Blair’s new process

Dec 01, 1998 10:30 PM  By

Meet a loyal Blair Corp. shopper. She’s been buying Blair products for more than 20 years, ordering jackets, shoes, blouses, and skirts at least once a season. She opens every Blair envelope mailing of loose- sheet product offers, neatly clipping the four or five pages of items that interest her. She sends cash with each order and generally prefers Blair to other envelope mailers-though she says competitors Haband and Signature “have got some nice things in there, too.”

She’s the author’s grandmother, and she’s 86 years old.

Therein lies the biggest challenge faced yet by Blair Corp., itself born two years before Grandma. For most of its history, Blair has ably serviced the pre-World War II generation with value-priced apparel and home goods marketed in 32 sheets mailed in third-class envelopes. It’s been a high-volume, high-margin, cash-heavy business run out of rural Warren, PA, population 14,000-a town where the president heads a YMCA building fund and the distribution manager seems to know everyone in town.

But now Blair’s traditional core shoppers are literally aging themselves right out of the market. And in their lace is the aging (and more demanding) baby boomer market, weaned on wide product selection, toll-free ordering, next-day shipping, and credit cards. Which begs the question: Can a venerable old direct marketer learn new catalog tricks?

It’s trying. The past few years have seen a wholesale restructuring of Blair’s marketing operations. Five years ago, the company didn’t have any bound catalogs. Now it has six: Blair Shoppe and Today’s Kitchen (home products), WomensWear and MensWear (both apparel), Improved Living (healthcare products), and a general merchandise Blair catalog, for 100 million total circulation. Five years ago, it mailed 30million direct mail pieces a month from its inhouse mail center, tucked in the Pennsylvania hills. Today it mails less than one-third that amount, with a portion of the mail center’s space now given over to warehouse space.

This catalog switch has not been easy, psychologically, financially, strategically or logistically. The numbers tell the tale: In 1995, just a year after launching Blair Shoppe, total company sales were $561 million, with net income of $25 million. The following year, as Blair added its MensWear book and slashed envelope mailings from 200 million to 176 million, sales fell to $544 million, with net income of $15 million. In 1997, with the rollout of its WomensWear catalog and just 114 million envelope mailings, sales dipped to $486 million while net income dropped to $13 million. The company’s stock, meanwhile, tumbled from a $35 high in 1996 to a $13 low in 1997.

In turning its tanker around, Blair battled a surge in bad debt, problems stemming from a lack of inventory forecasting, higher mailing costs, and rising costs of goods. All told, the company spent about $1.6 million on consultants, at least $10 million on capital improvements, and another $10.8 million buying back its own sagging stock as a stabilizing measure.

Only in the past six months have Blair’s numbers ticked upward. Its stock price is up 51% from last year, to about $25 as of late October, and net income, at $12.6 million for the first six months of 1998, has more than doubled since the first half of ’97. Still, it’s hardly a return to 1983, when Blair’s net income was a full 6% of sales (last year’s income was less than 3% of sales).

But throughout it all, Blair executives haven’t flinched. The longtime family-run company has had no management overhaul, no panicky rush to employ hot outsiders. Many of Blair’s top managers have been with the company since before their college-age kids were born, but one nonetheless gets the sense that though the company may be changing, these guys aren’t going anywhere. “They know their knitting,” says John Rice, operations chief at high-ticket apparel and gifts catalog J. Peterman Co. and also a former executive at Blair competitor Haband.

“We had a very successful format over many years,” says Blair president Murray McComas, a 36-year homegrown executive with a handshake that could crush walnuts. “It served many generations of shoppers, and we successfully expanded the product line and frequency. But in the early 1990s, that customer file began to shrink. We recognized that if we were going to sustain our file, we should be developing a format that folks have shopped for 10 or 25 years.” That meant moving away from loose-sheet mailings and toward specialty catalogs.

Coming out of a time warp Change would not come easily to this Pennsylvania locale. Blair Corp.’s headquarters probably look much as they did 60 years ago, fitting squarely into a neighborhood of neat frame houses bordered by sidewalks and maples. Blair’s brick building features sleek Deco-era steel doors; its outdoor clock, emblazoned with the company’s former name, New Process, is a town icon-Warren’s version of the St. Louis Arch. Out in the company parking lot, a granite wall bears the name of each 25-year employee, hundreds to date. Each year, Blair gives $100 certificates to employees with perfect attendance; last year, more than half of the 2,200 workers collected.

Throughout, the company looks solid, prosperous, no-nonsense. No goofy decor, high-handed posters, or inspirational plaques. Instead, spotless carpeting covers spacious rooms bordered by wide windows; spick-and-span walls house cheerful workers with permed hair and print blouses. It looks like a place without unpleasant surprises, and for years, it was. “Blair was a very well run business,” Rice notes. With its unique niche of low-price, easy-care goods, and a responsive low- to moderate-income middle-aged audience, “it had stellar financial results for many years,” Rice says. “It was very consistent.”

McComas may be modest when he says, “The business pretty much ran itself.” But he’s also not too far from the truth. As he points out, the envelope mailings, with their relatively limited offerings, for years had a distinctive appeal in the mass-market mailbox. Indeed, John Walthausen, an analyst with Albany, NY-based CL King & Associates, a firm that tracks retail marketing, says that one of Blair’s hallmarks “had been its ability to address a mass market with a narrow product line.” Moreover, says McComas, “The format was uncommon, with only a few others-Haband and Starcrest-also using it.”

For McComas, it took 30 years-until around 1992-for signs of trouble to appear. At that time, prospects were still responding well to the company’s space ads, which occupied the pages of Modern Maturity, Grit, and other magazine titles directed to a low- to moderate-income audience. The conversion rate, though, had begun to slide.

“First-time buyers would order from a magazine,” McComas says, “and the next time they heard from us, they’d look for a catalog. Instead they got a letter mailing.” Disappointed with the old-timey look and small product selection of the loose sheets, they wouldn’t come back. After peaking in the early 1990s, the company’s active buyer file began to shrink, bottoming to about 4 million 12-month buyers in 1996.

The file also began to age. “Where we had once had a customer demographic in the mid-40s and up,” McComas says, “by the time we began to address catalog conversion, we were in the 60-plus area.” As a co-op mailer, for instance, Blair had for years sold apparel and home products to Donnelley Marketing’s list of 25 million Carol Wright households with children. But in the past few years, “Blair has experienced some fatigue with our [younger] audience,” says a spokesperson for Carol Wright. “Blair was big, big, big at one point, mailing every month. Now it mails a lot, [but] in the 50-plus mailings.”

Catalogs, Blair reasoned, would stem the decay. To boost the customer base, Blair designed its first book, Blair Shoppe, to attract younger shoppers while minimizing transition costs. Launched in 1994, the catalog addressed only the company’s smallest product division, home decor. Electronic products, like appliances and TVs, were added to Blair’s soft-goods mix, and the catalog-like Blair’s envelope mailings-pushed the company’s Easy Payment Plan to lure prospects.

On the front end, the book was a hit; on the back end, a disaster. While new customers indeed responded to the Easy Payment Plan, particularly for those higher-price electronics, many refused to make their easy payments when the bills came due. The company’s “doubtful accounts” ballooned to $47 million in 1996, with nearly $11 million coming off its bottom line. What’s more, the cost of goods swelled, since the electronic products had lower margins than the apparel.

And Blair never saw it coming. For years, inhouse credit had worked well for an older audience shopping for low-price goods. In fact, until the early 1990s, about half of customers sent checks with their orders; the rest used a seven-day trial (since phased out) or the Easy Payment Plan. Blair’s catalog, however, debuted at a time when bad debt was rampant among retailers. Besides, says Andy Johnson, senior vice president of market development for fellow low-end, credit-based cataloger Fingerhut, “when you’re moving from selling casual apparel to higher-price-point consumer electronics, your credit-granting standards have got to be very carefully managed. The risks are inherently higher.”

“We got stung pretty hard,” McComas admits. “We [since] put a lot of effort into scientifically developed models and working with outside providers and consultants to clamp down on credit.” Blair also ditched its electronics inventory by 1996. Sticking firmly to its catalog path, though, the company rolled out its MensWear catalog in fall 1996, then its WomensWear book the following spring.

That’s when Blair learned bad debt wasn’t its only new challenge. As an envelope mailer, Blair had offered customers a small product selection and mail drops four times a month. That meant it could turn on a dime when it came to spotting poor sellers, reordering hot products, testing merchandise, and rolling out lists. Moreover, Blair dealt with few suppliers and big quantities. Result: comfortable margins, even with value-price goods.

But catalog mailings changed those dynamics. Although catalogs’ longer shelf lives and broader product arrays offer long-term efficiencies, they also pose immediate inventory challenges. “It’s one thing to have 28-30 products that have all been tested and whose appeal in the marketplace you understand,” says Johnson (Fingerhut’s own switch from envelope mailings to catalogs occurred about 15 years ago). “It’s another to move to an 80-page catalog that might have 320 products. What’s the chance they’re all going to be equally strong? It’s a challenge to build a bank of merchandise that can support the advertising cost.”

To fill its additional pages, then, Blair had to increase its number of SKUs 25%, to about 120,000. To better project its longer-term inventory needs, it needed to invest in improved inventory management software. Blair also created an international trade division-essentially, a committee of executives who act as independent merchandise sourcing agents. The committee competes with Blair’s own outside suppliers in regard to finding the best prices and product. “It’s allowed us to be more aggressive in finding product lines,” McComas says.

Meanwhile, to keep the file shopping, the company launched two more home catalogs, Improved Living (fall 1997), with its array of make-your-life-easy products, and Today’s Kitchen (spring 1998). The books are still “toddlers,” says Blair Smoulder, the company’s executive vice president. He denies, though, that Blair is shifting from apparel to home goods, and he claims the company is simply testing to see what works. “There’s no strategy,” he shrugs. “We just keep growing each area [as it makes sense]. We’re an apparel company. This is primarily in line with who the buyer is.”

Refining procedures The new array of books, however, led to new targeting challenges. Previously, Blair used its own inhouse modeling software to target envelope mailings to customers. A single marketing department drew up mailing plans for Blair’s home goods, men’s apparel, and women’s apparel offerings. With the advent of catalogs, though, Blair divided itself into three business units: Blair Shoppe, the home products end (about 14% of the business), men’s apparel (about 25%), and women’s apparel (about 61%). Each division now targets customers independently, with oversight from a central marketing coordinator. Each division can also query customer information from Blair’s new IBM database management hardware.

Blair also beefed up its service end. Generally speaking, Blair’s older customers were happy with their mail-in order forms. “They didn’t care about 800-numbers, even though we tested them numerous times,” McComas says. Since they were mailing in orders anyway, customers also didn’t mind lengthy ship times. “From the time we received the order to when the customer had it in-hand was 15-17 calendar days,” says Randall Scalise, vice president of merchandise handling. No expensive telemarketing center needed; inhouse reps handled customer service and the occasional phone order.

The catalog transition changed all that. Although just 30% of envelope customers currently order by phone, more than 60% of catalog customers do. That means phone orders overall have grown to nearly half of sales. Since 1996, Blair has had to set up two new call centers, both in nearby western Pennsylvania.

Meanwhile, back in the distribution center, Scalise points to charts posted in the cafeteria, right by an employee-painted mural of Blair’s history. The charts reflect five years of tightened pick-pack-and-ship policies, showing that Blair packages are currently shipped within two days and reach customers five to seven days after order receipt. (“With 99.6% accuracy,” Scalise says.) Better, the company’s average number of items ordered has picked up slightly, from 1.81 products a year ago to 1.96. The overall average order dollar value, at about $60, hasn’t shifted much, but catalog-placed orders are a bit higher. Compared to letter mailings, the catalogs, Smoulder says, “have stronger response rates, and the rebuy is better.”

But the letter mailings still have their place. The company sends them to those longtime customers-like Grandma-who prefer them to catalogs. For other, newer customers, though, the envelopes now mail between catalog mailings, marketing sale products, fashion previews, and special collections, such as Blair Intimates. For the first time, too, the company is segmenting those envelope mailings by age and by customer attitude. “We have a high percentage of customers who respond to both catalog and envelope packages,” says John Zawacki, vice president of Womenswear.

Catalogs now emphasize not only known brands, like Misty Harbor, but Blair’s own “younger” merchandise, like Two Twenty and Blair Boutique. There’s brand-building afoot, with a new cover tagline that states, “Because Good Clothing Doesn’t Have to Cost a Lot.” Inside the catalogs, the company has repositioned its low-end, mass-market synthetics, playing up value by stating, “The secrets of how we keep our prices low” (“Who needs cotton from Egypt for a shirt?” says the copy, which goes on to mention volume buying). Toll-free numbers, benefit-driven copy, and Lands’ End-style layouts hammer the point home: This is not your grandma’s Blair mailing.

Now the question: Will the “new” Blair profit in Peoria? Analyst Walthausen, for one, has doubts. “The retail market has continued to move faster,” he says, “and now Blair is more closely trying to compete with more established apparel retailers. It’s shooting a little bit below on price, with less selection. I haven’t come away convinced that there is anything unique it can offer that market.”

But David Leibowitz, a managing director at investment firm Burnham Securities, is more sanguine. “The early results,” he says, “indicate that progress has been made, that at least some of the difficulties the company faced a year ago are no longer pressing, and that management’s new strategy could put some rather impressive numbers on the board.”

After all, Blair’s biggest asset is that it’s still Blair. Even today, 500 tour buses a year stop at the Blair outlet store, located about 5 miles past headquarters. On a recent weekday, the shop was busy with dozens of patrons-mostly seniors, admittedly-poring over cut-price pastel jackets and balloon-print dresses. One enterprising trio posed for a snapshot in front of the blue Blair sign, holding up a white plastic Blair shopping bag.

Maybe you can’t buy that kind of recognition, but Blair certainly hopes to keep selling it. (And I hope that Grandma likes the $9.95 jacket I picked out for her.) n