BENCHMARK 2003: Critical Issues & Trends

How to cut costs without weakening their business continues to bedevil catalogers. Nearly four out of five respondents (79%) to Catalog Age’s 2003 Benchmark Survey on Critical Issues and Trends cited “the need to reduce costs without reducing offerings or services” as one of the top three management issues facing their company.

No other concern came close to dominating the minds of catalogers. Inventory forecasting, the merchandising and operations issue cited most frequently by respondents, was a primary concern for only 56% of those surveyed. And just 43% of respondents rated rising catalog distribution costs as one of their top three marketing concerns, nonetheless making it the marketing concern most cited.

A look at respondents’ 2002 top-line and bottom-line performance shows why catalogers continue to obsess over costs. Appreciably more survey participants missed their profitability and sales goals than exceeded them.

Top three marketing issues

Consumer respondents

Rising catalog distribution costs: 39.8%

Increasing number of competitors in the market: 36.3%

Keeping creative fresh: 33.6%

B-to-b respondents

Rising catalog distribution costs: 51.1%

Keeping creative fresh: 44.7%

Increasing number of competitors in the market: 38.3%

Respondents with sales of less than $10 million

Rising catalog distribution costs: 42.7%

Keeping creative fresh: 37.4%

Increasing competition from Web marketers: 36.6%

Respondents with sales of at least $10 million

Rising catalog distribution costs: 42.6%

Managing multiple marketing channels: 39.7%

Increasing number of competitors in the market: 33.8%

Keeping creative fresh: 33.8%

Lack of new catalog-buyer names on the market: 33.8%

Respondents that don’t use alternative media
(Website, space ads, etc.)
Consumer 9.7%
B-to-b 6.4%
Sales less than $10 million 10.7%
Sales at least $10 million 4.4%

Top three merchandising and operations issues

Consumer respondents

Inventory forecasting: 61.1%

Rising package delivery costs: 49.6%

Ability to rapidly restock and rebuy: 42.5%

B-to-b respondents

Inventory forecasting: 51.1%

Rising package delivery costs: 46.8%

Availability of fresh or unique merchandise: 38.3%

Respondents with sales of less than $10 million

Rising package delivery costs: 57.3%

Inventory forecasting: 55.0%

Availability of fresh or unique merchandise: 35.9%

Ability to rapidly restock and rebuy: 35.9%

Respondents with sales of at least $10 million

Inventory forecasting: 58.8%

Ability to rapidly restock and rebuy: 41.2%

Availability of fresh or unique merchandise: 39.7%

Rising package delivery costs: 39.7%

Sales and Profits

Nearly half of the catalogers surveyed (49%) fell short of their profitability expectations last year. That’s marginally better than the 53% of respondents who’d missed their profit goals in 2001 — but still appreciably worse than the 35% who had fallen short in 2000. Of this year’s respondents that fell short of goal, 42% missed it by more than 10%.

On the positive side, 27% of respondents met their profitability expectations. Another 28% exceeded their bottom-line goals. And of that number, 51% outperformed expectations by more than 10%.

Respondents’ sales performance could lead one to think that the economy did begin improving last year — or that catalogers started setting lower revenue goals. While 42% of those surveyed this year missed their sales goals in 2002, that’s quite an improvement from the 59% of last year’s respondents who had fallen short in 2001. As with profitability expectations, however, this year’s respondents fared worse than those of two years prior, only 33% of whom had missed their revenue goals.

Among those respondents that fell short of their top-line goals, 42% did so by more than 10%. On the flip side, 29% of respondents exceeded their sales goals last year. Among those overachievers, 62% bested expectations by more than 10%.

Declining list revenue figures offer additional evidence that prospecting was down last year. List rental income accounted for a mean 1.6% of respondents’ total revenue. Last year list income had made up a mean 2.7% of respondents’ revenue, and that was down from a mean 6.8% the year before. Among this year’s business-to-business respondents, list income accounted for a mean 2.3% of revenue; among their consumer counterparts, a scant 1.4%.

Shipping and handling income, however, accounted for a mean 6.1% of consumer respondents’ revenue, compared with 3.0% of revenue for the b-to-b participants. Fourteen percent of consumer respondents said that S&H accounted for more than 10% of their total revenue, compared with 2% of b-to-b respondents.

Top three management issues

Consumer respondents

Need to reduce costs without reducing offerings and services: 83.2%

Difficulty in securing additional or continuing financial support: 40.7%

Potential use-tax legislation: 37.2%

B-to-b respondents

Need to reduce costs without reducing offerings and services: 80.9%

Potential use-tax legislation: 31.9%

Need to merge or acquire to achieve economies of scale or fund expansion: 29.8%

Respondents with sales of less than $10 million

Need to reduce costs without reducing offerings and services: 73.3%

Difficulty in securing additional or continuing financial support: 42.7%

Potential use-tax legislation: 32.8%

Respondents with sales of at least $10 million

Need to reduce costs without reducing offerings and services: 89.7%

Potential use-tax legislation: 42.6%

Need to merge or acquire to achieve economies of scale or fund expansion: 27.9%

Mean percentage of revenue derived from list rental income
Consumer 1.4%
B-to-b 2.3%
Sales less than $1 million 0.9%
Sales of $1 million-$9.9 million 2.6%
Sales at least $10 million 1.7%
Mean percentage of revenue derived from shipping and handling income
Consumer 6.1%
B-to-b 3.0%
Sales less than $1 million 4.8%
Sales of $1 million-$9.9 million 5.2%
Sales at least $10 million 5.8%

Where the money went

Respondents spent a mean 26.1% of their revenue on marketing expenses. The smallest respondents — those with annual sales of less than $1 million — spent the largest percentage. A mean 28.0% of their revenue went toward marketing, compared with 26.2% for respondents with sales of $1 million-$9.9 million, and 23.4% for those with sales of more than $10 million.

Breaking out the marketing expenses, creative and production costs accounted for 19.4% of the mean marketing expenses of the largest respondents. In comparison, the smallest participants spent a mean 27.1% of their marketing budget on creative and production.

But print and postage ate up a more sizable chunk of the marketing budget for the larger respondents. Participants with sales of more than $10 million spent 53.5% of their marketing funds on print and postage. Among respondents with sales of $1 million-$9.9 million, print and postage accounted for a mean 41.8% of marketing expenses. And among those with sales of less than $1 million, it accounted for 38.5%.

Most popular alternative media

Consumer respondents

Own Website: 81.4%

Space ads: 31.9%

Trade publications: 22.1%

Banners ads on other Websites: 22.1%

B-to-b respondents

Own Website: 87.2%

Trade publications: 40.4%

Space ads: 34.0%

Own CD-Rom: 14.9%

Larger mailers also spent proportionately more on renting lists. Those with sales of at least $10 million spent a mean 8.3% of their marketing funds on lists. For those with sales of $1 million-$9.9 million, list rental costs accounted for a mean 8.0% of marketing expenses. But for the smallest participants, it accounted for only 4.8%. Forty percent of respondents said they’d spent nothing on list rental.

The catalogers surveyed spent a mean 33.7% of their revenue on operating expenses. While the largest respondents spent a mean 27.3%, and the smallest a mean 33.4%, those in the middle spent a mean 41.6%.

Labor costs accounted for a mean 49.9% of operating expenses. For respondents with annual sales of $1 million-$9.9 million, labor accounted for a mean 56.2% of operating costs. In comparison, labor accounted for a mean 54.1% of operating costs for the larger respondents and 42.5% for the smaller participants.

The largest respondents spent a mean 31.1% of their operating expenses on shipping and handling, compared with 30.8% for the smallest participants and 24.8% for those with sales of $1 million-$9.9 million.

A mean 20.7% of respondents’ revenue went for general and administrative (G&A) expenses. Of those G&A expenses, a mean 47.5% went to salaries. Respondents with sales of $1 million-$9.9 million spent a mean 53.8% of G&A expenses on salaries, compared with 48.5% for the larger participants and 42.4% for the smaller participants. In fact, nearly 12% of respondents with sales of less than $1 million said that they didn’t spend any money on salaries.

A look at trends

Despite all of the attention paid to multichannel marketing, many catalogers have yet to tap into retail. Nearly 80% of the respondents said they do not have full-price stores. Eighteen percent have at least one outlet store.

But respondents’ enthusiasm for e-commerce is clear: Just 10% of the companies surveyed do not have an online catalog. And the plurality of respondents that have an online catalog (31%) have had it for more than four years. E-mail marketing is becoming a standard practice among catalogers, as 62% of survey participants have an e-mail marketing campaign, and 45% of those that don’t have one are considering one.

The good news for catalogers that have e-mail marketing campaigns: Response rates are on the rise. More than half (51%) of respondents that have e-mail campaigns say response rates have increased during the past 12 months. Another 25% said response stayed the same.

Methodology

On Aug. 11, 2003, Primedia Business Marketing Research e-mailed invitations to 3,746 Catalog Age subscribers selected on an nth-name basis. The invitations contained an embedded URL linking the respondents to the research Website where the survey was located. Respondents were offered a chance to be entered into a drawing for one of four $50 Amazon.com gift certificates. Follow-up e-mails were sent on Aug. 14 and Aug. 27, 2003. Of the 2,916 deliverable surveys, 199 usable surveys were completed, for an effective response rate of 6.8%.

Interested in the complete results from Catalog Age’s exclusive Benchmark Survey on Critical Issues and Trends?

To purchase the full report, visit The Marketer’s Research Store on the Catalog Age Website.

Go to www.CatalogAgemag.com and select the “Research” button at the top of the home page.

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