Reaching into retail

Despite their differences, catalogs and retail have always had a close relationship. After all, cataloging sprang from the retail sector in the late 1800s and early 1900s, when retailers such as Sears Roebuck, Montgomery Ward, and J.C. Penney pursued cataloging to reach a decidedly rural population.

Nearly a century later, many companies that started out in mail order, such as The Right Start and Eddie Bauer, have rolled out multistore retail divisions. And as the catalog industry matures and sales level off, more mailers are opting to get into the retail game. Stores can help catalogers reach customers who don’t buy via mail order and aren’t on lists; a retail outlet can also be used to test or liquidate merchandise.

For retailers, catalogs provide a nationwide “store without walls.” Moreover, cataloging in recent years has been growing at nearly twice the rate of retailers. So it’s no wonder that more retailers than ever before are studying the catalog market, making retailers the most serious new segment to espouse cataloging. Just this past year, several major retailers, including Macy’s and Toys R Us, launched catalogs. The lure of catalogs to retail and retail to cataloging continues, and balancing the two divisions is an increasingly hot topic.

The catalog attraction to retail Every research study that I have seen indicates that there are two types of buyers-those who feel comfortable buying by mail, phone, or the Internet, and those who don’t. The latter, sometimes referred to as the “touch-and-feel crowd,” are the folks that catalogers try to reach by opening stores.

Many catalogers also believe that a retail presence will broaden and enhance their brand and name. Other mailers enter retail at the outlet level to get rid of overstocks. Outlet stores and malls have become a popular retail concept for mailers. Lands’ End, while not a full-line retailer, has expanded into outlet stores that sell its casual apparel catalog merchandise at special prices. And Peruvian Connection, the upscale cataloger of imported sweaters and cottons, has expanded into five outlet stores, including one in the U.K., primarily to help clear out merchandise at the end of a season.

Opening a store does not have to be outrageously expensive. True, lease costs, fixtures, remodeling, labor, and training expenses can add up. As a cataloger, though, you already have the most important component: the merchandise. But before you open a store, you should address these questions:

* Will you sell the same merchandise in the store as in the catalog?

* Will pricing be the same or discounted?

* Will you sell additional merchandise to supplement catalog goods?

* Will the store and its advertising reflect the catalog brand and image?

Unlike catalogs, in which you can start small by testing a few lists and alternative media, a store either sails or sinks. But store success is relatively easy and fast to judge: You should know if the concept will float within a year, after you’ve experienced all the seasonal cycles and gift-buying occasions.

Retail cycles differ considerably from those of catalogs. Retailers typically hold spontaneous sales events and can generate impulse buys later in the selling season. Also, while low unemployment drives catalog sales, since busy working consumers have no time to shop by retail, high unemployment may inspire more consumers to shop in stores because they have the time-and the inclination-to hunt for deals.

The retail push Retailers have several good reasons to get into cataloging. For one, catalogs extend the reach and limits of stores. Without the typical geographical restrictions of a physical presence, catalogs allow a retailer to service a single store area, a multistore area, and areas where it has no stores. Catalogs also serve multiple marketing purposes for retailers, from increasing revenue and promoting the brand to driving store traffic. Finally, catalogs enable retailers to become more “customer-centered,” letting customers shop when they wish to shop, instead of only when the stores are open, as well as where and how they wish to shop.

Retailers contemplating a move into cataloging generally have two options: build it or buy it. In other words, a retailer can create a catalog concept from the ground up or acquire an existing catalog company.

Minneapolis-based retailer Dayton Hudson, for example, got into mail order by acquiring Rivertown Trading and its multiple gift catalogs, which include Signals, Wireless, and Seasons. The extensive catalog distribution system and catalog management skills of Rivertown Trading give Dayton Hudson an immediate and significant level of expertise in cataloging.

On the flip side, Bath & Body Works, a Columbus, OH-based toiletries retailer owned by Intimate Brands, with more than 900 stores nationwide, decided to build its catalog from within. With input from sister company Victoria’s Secret and some outside help, Bath & Body Works put together a small internal catalog team and outsourced its fulfillment functions in order to launch its initial catalog this past fall.

For a retailer, developing and mailing a catalog can be deceptively simple. A retailer already has the following in place:

* a merchandising/buying team that knows sourcing and selection of product;

* knowledge of what sells at retail;

* advertising or sales promotion skills;

* warehousing and distribution facilities; and

* a list of retail credit card customers.

It’s relatively easy to put together and mail a catalog. The difficulty comes in managing the entire process, mastering the back-end, building a repeat mail order buyer list, and translating these efforts into long-term profitability.

Living in harmony Catalog or retail parties seeking to enter the other channel need to address these key issues:

1) “You’re stealing my customers.”

Let’s admit it: There is a natural conflict between stores and catalogs. Each side thinks the other is stealing its customers. If the stores are all company-owned, as with HoneyBaked Ham and Victoria’s Secret, this is an internal headache for management. It’s a different story if the stores are franchised or independently owned. Hallmark Cards stores, more than 90% of which are independently owned, protested the launch of a national consumer catalog and ultimately changed the way it was managed, distributed, and measured. The catalogs are now personalized to promote local Hallmark shops and drive traffic rather than emphasizing selling products directly.

Similarly, Rocky Mountain Chocolate Factory in the 1980s tried to launch a mail order catalog without giving any commission to franchise owners. It was a disaster. The company had printed 35,000 copies of the catalog, sending 500 copies to each of its 70 stores. Rocky Mountain generated only two orders from the campaign, which indicates that retailers either personalized the book to encourage store purchases or disposed of them.

2) Database drives the marketing for both divisions.

In an ideal world, when a company has both stores and a catalog, prospect names would be captured by both units and fed into a combined database. From there, an integrated marketing team would test the names for store traffic generation as well as for catalog sales.

Claire’s Stores does a great job of capturing names of teenage girls who wish to receive its Just Nikki apparel catalog. The company keeps a supply of catalogs at the stores, but customers must fill out an address card before they get one. Kitchen and home products cataloger/retailer Williams-Sonoma has traditionally used its catalog database to determine where and when it had sufficient concentrations of names to open its next store. Selective use of personalization and ink-jetting on the catalogs can help drive store traffic; likewise, special offers can encourage the customer to order directly.

But we don’t live in an ideal world. Many retailers have been reluctant to invest the time and money in building a database. Also, the catalog and retail divisions may be reluctant to integrate databases.

Nonetheless, if you have both a catalog and a retail division and the two entities are not working together, you are missing out on a prime marketing opportunity.

3) Cataloging and retailing have fundamental differences.

While there is some synergy between the two sales channels, there are also many differences:

* Catalogs sell items; stores sell product lines.

* Retailers understand markdowns; most catalogers don’t.

* Location is crucial to retail; it’s not an issue to catalogs.

* The profit and loss statements are quite different, and each has a different successful financial model. For instance, retailers have higher labor and bricks-and-mortar expenses but generally low promotion costs; catalogers have lower overhead but higher distribution costs and the technology expenses of a call center and fulfillment operations.

Just because a company is successful in one channel does not necessarily make it a winner in the other. Dozens of sub-issues, such as pricing, markdowns, overlap vs. uniqueness of product in each channel, rebuying, and returns handling, can complicate the management of the process between channels. But as it becomes increasingly important to expand your marketing reach, and to be ready whenever, wherever, and however your customer wants to shop, mastering the catalog/retail relationship will certainly pay off.

1) Lower margins Retailers typically work on a 50% margin; most catalogers strive to pick up another 10 points of margin, which they can achieve either through offshore merchandise production or by buying goods in larger quantities and storing them in the warehouse.

2) Different selling seasons Many gift catalogers, for instance, concentrate the bulk of their annual mailings and generate the most business in the fourth quarter. But if you commit to a year-round store, you’d better make sure you can build traffic throughout the year.

3) Managing a labor force Hiring, training, and keeping good people is a bigger problem in retail than in most other industries-including mail order.

4) Bricks-and-mortar issues True to the adage that stresses “location, location, location,” you’ll want to set up shop in an area where traffic will come to you. But such prime real estate can cost you plenty. -JS

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