Anatomy of a Start-up

In this occasional series, Catalog Age follows the progress of catalog start-up Bel Tesoro. The first part appeared in the May 2001 issue, the second ran in the September 2001 issue, and both articles can be found online at www.CatalogAgemag.com.

After a few funding problems, merchandising hiccups, and international shipping woes — nothing new to start-ups — Ruggiero Palmieri finally launched its Bel Tesoro catalog in October. And although he would not release dollar figures, operations manager R. Scott McIntosh says Bel Tesoro’s sales are 25%-30% above target.

Founded by brothers Phil and Robert Palmieri, along with McIntosh, Ruggiero Palmieri originally planned to launch its Bel Tesoro catalog in May 2001, one year after its Website debuted. But a lack of funds to rent enough names and some merchandising snafus forced the Albany, NY-based company to push the mailing back five months.

Bel Tesoro sells Italian imports such as pottery, textiles, and leather products. The first catalog offered nearly 200 products, with an average price point of $80-$85. Since October, Bel Tesoro has expanded its line, mainly on its Website, with lower-priced merchandise, such as personal care products and tabletop items.

Ruggiero Palmieri originally planned a 24-to 30-page catalog, but ended up with a 36-page book. “We definitely went with a larger number of pages to add to the appeal and success of the catalog, based on recommendations from consultants in the previous articles in this series,” says president Phil Palmieri.

But the fledgling mailer didn’t have the resources to do everything that the experts advised. For instance, consultants had suggested that Bel Tesoro mail to more than 20,000 names and up to 250,000 names, but the catalog went out only to 13,000. About 23% were Web customers and requesters; Hackensack, NJ-based list firm Mokrynski & Associates selected the rest, targeting upscale females ages 30-50.

“Funding is the classic small-business and start-up problem,” McIntosh says. “If we were a pure-play dot-com five years ago, it would have not been an issue; I’m sure we would have been swimming in dough and trying to figure out how to spend it.”

Ruggiero Palmieri is now weighing the merits of borrowing money to rent more names. “We’re aiming with our future catalog mailings toward 100,000 names,” says Palmieri. Since the fall mailing, the mailer has collected about 3,000 additional names.

“It’s not even the actual renting of the lists” that would warrant the need to borrow money, McIntosh notes. “Renting is not the biggest expense.” Printing and mailing the catalogs is, “and postage is not a negotiable price point.”

Ruggiero Palmieri also had difficulties getting its Italian vendors paid in a timely fashion. International logistics problems bogged down the transfer of funds between the U.S. and Italy. But those issues have been resolved, McIntosh says. “We have established a relationship with the clearinghouse that allows me to use a Web-based interface. I enter all the payment information to the suppliers, and it’s executed directly from my desktop.”

The shipping woes

Another international issue, that of shipping to customers in Canada and Europe, was also a concern. These buyers had heard of the catalog via the Website. At first, Bel Tesoro had published blanket shipping rates for all customers, but those rates didn’t cover the costs of shipping overseas.

To avoid having to pay the balance, the company decided not to give customers from outside the U.S. the exact shipping cost at the time of the order, McIntosh says. “We would have to determine that cost once the package was all together and on its way, and we would bill them at that point.”

For its next edition, which will mail in the fall, Bel Tesoro will target upscale catalog buyers rather than women, McIntosh says, since 35%-40% of orders came from men. Typically, men ordered one high-priced item, such as the $1,265 Delfino bowl, whereas women bought several lower-priced products.

The company, which at press time was planning to open a store in Albany in April, credits its success so far to input from others. “It’s so important to speak to people who’ve been there and get their insights,” Palmieri says.

“We’ve called competitors and said, ‘Hey, come talk to us,’” McIntosh adds. “They may not view us as competitors at this point, but they’ve been very gracious.”

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Anatomy of a Start-Up

Things don’t always go as planned, and no one knows that better than Ruggiero Palmieri founders R. Scott McIntosh and brothers Phil and Robert Palmieri. After launching the Bel Tesoro Website of gifts imported from Italy in May 2000, the three had hoped to mail a Bel Tesoro print catalog in May 2001.

But the Albany, NY-based start-up lacked the funds to rent a sufficient number of customer names. The company also lacked merchandise: As of early April, about 30% of Bel Tesoro’s product was not yet in stock. So the partners delayed the launch until September.

As of August, Bel Tesoro was on schedule to launch the catalog this September. The company will mail to up to 20,000 names, though it had originally planned to mail more. Consultants warn that mailing to fewer than 100,000 names is risky, because it results in fewer orders, but “financial constraints and the increase in postal rates don’t allow us to rent more names or mail more than that at this time,” Phil Palmieri says.

Bel Tesoro still plans to offer about 125 SKUs in its debut catalog, which several consultants cautioned is the minimum number of products for a successful catalog. The founders have decided to increase the catalog’s page count from 24-30 pages to 36, however, based on advice from industry pros.

Creatively, Bel Tesoro is still working with an agency on the catalog’s design and copy. “We want to focus on our products, as well as on the cultural aspects of the regions from which our products are sourced,” Palmieri says, so the catalog will now feature more editorial content about the regions of Italy than originally anticipated.

The company has straightened out its importing snafus — all merchandise is now in — but it ran into problems exporting Website orders to Canada. “International shipping was much more costly than we expected,” Palmieri says, “so we were undercharging our customers for shipping to Canada.” Bel Tesoro is working on a better strategy to ship Canadian orders. “We’re looking to partner with UPS for Canada, but it’s a bear of an issue right now,” says McIntosh.

Depending on the success of its September mailing, Palmieri says the company might schedule a second, smaller drop to customers in October. Test mailings to its Web buyers have already paid off: In May the company mailed to its online buyers and some prospects about 10,000 postcards selling 11 products. McIntosh says the postcards generated a 4.86% response rate — more than expected.

Jim Harkins is the principal of Bronxville, NY-based catalog and e-commerce consultancy, Jim Harkins & Partners.

I took a look at Bel Tesoro’s Website and compiled an average price of $91 — or $82 if you back out the one item over $1,000. I’d revisit the assortment by price point and get some more lower-priced items in the mix. Lower price points will be key to driving response, which will build a buyer file to generate the subsequent profits. Item density will also help to drive response. I have learned to watch density — it’s a hidden response killer when not managed. I’m glad to see at least 32 pages in the initial mailing. This will still leave room for a heavy paper stock for the first mailing without increasing postage. I would also suggest avoiding the lure of a large trim size — too costly — or a digest-size to save money. I don’t see a lot of successful digest-size efforts.

Annette Zumba is director of development for Ventura, CA-based catalog consultancy Barbara Brown Marketing & Design.

If the partners are undercapitalized, perhaps they would not want to do a second mailing in October. They might also consider streamlining wholesale costs. If the partners can renegotiate those costs, they can put any extra money into their marketing efforts.

A ceramics industry expert should audit the catalog and point out which products should be included, and which items may not sell so well. And if they’re going to have only 125 SKUs, they might want to consider dropping 25 of them for the next catalog and heavily emphasizing the top 100. They could also test loyalty efforts to drive sales. For example, they can promote an offer on the cover, such as the first 100 people to order will receive a free vase. Offering such a promotion around the holiday season can create loyalty. Also, they can reach out to those first 100 customers again, with promotions for other gift-giving seasons, such as the bridal season of May-August.

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Anatomy of a Start-up

Bel Tesoro hopes to mailed its debut catalog by October

This month, Catalog Age introduces an occasional series tracking the progress of Bel Tesoro, a catalog start-up scheduled to launch this fall. We’ll not only follow the plans and actions of the nascent cataloger, but we’ll also offer commentary from industry experts on the cataloger’s strategies and chances for success.

When brothers Phil and Robert Palmieri, together with R. Scott McIntosh, launched Ruggiero Palmieri last year, their plan was a straightforward one: introduce a Website selling Italian gifts and home accessories in May 2000 and a print catalog in May 2001.

The first part of their plan went smoothly. Ruggiero Palmieri’s Website, Bel Tesoro (Italian for “beautiful treasure”), debuted on schedule.

“The site was in development for about six months, and it took about six to eight weeks to get it activated,” says Phil Palmieri, president of the Albany, NY-based company. Sales through December 2000 were $7,000, higher than expected given that the company didn’t promote the site.

The site offers about 120 SKUs of leather desk sets, dinnerware, textiles, and other goods by Italian artisans. “Launching the site allowed us to establish our infrastructure, get it working, and test it out,” says operations manager McIntosh. “The Website was quicker and cheaper to launch than a print catalog, because it didn’t involve production costs.”

The Website also allowed them to fine-tune their merchandise mix prior to committing to a product selection in print. It’s easier to make changes to the Website, such as introducing products or removing items that don’t sell, Phil Palmieri says: “You can’t make those changes to a catalog once it’s been printed.”

Despite the advantages of selling online, Ruggiero Palmieri is committed to launching a book. “We feel that a print catalog is going to allow us to expand our audience,” McIntosh says. “Our products will probably show better in a book than online, since the photography might be better represented on paper.”

Preparing for print

The company fulfills orders from its own 800-sq.-ft. warehouse. In anticipation of the print launch, at press time the company was scheduled to move into a 2,400-sq.-ft. space in April. “We’ll also use some of that space as a showroom,” McIntosh says.

All product copy and photography are handled inhouse, but the company is working with a design firm to put the catalog together. The outside firm “is a start-up themselves, and they’ve allowed us to work closely with them,” Phil Palmieri says.

The company plans to mail 20,000 catalogs, primarily to prospects as it has only a few thousand names in its house file. While Bel Tesoro would like to mail to more names, “we budgeted for 20,000, and we’re going to try to make the most of that by renting names from lists that would complement us most,” McIntosh says.

Such lists include Neiman Marcus, Gump’s by Mail, and Ballard Designs. “Mostly we’re targeting the best buyers of upscale books,” McIntosh says. For the most part, these buyers are women ages 30-50, with household incomes exceeding $50,000.

“We’d also like to mail to mail order buyers from American Express’ cardholder list,” McIntosh adds. “The average American Express order on our Website is $150, whereas the average MasterCard and Visa orders are about $60.” The company hopes the book will garner average orders of $90-$100, with a response rate of 3%.

Currently, the Website features about 120 SKUs, but by October, McIntosh expects to offer about 180 SKUs both in the catalog and online. The company has yet to decide how many pages the book will be, “but I think it will be somewhere between 24 and 30 pages,” he says. The catalog will measure roughly 8-1/2″ × 11″. The company also plans to include in its book informational copy about the various regions of Italy.

Waiting for the goods

McIntosh and Phil Palmieri travel to Italy frequently to source product. Robert Palmieri, who is based in Milan, serves as chief translator and innkeeper. “Staying with my brother certainly keeps our sourcing costs down,” Phil says.

But Robert Palmieri’s presence in Italy wasn’t enough to prevent the merchandising dilemma that forced the company to delay the debut of the catalog. Bel Tesoro had planned to launch the catalog in May to gauge response and the success of the list rentals prior to mailing a fall/holiday book. As of early April, however, about 30% of its product was still not in stock. The partners were forced to push back the drop date.

Some of the catalog stock is being held by the suppliers until they receive payment for orders already received by Ruggiero Palmieri. “We had an issue with our bank,” McIntosh says. “It shows the payments as having been made, but the suppliers say they don’t have record of receiving them. Taking the money from the U.S. and sending it to Italy doesn’t happen cleanly.” Apparently, it can take weeks for transactions to be processed.

Had the company used irrevocable letters of credit, it could have avoided these delays. The letters, which cost at least $300 a transaction, put the suppliers’ banks directly in touch with Ruggiero Palmieri’s bank. But the price of the letters was too steep for the start-up.

One thing that Ruggiero Palmieri won’t skimp on is including in the catalog a business reply envelope for mail-in orders. “I’ve never called in a catalog order,” Phil Palmieri says. “I’ve always mailed in my orders.”

Bel Tesoro: The Experts Speak

Lois Boyle is partner/chief creative officer for Shawnee Mission, KS-based catalog consulting firm J. Schmid & Associates.

Every time we work with start-ups, they’re surprised by the costs involved with launching a catalog. Many of them are not funded enough and don’t realize that they might not hit a break-even in three years or reach ROI in four or five years. The only way to quickly grow a business is to mail deep and invest a lot up front.

A home goods catalog we know of just kicked off in March, dropping to 200,000 names. So far, it’s getting only 0.1% response rate. Bel Tesoro might benefit from launching in the fall, as opposed to the traditionally slow spring season. But consumer confidence is extraordinarily low. And prospecting takes a nosedive during times like these, since customers during recessionary times are not willing to try out new brands. They’ll usually go only for companies that they know and trust. Knowing all of this, the company should mail to more than 20,000 names.

And it should definitely have no fewer than 32 pages in its book. With less than that, results drop off dramatically, usually because there is not enough product to catch the eye of prospects. And less than that makes for a smaller book that looks flimsier and gets lost in the mail.

The company should also develop a full-blown business plan, including forecasts for three to five years for name flow, cash flow, and order flow. Lots of start-ups put together sketchy plans, but they don’t consider returns or the costs of fulfillment and operations. They need to have a realistic vision of when they’re going to break even.

Glenda Shasho Jones is president/CEO of New York-based catalog agency Shasho Jones Direct.

I think that Bel Tesoro is mailing to too few names. Assuming you have the right merchandise selection and that it is salable in direct mail, you need to mail to enough people so that you can get a sense of what lists work and what lists don’t work. I think a minimum of 100,000 names — and up to 250,000 names — gives you a chance to test numbers in quantities large enough to get a good reading on response.

And the book should be bigger. It’s hard making a 24-page book work even with the best merchandise. A catalog needs to have at least 125 SKUs, and 24 pages is on the low side for that. I’d say that 28 pages should be the minimum. You need to put enough merchandise in the book to give customers a product selection. If customers get through the catalog too fast, they’ll abandon it. It’s a psychological subtlety: When you put out a catalog that doesn’t have a lot of product, customers will think you don’t have much product to choose from. Customers only believe what they see, and — especially if there is no existing brand — you have to give customers lots of visual cues to show them your breadth of product.

Bel Tesoro: Just the Facts

Product line: Italian imports, including pottery, textiles, and leather products

Target customers: Upscale women, ages 30-50

Website launch: May 2000

Online sales (June-December 2000): $7,000

Number of SKUs: 120; expected to increase to 180 by fall

Anticipated catalog launch date: October 2001

Expected circulation: about 20,000

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