Penny Pinchers: Early fall sales for multichannel merchants

If you thought last fall was the worst of times, based on the hefty postal rate hike of May 2007 and the slowing economy, perhaps you were mistaken. On top of the added cost of mailing catalogs, paper prices are up, and volatile fuel costs have crimped consumer spending and pushed up the price of raw goods.

Add to that an economy that’s gone from bad to worse, the stock market rollercoaster ride in October, and the distraction of the presidential election campaign coverage. No wonder people aren’t in the mood to spend.

What does this mean for catalogers and Web merchants? Brace yourselves for a harsh holiday, and do whatever you can to keep costs lean while enticing people to order. Kind of like last year, but worse.

In a slow economy, “you have to work harder to make the same amount of sales,” says Catesby Jones, president of Peace Frogs. That’s why the manufacturer/marketer of apparel and accessories for teens has “increased our mailing by 10% this year, and we are expanding our affiliate and key word marketing,” Jones says. “We just have to focus on tighter prospecting to make every catalog count.”

Fall sales for Peace Frogs are slightly above plan, and 5% higher compared to last year. But its wholesale business has been less robust, Jones says. “We have lost many customers to bankruptcy, and there seems to be an overall decline in the number of stores that are in the market.”

How are other merchants doing this fall? Catalog sales as of early October were running according to plan for jewelry and gifts merchant Ross-Simons. “But we cut catalog prospect circulation 20% due to cost increases,” primarily the postal rate hike, says vice president of marketing Larry Davis.

Ross-Simons has seen some soft response on luxury goods prospects in the mail, and as such it’s increased efforts on natural and paid search, Davis says. “The soft and uncertain economy and rising costs — particularly postage — have hurt traditional catalog sales.”

Fall sales for bedding merchant Cuddledown were right on plan until late September, says president Chris Bradley. “We are now 2% below plan for the fall book,” he says, but sales are up “a low double-digit increase” over last year.

Bradley cites improved merchandise and improved creative, as well as a 5% to 10% hike in circulation as factors that helped boost the company’s fall sales.

Phyliss Mosca, president of plus-size women’s apparel cataloger Ulla Popken, says her company’s fall sales were off about 7% compared to its fall budget, and down about 5% compared to last year.

“Year-to-date, we have been ahead of last year by more than 8%” on about 8% fewer pages circulated, and about on budget, Mosca says. But beginning in the second half of 2007, “we began to see a shift in buying patterns that has been even more dramatic in 2008.”

What’s happening? “Consumers are buying much closer to need or event,” Mosca explains. “We believe this has delayed fall response, as our earlier fall books were down significantly compared to our most recent fall mailings, which are on or above budget.”

Still going postal

Ulla Popken made major changes from last year, including shifting its mail pattern, pages and assortments. The moves are designed to reduce pages circulated overall, and optimize response in key prospecting periods, Mosca says.

There isn’t much “wiggle room” to combat postal rate increases: “We are working very closely on negotiating better paper options as part of a larger evaluation we have started on both print and paper,” Mosca says. Ulla Popken’s current catalogs measure 7-1/2“ x 10“. “We’re also mailing slim-jim books at optimal times four times per year.”

Catalog sales have dropped by about 30% for furniture and home decor mailer Touch of Class. But its Web sales are up slightly, notes president Fred Bell, so its overall sales are down by about 15%. “We’re down from last year,” Bell says, “but we’ve made some significant changes.” For one thing, Touch of Class cut costs by going from a 92-page catalog to an 84-page book, Bell says. It has also lowered circulation.

Based on higher costs and lackluster summer sales, the company eliminated a catalog from its fall mail plan. Overall, Touch of Class’ prospecting in the past year is down by about 40%. “We’re still reasonably heavy there,” Bell adds, “but still, it’s 40% less than last year.”

And the Internet isn’t quite picking up the slack. “Google Ad Words response rate is down in the 5% to 10% range. We’re still doing reasonably well with them — it’s just they’re not increasing the way you’d like to see them,” says Bell.

The cataloger has been hurt by weakness in the home decor market, Bell says. Because of the mortgage crisis, people are moving out of their homes, so they’re not decorating. “Plus, consumer confidence has been hurt, so people aren’t as inclined to buy home decor and furnishings.”

On the upside

While few mailers are immune to the economic woes, discounters and enthusiast merchants tend to do better than others. Discount general merchant Sierra Trading Post increased fall sales 10% on a comparable circulation hike.

Director of catalog operations David Giacomini credits the rise to improved e-mail targeting, circulation segmentation and better integrating of cross-channel marketing events. “Our business model focuses on offering consumers closeout prices on famous name brands,” he says. “So we are less sensitive to economic distress, as people tend to seek out bargains when the economy is weak.”

Sierra Trading’s catalog circulation this year is approximately 50 million, Giacomini says, the same as in 2007. “We are also prospecting less with the catalog as our Internet acquisition program is quite robust.” The catalog is increasingly being used as a retention tool, he adds.

“We have recognized significant opportunities to improve the relevance of our mailings through better targeting and versioning,” Giacomini says. This will allow Sierra Trading to increase revenue, improve the profitability of each mailing and reduce circulation.

Another mailer doing fairly well is Garrett Wade Co. The woodworking tools and accessories cataloger’s August sales were up 25% from plan, while its September and October were on plan, says vice president Craig Winer.

The company mailed approximately 10% more catalogs this year than last, and continued to ramp up its paid search program “while keeping a close eye on ROI and ad/sales ratios,” Winer says. It also retained a consultancy to help it improve circulation planning, which is paying off.

Grim expectations

But even Garrett Wade is anxious about the holiday season. And as a result, it has “factored lower response rates into our holiday plan,” Winer says.

“We expect holiday to be difficult and are going in with a conservative plan,” says Cuddledown’s Bradley. “Now is not the time to aggressively try to grow your business.”

Touch of Class also has lower expectations for sales through the holiday season, Bell says. “So what we’re really focusing on now is how to fine-tune circulation for the spring — and how tight should we be based on current response patterns.”

Ulla Popken’s Mosca doesn’t envy mailers who rely on the holiday season for the bulk of their business. “Thankfully holiday is one of our slowest periods and we are optimistic consumer confidence and buying will improve — at least somewhat — by end of the first and the second quarter next year, which is our busiest season.”

Peace Frogs’ Jones is one of the few mailers with a positive outlook for holiday. Why is he so optimistic? Because the company’s line of quality eco-friendly products priced at less than $50 may be a hit with shoppers this year.

People will still give gifts this holiday season, Jones says. “They just are not going to give expensive gifts.”
Additional reporting by Patrick Barnard and Jim Tierney

Promo madness

HOW DO YOU GET PEOPLE to open up their wallets this season? Many hope promotions will do the trick. Ross-Simons, for instance, offered free shipping on any order over $250, along with tiered discounts based on order value, says vice president of marketing Larry Davis.

Touch of Class has become more aggressive in sending out e-mails for offers like free standard shipping or a percent off per dollar cost, says president Fred Bell. “And they’ve been productive in the short time frame.”

Ulla Popken offered deeper discounts compared to last year, “while maintaining our budgeted margin,” says president Phyliss Mosca. “We also successfully increased the frequency of our e-mails and have seen positive responses as a result.“

Overall discounting is heavier and earlier than previous years, Mosca says: “I have been somewhat shocked at the drastic and very early promotional efforts several competitors have offered this year.”

Craig Winer, vice president of woodworking tools cataloger Garrett Wade Co., agrees: “Everyone is offering sale pricing and discounts and free shipping and all that stuff — but I don’t think that answers the customer’s primary concern, which is, ‘Do I have any money at all?’ ”

Merchants must be careful about cutting into margins too much with incentives that aren’t necessarily going to entice more people to order, Winer says. Garrett Wade has been trying to figure out what it can do to get customers’ attention — without doing what everyone else is doing.

The last thing customers want to see today is “an escalation in gimmickry,” he says. “They can see through that — so you have to provide them with honesty and products that really do make an impact.” — MD

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