Benchmark 2001: Critical Issues and Trends

Dec 01, 2001 10:30 PM  By

Two years ago, in discussing the 1999 Benchmark Report on Critical Issues and Trends, we wrote that, having experienced “several years of strong sales, solid profitability, and a thriving economy,” catalogers were “waiting for the bubble to burst.” And a significant number of respondents to that survey predicted it would happen within the next two years.

Guess what? They were right. But as this year’s Benchmark Report illustrates, the industry may be down, but it’s not out. And though some of this year’s statistics may seem depressing, keep in mind what a difference two years can make.

CRITICAL ISSUES

Controlling costs, a key issue in even the best of times, takes on urgency when times are tough. And, in fact, rising catalog distribution costs was the number-one marketing concern among the catalogers surveyed: 57% in all named it one of their key issues.

Preoccupation with costs is even more apparent when you look at the number-one management concern of the catalogers surveyed. More than three-quarters (81%) of respondents cited the need to lower costs without reducing services and offerings as a key management issue. This exceeded the next most pressing management concern — possible passage of use-tax legislation — by 34 percentage points. And amid widespread layoffs in the industry, finding experienced catalog talent is no longer a huge problem. The top management concern last year, this year it ranked five out of the eight management issues cited.

The top merchandising/operational issue was inventory forecasting, with 51% of respondents listing it as a key concern. Given the drop in consumer confidence and spending, catalogers fear being overstocked. But at the same time, they don’t want to risk backorders — and-losing orders altogether — by not having the merchandise in stock when customers try to order.

TRENDS

In 1997, interest in customized catalogs shot up 17 percentage points from the previous year, with 61% of respondents considering offering them. But since then catalogers have cooled to the concept, and only 36% of this year’s participants are actually producing them. Apparently mailers feel that the increased cost and logistical challenges of customized offers outweigh their potential effectiveness.

Just as interest in customized catalogs is waning, retail expansion among catalogers is falling off slightly. Less than half (43%) of this year’s respondents have full-price stores, down from 46% of last year’s respondents and from 22% of respondents in 1999. Still, 78% of those with a retail channel have only one store, so most catalogers aren’t in a rush to roll out extensive retail chains. Moreover, 83% of respondents without stores plan to stay out of retail. And only 14% of all respondents have an outlet store.

Even before the anthrax scares of October, both b-to-b and consumer catalogers were increasing their use of e-mail as a marketing tool. That’s hardly surprising, given that e-mail is still a relatively new technology and that it’s also relatively inexpensive. Last year 40% of consumer catalog respondents said they had e-mail marketing campaigns in place; this year 54% of consumer respondents used them. Among b-to-b respondents, the increased use of e-mail was even more dramatic: 20% of last year’s participants used e-mail marketing, but this year 49% did.

But while e-mail use is up, promoting catalogs through other online tools is losing popularity. Only 13% of this year’s respondents marketed via Internet malls, a tumble from last year’s 30%. Similarly, while 30% of last year’s participants used banner ads, just 11% of this year’s did.

FINANCIAL

Nearly half (49%) of respondents with annual sales of less than $1 million fell short of profitability expectations last year, compared with 33% of those with sales of $1.1 million-$9.9 million, and 25% of those with sales of at least $10 million. Revenue reality vs. expectations followed a similar curve: 51% of the smallest catalogers fell short of their sales goals, as did 29% of catalogs with sales of $1.1 million-$9.9 million, and 23% of the largest mailers.

One-fourth of respondents expected their company’s sales growth during the next year to exceed that of the previous two years. Another 29% expected to increase revenue at the same rate as during the past two years. But almost as many — 27% — predicted that sales would grow at a slower rate. And 5% expected revenue to decrease — the same percentage of last year’s survey respondents who predicted a decrease in sales. Keep in mind, of course, that respondents were surveyed just prior to the Sept. 11 terrorist attacks.

Slightly more than one-third (40%) of respondents have considered selling their business, up marginally from 39% of last year’s respondents. In fact, only 7% of catalogers said a banker or a broker had approached them about selling their companies.

Indeed, many catalogers this year have been hard-pressed to find investors or secure loans, let alone find a buyer for their company. Then again, the down economy may stand to spur mergers and acquisitions in the coming year.

The top three marketing issues:
CONSUMER CATALOGS
Rising postal prices 56%
Keeping creative fresh 41%
Managing multiple channels 32%
B-TO-B CATALOGS
Rising postal prices 53%
Greater competition 33%
Managing multiple channels 30%
Totals exceed 100% due to multiple answers
The top three merchandising and operations issues:
CONSUMER CATALOGS
The availability of unique product 48%
Inventory forecasting 46%
Rising package delivery costs 45%
B-TO-B CATALOGS
Inventory forecasting 54%
Rising package delivery costs 44%
Operational integration of multiple channels 35%
Totals exceed 100% due to multiple answers
“How long have you had an online catalog?”
Less than a year 21%
13-24 months 29%
25-36 months 29%
37-48 months 9%
More than 4 years 12%
Among the respondents that have online catalogs
Expectations vs. results
Met or beat
revenue expectations in 2000
67%
Met or beat
profitability expectations in 2000
65%
The top three management issues:
CONSUMER CATALOGS
Need to reduce costs without reducing services 78%
Possible passage of use-tax bill into law 46%
Difficulty finding financial support 45%
B-TO-B CATALOGS
Need to reduce costs without reducing services 74%
Possible passage of use-tax bill into law 36%
Difficulty finding good catalog talent 26%
Totals exceed 100% due to multiple answers
The bottom three management issues:
Avoiding credit-card fraud 12%
Improving the industry’s lobbying power 10%
Possible passage of privacy legislation 10%
Top three ways to promote catalogs:
Respondents with sales of less than $1 million
1. Company Website 51%
2. Online services 23%
3. Co-op Internet site or mall 11%
Respondents with sales of $1 million-$9.9 million
1. Company Website 76%
2. Online services 15%
3. Banner ads on other Internet sites 11%
Respondents with sales of at least $10 million
1. Company Website 84%
2. CD-ROM 21%
3. Co-op Internet site or mall 16%

METHODOLOGY

In August 2001, the Catalog Age subscriber file was sorted to select 900 subscribers, selected disproportionately by catalog type, indicating job function as president or vice president. These subscribers received a letter of explanation, a survey, a $1 incentive, and a postage-paid envelope or toll-free fax number to return the survey. Of the 871 deliverable surveys, 121 usable surveys were returned, for an effective response rate of 13.9%.

Of catalog respondents who have a retail channel…
78% have 1 store
3% have 2 stores
6% have 3 stores
14% have at least 4 stores
Total does not equal 100% due to rounding