After several years of strong sales, solid profitability, and a thriving economy, catalogers are waiting for the bubble to burst. And a number of them appear to believe that the explosion – and the downturn – will occur within the next two years. Among the participants in this year’s survey, 17% expect their catalog’s revenue to remain flat or even fall within the next 12-24 months. That’s in stark contrast to just 6% of respondents to last year’s survey.
Why are some catalogers so gloomy? Well, they have a lot on their minds – getting their businesses online, finding good help, standing out amid mailbox glut, searching for fresh merchandise….But at least last year was nothing to cry about: Two-thirds of survey respondents either met or exceeded their profitability expectations.
Critical issues
If you read a newspaper regularly, you can pretty much surmise which issues concern our survey respondents the most. Given the near-hysteria whirling about e-commerce, it’s no shock that the need to expand into the Internet and other electronic media is the top marketing issue among respondents, with 33% rating it their number-one marketing concern.
Likewise, in light of the tight labor market and the near-full employment throughout much of the country, the difficulty in finding experienced catalog talent is the top-of-mind management concern of respondents, with 28% saying it is their number-one such issue. Attempts by federal and state governments to pass use-tax bills are almost as worrisome to the respondents, with nearly 27% rating it their number-one management concern. The awareness of use tax follows attempts by several states to collect use tax on Internet sales and the establishment of the Advisory Commission on Electronic Commerce, whose mission is to recommend to Congress next April a tax collection policy that will no doubt address use tax.
As for which issues concern the respondents least, not a single survey participant selected service bureaus’ ability to process list rental orders correctly as its number-one marketing issue; in fact, for 36% of respondents, it was the marketing issue that least concerned them. And respondents appear to have no doubts about the honesty of their workers: None selected employee fraud or pilferage as their number-one operations and merchandising concern, and nearly 68% rated it the ops issue of least importance to them.
Trends
One-third of this year’s survey respondents report that they exceeded their profitability expectations for 1998. Good news, right? Well, the year before, 46% of participants beat their profitability goals, and 53% the year before that. On the flip side, 34% of this year’s respondents report that profitability in 1998 fell short of expectations, compared to 35% the previous year and 28% the year before that. So what gives?
The answer likely has less to do with performance in 1998 than with low expectations two years prior. Respondents to the 1997 survey had based their 1996 profitability projections on their company’s performance in `95 – a year in which postal and paper price hikes tore into the bottom line. The decline in paper prices in `96, as well as the surge in the economy, subsequently caught catalogers by surprise – though the surprise was a pleasant one. By contrast, respondents were more realistic last year when projecting profitability for `98, as is demonstrated by the nearly perfect bell curve that can be drawn from the results of this year’s survey: One-third beat expectations, one-third fell short, and one-third met projections.
Financial
On the whole, this year’s respondents are spending less on marketing, operations, and general and administrative (G&A) expenses than did respondents last year or the year before. For instance, creative was a mean 2% of revenue this year, compared to 3.7% last year and 6.5% for respondents in 1997. At the same time, shipping and handling costs were a mean 7.1% of revenue for this year’s respondents, down significantly from 13.1% for last year’s participants and 11.3% for respondents the year before.
The percentage spent on paper and postage has increased over the past year, however. This year’s respondents spent a mean of 9.7% of revenue on postage, more than twice the 4.6% spent by last year’s respondents, and 8.7% on printing and paper, up from 7.8% last year. The January 1999 postal rate hike was doubtless a factor. Then, too, the robust economy spurred many catalogers to boost circulation over the spring and into the holiday season.