Steep discounts. Cheap shipping. Free shipping. Multichannel merchants pulled out the stops to try to get consumers to spend money this past holiday season. But nothing really worked: Consumers simply weren’t buying
How bad was it? The National Retail Federation reports that holiday retail sales fell 2.8% to $447.5 billion. Not only is this considerably worse than the trade organization’s earlier estimate of a 2.2% increase; it’s the first decline posted since the NRF began tracking such figures in 1995.
Even many off-price merchants, which typically thrive in a recession, got stung this year. “We are in the midst of the worst retail climate in generations,” said Sierra Trading Post president/founder Keith Richardson in a statement. The discounted products mailer in January said it would cut 10% of its workforce — the first time it’s had to resort to layoffs in its 23-year history.
Indeed, “it was a universally poor Christmas for retailers, not just in terms of sales, but also in how it will ultimately affect profitability,” says Neil Stern, retail analyst and senior partner with retail consultancy McMillan Doolittle. “There were almost no winners and lots of losers.”
In other words, Stern notes, “it was about what had been expected.”
Down we go
For The Guild, a cataloger of artworks and artisan decor, holiday sales were down 20% from the company’s plan and flat with 2007, says director of corporate sales Kathi Collins. But she notes that “our average order amount was appreciably less, with the highest percentage of orders falling under $300 each.”
Multititle mailer Swiss Colony’s holiday sales fell “just short of our plan,” says president John Baumann. And it wasn’t a terribly ambitious plan.
“Our sales plan for 2008 was slightly down to 2007,” Baumann says. “We planned for lower sales because the cost of prospecting for new customers has increased.”
The 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. It also owns Direct Marketing Services Inc.
For outdoor gear and apparel cataloger/retailer The Orvis Co., “October and November were particularly frightening, as we saw sales below plan and below last year,” says Brad Wolansky, vice president of global e-commerce. He would not provide specifics, but he says business did pick up in December.
“We saw extremely strong Web and telephone response for the last three weeks of the month, particularly for sale items and promotions,” Wolansky notes. Still, Orvis ended the holiday season below its plan.
Bedding merchant Cuddledown also saw October and November sales dip to well below where they should have been, says president Chris Bradley. “Sales figures came back up in December, but not to where we’d want them to be,” Bradley says.
For toy merchant FAO Schwarz, holiday catalog sales were down in the “mid single digit” range, and online sales were up, says CEO Ed Schmults. “Were sales figures where I wanted them to be? No, they weren’t, but no retailer can say that after this holiday season,” Schmults says.
Luxury merchants take a hit
Unlike previous recessions, in which the luxury market escaped relatively unscathed, high-ticket merchants also felt the pain in holiday 2008.
Jewelry and gifts retailer Tiffany & Co. reported a 21% slide in worldwide net sales for the November-December period, from $867.3 million in 2007 to $687.4 million. The company’s combined Internet and catalog sales in the U.S. also declined 21%.
December sales for Neiman Marcus Direct were down 9.2%. The division, which consists of the catalog and Web operations for Neiman Marcus and Horchow and the Bergdorf Goodman Website, fared better than Neiman Marcus Group as a whole. Total December revenue fell 26.4%, to $532 million, compared to $723 million last year. Neiman Marcus laid off about 375 workers in January as a result.
Ross-Simons also saw softness in the fourth quarter, “particularly on higher-end merchandise,” says vice president of marketing Larry Davis. The jewelry and gifts cataloger/retailer came up short of plan, “and a bit short of prior year,” he says.
Certainly, Davis says, the economic downturn and uncertainty were the biggest factors of the holiday season. “I think that the downturn in the luxury segment was particularly acute, given uncertainty about jobs, stock market returns, home equity and the future of the tax code.”
Not that every single marketer was crying the blues. But the holiday success stories were few and far between.
Online behemoth Amazon.com said the holiday season was its “best ever.” It saw a 17% rise in orders on its busiest day (Dec. 15), and it shipped more than 5.6 million products on its best day, a 44% rise over 2007.
Apparel and home decor merchant Urban Outfitters saw a 9% rise in total revenue, to $389 million, for the two-month period ended Dec. 31. Direct sales, which include the Anthropologie, Free People and Urban Outfitters catalogs, jumped 25% for the period, which chief financial officer John Kyees says is “comparable with our plan.” What’s more, its catalog circulation was flat.
Gourmet chocolatier Chocolate Chocolate Chocolate saw holiday sales increase about 10%, says sales manager Dan C. Abel Jr. “Once Dec. 1 hit us, we became a little worried about not making our numbers,” Abel Jr. explains. “But by the end of the holiday season, we were actually up from 2007.”
Part of that is SEO: The company spent 10% more on search marketing in 2008, Abel Jr. notes. “We feel that we did gain from a lot of natural searches,” he says.
At outdoor sports products cataloger/retailer Bass Pro Shops, holiday sales were up only slightly compared with last year. But the company is “thrilled to have done so well in this economy,” says spokesperson Larry Whiteley.
Keeping costs at bay
On top of the dismal retail climate, catalogers are further challenged with ever-rising postal rates and volatile paper prices. What are they doing to combat these costs?
Swiss Colony reduced catalog mail quantities to make its prospecting percentage match the previous year, Baumann says. The company also switched to lower weight paper, from 38-lb. stock to a 32-lb. sheet.
Cuddledown decreased page count and prospecting to makes its catalog lighter, but Bradley says it won’t reduce the quality of the paper it prints on. “We have an upscale product so we can’t use bad paper,” he says.
Ross-Simons made a conscious effort to shift sales to the Internet by reducing catalog circulation 30% to 40% and improving its e-mail contact strategy, Davis says.
The Guild also cut catalog circulation, reserving mailings for known buyers, Collins says. “We spent less on paid search and affiliates as pure cost-cutting measures.”
FAO Schwarz cut back on its holiday prospecting, Schmults says, and it did not send catalogs to marginal names. What’s more, it introduced more lower-cost private label brand toys, he says, which gives FAO better control of product development and quality.
In a recessionary economy, merchants tend to panic, “and many try to improve their bottom lines by bringing in new product lines that they hope will sell,” Schmults says. This strategy rarely works: “If your brand is solid, you need to stick with the core products and not panic.”
That said, “You can outperform your peers if you have the courage to select the product that’s going to make you stand out,” says Urban Outfitters’ Kyees.
Hanging on in ’09
McMillan Doolittle’s Stern doesn’t envision any turnaround in retail sales until there is “a period of stability blended with consumer-based economic incentives that encourage people to buy and put money in their hands.”
Eventually, Stern says, lower mortgage rates and economic stimuli will start a cycle of spending. “But it is unclear how quickly those levels will return to where we are used to seeing them.”
The good news is that the merchants that survive this unprecedented downturn will emerge as the fittest. And multichannel marketers have plenty of strategies to target consumers when they do resume spending.
“We do think that Ross Simons’ position as a true multichannel merchant — with customer contacts in retail, catalog and Internet — allowed us to weather the economic downturn” better than some of the other retailers it competes with, Davis says. — Additional reporting by Patrick Barnard, Tim Parry and Jim Tierney
CRANKING UP THE PROMOS
The Guild offered discounts in certain categories for a short period of time and free shipping for a specified period. “For the first time we offered a 20% discount; previously, 15% was the deepest discount offered,” says director of corporate sales Kathi Collins. ”This was to keep more in line with what was happening in the retail brick-and-mortar world.”
Jewelry and gifts mailer Ross-Simons moved to a free shipping “all the time” offer for its customers. “This offer is consistent on Web, catalog and for our retail customer,” says vice president of marketing Larry Davis. And the retailer ramped up its savings message in the fourth quarter for customers, with up to 30% off in select sales.
Not everybody went crazy with offers and discounts, however. Chocolate Chocolate Chocolate offered a “Black Friday” promotion for its products on Amazon.com. “Other than that, we did not offer any incentives or any type of shipping discount for the holidays,” says sales manager Dan C. Abel Jr. “Given that our average sale is about $25, it would virtually eliminate all of our profit to offer free shipping.” — JT
FAO’s lean, mean inventory
FAO SCHWARZ learned a few things about weathering tough times when its former parent company, The Right Start, filed for bankruptcy in 2003. One of those lessons was how much inventory should be on hand.
The toys merchant was careful not to overbuy this year in hopes of a better-than-expected season, says CEO Ed Schmults, so there was no need to take drastic price cuts during the holiday shopping period. “Our inventory was lean, and that should put us in a good position as we enter 2009.”
Retail is simple, Schmults says: “You keep your costs down, you keep your inventory down, and you give the customer a great experience, no matter the channel they’re shopping.” FAO Schwarz is “doing a reset like just about every other retailer is,” he notes, “but we need to continue to focus on those three things.” — TP