% of b-to-b and hybrid respondents say they typically receive photo discounts, compared with 14% of consumer participants.

But a tremendous 96% of all respondents receive volume discounts from merchandise vendors. And respondents are apparently creative in bargaining with vendors, as 52% claim to get an “other” unspecified vendor discount. Most of these catalogers are probably getting a freight allowance, in which the vendor picks up the tab for shipping the goods, Griffith says.

Ross-Simons, for one, has several vendor discount programs. “We may get a flat rate of $1,000 for a photo allowance,” Roberts says. “But if we can negotiate a 15% ad allowance of the invoice, that could amount to more than $1,000” depending on the sales volume. While Roberts estimates the going rate for an ad allowance in the consumer gifts category at about 10%, our survey respondents are getting only a mean 6%-5% for consumer respondents, 6% for b-to-bers, and 9% for hybrids.

About 15% of respondents don’t manufacture (or contract for the manufacture of) any product, but those who do manufacture a mean of 27% of their products. Consumer and hybrid respondents who manufacture goods do so for a mean 29% of their products vs. a mean 20% among b-to-b respondents. Of the respondents who manufacture goods, 88% do so in the U.S., while 23% manufacture merchandise in the Far East, 12% in Western Europe, and 9% in Mexico or Eastern Europe.

Respondents who manufacture or contract for the manufacture of products have the goods produced a mean of 4.2 months before the book’s mailing date. While consumer respondents manufacture 54% of projected volume, b-to-bers make 35% of the expected volume, and hybrids 46%.

Overall, respondents say that new products account for a mean 22% of their merchandise mix. The percentage of new products added varies among consumer catalog respondents, however. For instance, apparel and shoe catalogers offer a mean 36% of new products, and gifts catalogers add a mean 32% of new items. By contrast, sporting goods respondents include a mean 17% of new items and food mailers a mean 14%.

More than 53% of the total survey participants-including 86% of the apparel and shoe catalogers-say they have expanded their merchandise niche in the past year. Of those who expanded their niche, 35% launched a spin-off, and 22% added a section in their primary catalog for new product categories.

In the industry at large, Saks Fifth Avenue and Coldwater Creek are among the clothing catalogers that recently branched out into the home decor market; DM Management and Brylane are in the process of doing so. Several years ago, hard goods catalogers, lured by the high sales volume of apparel, would add clothing to their catalogs, says Griffith-a strategy that typically didn’t work well, given the high return rates in that market sector. “Now everyone wants to get in on home decor” to cash in on the home products craze, she says.

In May 1998, the Catalog Age subscriber file was electronically sorted on an nth-name basis to extract a representative sample of 1,000 top-level catalog executives. These subscribers received a cover letter, an 82-question survey, and a postage-paid envelope in which to return the survey to an independent marketing research firm. Of the 1,000 surveys, 122 were completed and returned, resulting in a response rate of approximately 12%. This particular group of respondents reported mean annual sales of $29.5 million compared to a mean of $21.6 million for previous groups of respondents, and this difference may affect comparisons with past surveys.

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