Are Spin-offs Paying Off?

By all accounts, spring 2001 wasn’t the best time to launch a catalog spin-off. The Internet crash of late 2000 was infecting the economy at large like a virulent virus. And just months later, of course, the terrorist attacks of Sept. 11 would further depress consumer spending.

But Venus Edge, the teen swimsuit catalog that Jacksonville, FL-based Venus Swimwear spun off that spring, started off strong and continues to exceed the company’s expectations, says president Daryle Scott.

The circulation of Venus Edge is about 5 million, significantly less than that of the company’s flagship title; the spin-off’s $90 average order value is also slightly less than the core book’s average order of $100. “But the dollar per book is much higher than that of our core book, even taking the differences in circulation into consideration,” Scott says.

For Scott and his $89 million company, which also mails the WinterSilks apparel catalog, bucking conventional wisdom paid off. But numerous other catalogers that have spun off titles during the past few years have failed. And unfortunately, the reasons that one spin-off succeeds while another doesn’t aren’t always apparent.

To spin or not to spin

There are two reasons catalogers should consider spinning off a title, says Lois Boyle, president/chief creative officer for J. Schmid & Associates, a catalog consulting firm in Shawnee Mission, KS: “First, to capitalize on a trend or product category that will appeal to prospects. And second, to create an offering that will increase sales from your existing customers.”

In a down economy, catalogers are especially eager to reap more revenue from customers. Prospecting is more expensive than mailing to house file names, for one thing. For another, the number of new names on the market typically ebbs during times of reduced spending.

“The economy is driven by consumer spending, and right now customers are extremely hesitant,” says Geoff Batrouney, executive vice president of New Rochelle, NY-based Estee Marketing Group. Which means that even pulling additional revenue from your house file is a challenge. “If you are relying solely on your house file to support a spin-off, you risk overmailing” an already hesitant crop of buyers, lowering the response on both books, Batrouney says.

Then there’s the reasoning that “generally during a recession, you need to be careful with capital expenditures rather than variable costs,” Venus’s Scott notes.

That sort of reasoning led Blair Corp. to roll two of its apparel spin-offs, 220 Hickory and Scandia Woods, back into its core womenswear and menswear catalogs in fall 2001. Warren, PA-based Blair had launched the two catalogs in the previous autumn. At the time Blair closed the titles, president/CEO John Zawacki said, “The investment required for [their] long-term growth can be better allocated to other marketing and operational priorities.” Cancelling those two spin-offs enabled Blair to focus its investments and energies into its Crossing Pointe women’s apparel title, which it launched in June 2000 and has become a resounding success.

Alternatively, if most other catalogers are conserving their cash, cutting back on prospecting, and postponing spin-offs, new titles may face less competition. For a cataloger with a solid bottom line and a well-researched, well-conceived concept, a tough economy may be the best time to launch a spin-off.

In fact, Venus Swimwear’s Scott argues, a spin-off can help you combat an economic downturn. “We are attracting new buyers and actively growing, so when the economy rebounds we will be poised for even more growth,” he says.

Women’s apparel marketer The Mark Group appears to be following a similar logic. Although the Boca Raton, FL-based cataloger/retailer scrapped its Mark, Fore, and Strike catalog last year, it went forward with a spin-off of its successful Boston Proper title. Boston Proper Sport, which sells women’s fitness apparel such as yoga pants and bathing suits, was slated to launch in 2003, but the company moved up the launch, says president Michael Tiernan, because “we had a good 2002, with Boston Proper’s sales and earnings both growing.”

The new book mailed in late December to house file and rented names, but primarily to Boston Proper customers who had bought sports apparel. So far, the title is beating what Tiernan describes as a “relatively conservative plan.” Tiernan plans to launch more Boston Proper spin-offs as well as stores.

Find your niche

Even in prosperous times, making a spin-off work is difficult, Estee Marketing Group’s Batrouney says. Spin-offs tend to b specialized niche books, “and that can be treacherous because the mark that you are trying to hit is that much smaller and you need to hit it right on if it is going to work,” he explains.

If your focus is too narrow you risk going the route of Ventura, CA-based Patagonia, which spun off and then almost immediately folded its Mountain Book of Alpine Gear in fall 2000. According to catalog director Morlee Griswold, the title failed because it was too narrow for its audience. While Patagonia’s gear is ideal for hard-core climbers and hikers, it is just as popular with people who get their exercise walking their dog, explains Griswold. By focusing exclusively on its serious sporting buyers, the company missed a large percentage of its customers.

Spin-offs that aren’t niche enough — that are too vague or general — are just as likely to fail, though. In spring 2001, Manchester, VT-based Orvis tried to spin off its successful Sporting Tradition book, which mails each fall. But whereas the original catalog carefully targets game hunters and fishers with well-defined sections in the book, the focus of the spring spin-off wasn’t clear, concedes Tom Rosenbauer, vice president of mail order for the outdoor gear and apparel cataloger/retailer. The catalog performed so poorly that the decision to pull it was made within weeks of the drop.

In contrast, the company’s canine accessories spin-off, The Dog Book, launched in October 2001, is performing well because it goes after a very targeted niche market, says Rosenbauer.

With its Just for Cats spin-off, which launched last year, Doctors Foster & Smith may have found a market and niche that are just specialized enough. About 85% of the products in the Rhinelander, WI-based company’s core pet supplies catalog are for dogs. In putting together Just for Cats, the cataloger doubled the amount of feline merchandise it already carried. It also culled from its house file customers who had bought cat-related products and rented lists focusing on cat owners.

Doctors Foster & Smith clearly did its homework before the launch, but the jury’s still out as to whether Just For Cats is a success. “Since cat owners tend to spend less than dog owners, we are still evaluating the results of this book,” says spokesperson Joe Voellinger.

It may be the economy

During the 2001 fall/holiday season, California, MO-based Burgers’ Smokehouse, a purveyor of hams and other smoked meats, spun off a seafood and barbecue meats title, Grillmasters. Vice president Philip Burger thinks that Sept. 11 may have influenced the book’s poor performance: “I don’t think it was the deciding factor, but a contributing factor.” The company reacted by shuttering the title and incorporating a third of the products into the core catalog.

Even companies that have successfully spun off multiple titles in the past can fall prey to a harsh economy. Lillian Vernon Corp. is as recognized for its spin-offs as it is for its personalized products. Its spin-offs include Lilly’s Kids, which first mailed in 1990, and Christmas Memories, which launched in 1992. But the Rye, NY-based mailer’s most recent launch, Lillian Vernon Gardening, which debuted in 1999, is not performing as well as the older titles, says spokesperson David Hochberg. “We are looking into the possibility of spinning the gardening title back and integrating it into the core book,” he says.

BEST BETS FOR SPINNING OFF YOUR CATALOG

  • If you press ahead with a spin-off, be sure that you don’t leave your existing customers behind by removing the product offering from your core catalog. According to Geoff Batrouney of Estee List Marketing, even though the customer may not be buying the items from the core book, offering the full product selection enhances and solidifies your brand. Plus, keeping the products in the primary catalog helps you gauge if new customers are responding to the merchandise and should also receive the spin-off title.

  • Cannibalization is another risk that you must consider before committing to a spin-off. According to Lillian Vernon Corp.’s David Hochberg, you need to make sure you have enough product for the book and that you make a creative distinction so customers understand that they are getting the same value from your brand, but a different assortment than the core catalog.

  • Typically, if you have a mature buyer file, it is more economical to try to get more out of existing customers than to prospect broadly, says Morlee Griswold, director of catalog for manufacturer/marketer Patagonia. The company, which spun off Patagonia Kids in 1992, credits the book’s success to Patagonia’s strong customer database. Patagonia Kids reaps three times its in-the-mail costs, Griswold says, because its customers are “not likely to stop spending money on their children even in economic uncertainty.”

  • If you want to expand but are unsure that you have the necessary staff and expertise, consider a strategic acquisition instead. Doctors Foster & Smith, which specialized in products for dogs and cats, wanted to expand into other pet categories. So in November 2001 it acquired Pet Warehouse, which had market expertise — and titles — for bird, fish, and reptile owners.

  • Beware of production costs associated with spin-offs. While you will already have the infrastructure to produce the new catalog, smaller circulation to a more targeted audience can make it difficult to get postal discounts and volume discounts on your print run, says Batrouney.
    SF

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