BRAGGING RIGHTS

Aug 01, 1998 9:30 PM  By

Catalog Age’s exclusive ranking of 1997′s top 100 U.S. catalogers is sure to please lovers of paradox. Continued consolidations resulted in the growth of multititle stables-yet some of the industry’s giants, including Spiegel, Fingerhut, and Hanover Direct, sought to make themselves smaller by cutting circulation.

What’s more, despite the thriving economy, eight of the catalogers on our list, including stalwart apparel mailers J. Crew and Talbots, suffered drops in revenue. And while research firm NPD Group notes that upscale consumers drove last year’s 4.9% rise in U.S. apparel sales, more than making up for the decline in spending among lower-income households, upscale mailers such as Saks and Neiman Marcus posted sales increases of less than 2%.

“This year has been more of a mixed bag than I’ve ever seen,” says Ken Gassman, consumer analyst with Richmond, VA-based investment banking firm Davenport & Co. “Some companies have cut back on prospecting, while some are expanding, because no one has a good crystal ball regarding consumer spending. It’s very hard to point out trends because they’re so mixed.”

Computing growth Annual sales for the 10 computer-only catalogers in the Catalog Age 100 grew to a total of $27.18 billion, up 39% from last year’s $19.57 billion. The growth among these mailers well outpaced the overall computer industry growth for ’97, which research firm Dataquest estimates at nearly 21% for U.S. sales and less than 16% worldwide. Another impressive figure: Revenue from the 10 computer catalogers on our list accounted for more than 45% of the total sales-$60.18 billion-of the 100 top catalog companies.

Dell Computer Corp. was once again the cataloger to beat. With sales of nearly $11.95 billion, a 58% leap from last year, the hardware, software, and peripherals behemoth alone accounted for 44% of the revenue of the computer catalogers on the list, and nearly one-fifth of the total sales of the top 100. Internet sales of more than $4 million a day further confirmed Dell’s dominance.

But the remarkable revenue growth among the computer catalogers as a whole didn’t always translate into a growth in profits. Both Micro Warehouse and Multiple Zones saw their black ink turn red, due in part to disappointing-and discontinued-overseas operations. Micro Warehouse shuttered or sold its operations in five countries, including Australia, Denmark, and Japan, and laid off 14% of its total work force. While sales grew roughly 11%, to $2.13 billion, the cataloger posted a net loss of $36.7 million in ’97, compared to net earnings of $15.3 million the previous year.

Multiple Zones, meanwhile, closed its Australia, Belgium, and Netherlands operations. Its 1997 sales grew a relatively modest 7%, to a total of $490 million, but it recorded a net loss of $5.4 million, compared with 1996′s $10.9 million in net income. Just a year earlier, Multiple Zones had enjoyed an 88% jump in sales and a 241% leap in income.

The health of b-to-b The four business-to-business medical suppliers on the list grew annual sales an average of 16%, to $2.43 billion in 1997 from $2.09 billion the previous year. Henry Schein retained its status as the leading cataloger of medical, dental, and veterinary supplies, with sales of nearly $1.52 billion-more than the revenue of the three other medical suppliers combined. Schein’s acquisition of 23 companies worth a total of $534.7 million fed its 23% sales growth. But the acquisitions also bit into the bottom line: After posting net income of $32 million in 1996, in ’97 Schein suffered a $1 million net loss.

Schein will no doubt turn around its loss once it absorbs its acquisitions. In fact, Andrew Calimano, an analyst with New York City-based investment banking firm Gruppo, Levey & Capell, expects Schein to switch its focus from buying companies to consolidating the properties it already owns.

But competitor Moore Medical Corp. is in shakier health. Sales grew less than 1% last year, to $288.5 million, as in October the company began pulling out of the wholesale drugs market, citing growing competition and shrinking margins. Unhappily for Moore, however, wholesale drugs accounted for 60% of its revenue. Although the company is ranked number 39 for 1997, expect Moore to slip in next year’s ranking.

Among other b-to-b markets, the five catalogers of office supplies and furniture (excluding Global DirectMail, which also sells computers and industrial supplies) grew sales nearly 18%, to a total of more than $2.69 billion. Those seeking consistency among these mailers’ growth patterns, though, will be disappointed. Catalog sales for Boise Cascade Office Products, the parent company of office supplies and furniture cataloger Reliable, jumped 37%-but sales were flat for office furniture marketer Mosher Cos. New England Business Service (NEBS) grew in part because of its acquisitions of Chiswick Trading and RapidForms.

And while the two giants of the segment, Viking and Quill, benefited from solid growth, don’t expect to see them on next year’s ranking-at least not under their own names. Retail category-killer Staples bought Quill in April 1998; weeks later, fellow office supplies superstore Office Depot agreed to merge with Viking.

Of the 42 business-to-business catalogers on the list (vs. 52 consumer catalogers and six “hybrids,” selling significantly to both consumers and businesses), only two suffered a drop in sales last year. Renegotiation of a contract with one of its larger customers cost Tessco Technologies, a cataloger of wireless communications supplies, nearly 6% in sales; its annual revenue fell from $141.1 million to $133.2 million. And sales at Sport Supply Group decreased almost 3%, to $80.5 million from $82.7 million, as the cataloger, which sells sports equipment to institutions, sold the remains of its consumer golf division and consolidated several of its titles in hopes of improving earnings. The strategy did push the firm into the black: For the 11 months ended Sept. 26, 1997, Sport Supply posted net income of $2,000, compared to the $18.7 million net loss reported for the previous 12-month period.

Consumer concerns While fewer than 5% of the b-to-b catalogers on the Catalog Age 100 endured a dip in sales, almost 12% of the consumer mailers-six out of 52-suffered the same fate. For general merchants Fingerhut and Spiegel, and apparel and home goods catalogers Blair and Hanover Direct, the declines followed a reining in of circulation (or in Blair’s case, a strategic shift away from solo mailings and toward catalog mailings) intended to bolster the bottom line.

Unfortunately, only two of the four catalogers saw a resulting improvement. Having cut its mailings to prospects 20%, Fingerhut watched net earnings soar 79%, to $37.7 million. Similarly, decreases in circulation and other cost-cutting measures helped multititle cataloger Hanover Direct hack its net loss from $105 million in 1996 to $10.9 million last year. What’s more, $93.8 million of Hanover’s $142.7 million drop in revenue resulted from closing several titles.

But on top of a nearly 11% drop in sales, Blair saw net income fall more than 9%, to $13.3 million. Still, at least Blair had profit to report. Spiegel’s net loss more than doubled, to $33 million from $13.4 million. Including the Eddie Bauer and Newport News titles, total catalog sales fell 8%-but sales from the flagship title plunged 24% on a 20% cut in circulation.

Women’s and children’s apparel cataloger/ retailer The Talbots also suffered a tumble in catalog sales. The 11% decline stemmed from an ill-fated attempt to attract younger customers by replacing much of its classic women’s clothing with fashion-forward styles. Prospects and loyal customers alike stayed away in droves, resulting in a $20 million-plus drop in revenue. Happily, Talbots quickly returned to its blue-blazer-and-wrap-skirt roots, and sales have picked up this year.

And J. Crew Group’s total catalog sales slipped nearly 6%, to $521.2 million. The eponymous men’s and women’s apparel book was responsible for most, if not all, of the decline: Sales from the J. Crew brand catalog were down nearly 9%, to $264.8 million from $289.8 million. The $834 million cataloger/retailer is now looking to sell its $72 million Clifford & Wills women’s apparel book so that it might spend the resulting windfall on bolstering its flagship brand. How the notoriously tight-lipped company would do so is open to speculation, however.

The turbulence suffered by Crew and Talbots was not typical of other apparel catalogers on the Catalog Age 100. Women’s apparel cataloger DM Management, for one, grew sales 60%, to a total of $135.5 million from $84.6 million. Of DM Management’s two titles, J. Jill, which targets a younger audience than does sister book Nicole Summers, accounted for 54% of revenue, up from 27% the previous year. Put another way, J. Jill’s sales grew 221%, to $73.2 million. That certainly outpaced the 13.1% growth figure for ’97 catalog apparel sales (vs. the aforementioned 4.9% for all apparel sales) cited by The NPD Group.

With sales growth of 81%, from $705 million to nearly $1.28 billion, multititle clothing cataloger Brylane also performed far above average-and barreled into the top 10 of the ranking to boot. On the other hand, Intimate Brands’ Victoria’s Secret catalog, which grew sales only 7%, fell short of NPD’s 13.1% benchmark, despite an 18% boost in circulation.

According to the National Retail Federation, retail sales of general merchandise, apparel, and furniture rose 5.3% last year. Apparel and gifts cataloger Coldwater Creek easily outperformed that average by increasing sales 67%, to $238.9 million from $143.1 million. The company’s launch last summer of its Bed & Bath title contributed to the growth. Foster & Gallagher, which sells gardening supplies, gifts, food, and children’s products, was another overachiever, with a 16% rise in revenue, to $476 million.

But for every Mark Group (13% rise in sales) or Knight’s Ltd. (12% sales growth), there was a J.C. Penney (less than 4% sales growth) or a Nordstrom (slightly more than 1% rise in catalog sales). Indeed, multititle cataloger/retailer Williams-Sonoma single-handedly demonstrates the inconsistencies within the consumer catalog segment. While revenue among all five of its catalogs grew 11%, to $331.5 million, sales from the company’s Gardener’s Eden and Chambers catalogs dropped last year.

The acquisition factor Thank goodness for the one bona fide trend within the catalog industry: acquisitions. For instance, no sooner did Lands’ End cut loose $30 million apparel mailer The Territory Ahead early last year than International Cornerstone Group snapped up the cataloger. International Cornerstone bought three other catalogers in 1997 (Ballard Designs, Garnet Hill, and Whispering Pines), bringing the number of titles in its fold to six (it also owns Frontgate and Travelsmith), more than doubling the company’s annual sales to $200 million-plus, and gaining the company a slot on the Catalog Age 100.

Acquisitions helped other companies to debut on the ranking as well. Apparel cataloger Delia’s, for one, proved that the Spice Girls weren’t the only beneficiaries of “girl power.” Largely by targeting teenage girls-a market previously ignored by catalogers-Delia’s increased sales 96%, to $106 million. And the company’s December purchase of TSI Soccer, a cataloger of soccer gear, boosted company sales, in addition to enabling Delia’s to reach adolescent males.

Then there’s Genesis Direct. In just three years, through acquisitions and development, the firm has grown to 31 titles. In the past year, sales skyrocketed from an estimated $15 million to $93.5 million. Genesis hopes to prove the axiom about strength in numbers. The average revenue for each of its catalogs is slightly more than $3 million, but the company expects to profit by pooling the disparate titles’ resources.

Other Catalog Age 100 freshmen have a few years on the nascent Genesis Direct and Delia’s. Home improvement retail giant Home Depot entered the ranking thanks to its 1997 purchases of b-to-b maintenance and repair supplies cataloger Maintenance Warehouse, and Deekay Enterprises, parent company of cataloger National Blind & Wallpaper.

Likewise, the venerable Woolworth Corp. (or as it’s now called, Venator Group) gained entry with its January 1997 acquisition of athletic shoes cataloger Eastbay. With its ownership of gifts cataloger/retailer San Francisco Music Box Co., Woolworth already had a toe dipped into the catalog pool, but now the corporation is diving in full force. In addition to Eastbay, Venator is developing catalogs for its Foot Locker retail brands.

On the business-to-business side, Global DirectMail bought computer cataloger Midwest Micro last summer, and Creative Computers snapped up two competitors, Elek-Tek and ComputAbility. Metalcutting industry supplier JLK Direct, fresh from being spun off by parent Kennametal, bought four companies worth $59.9 million, and Wilmar Industries, a cataloger of maintenance and repair supplies, acquired three companies worth $35 million.

Even the most cautious gambler would wager that the acquisition trend will continue. Already in the first half of 1998 we’ve seen, in addition to the Quill and Viking deals, the purchase of Suburban Ostomy Supply Co. by manufacturer Invacare; toy manufacturer Mattel agreeing to buy children’s products cataloger Pleasant Co.; department store giant Dayton Hudson adopting Rivertown Trading; NM Direct snapping up Chef’s Catalog; and motorcycle parts cataloger Global Motorsport agreeing to sell to Fremont Partners.

The deals with the highest profiles involved noncatalogers-and it’s a safe bet that retailers and manufacturers will continue to purchase their way into the direct marketing channel. “Retailers are trying to reach consumers by as many distribution channels as possible,” Davenport & Co.’s Gassman notes. “Dayton Hudson, for instance, has exhausted most store-based channels of distribution, so where does it go next? To catalog and Internet sales. So it bought Rivertown Trading.”

But don’t worry that all this buying and selling will kill the small, independent cataloger. “The catalog industry represents one of the last places in the American capitalist society where Harold and Mabel can achieve the American dream by starting a business at their kitchen table,” Gassman says. Compared with retail, “the barriers to entry are still very low, and as long as they’re low, we’ll have a continuing stream of catalog start-ups.”