Critical issues & trends

Dec 01, 1998 10:30 PM  By

Despite the overseas fiscal turbulence that’s been threatening the U.S. economy for months, and before the scandal in Washington came to a head, the participants in Catalog Age’s Benchmark Report on Critical Issues and Trends had fairly high hopes. When polled in July, 40% of the participating catalogers said they expect sales to grow at a faster rate over the next 12-24 months than they had during the past two years. You could argue that catalogers were more optimistic a year ago, however, in that 51% of those surveyed then expected to grow sales more quickly than they had the prior 24 months. But then again, last year 11% of respondents expected that the next two years would bring flat or falling sales; this year only 6% are equally glum.n Maybe those catalogers with high hopes for the next two years are looking to make up for this year’s revenue shortfalls: 40% of this year’s respondents say they missed their 1997 revenue projections (only 28% of last year’s respondents fell short of their ’96 sales goals). And 35% of this year’s participants missed their profitability goals, compared to 28% of last year’s. That’s not terribly encouraging, given that we’re talking about sales and profits for a period prior to the tumult of Wall Street, back when consumer confidence was soaring and the country had reached near-full employment.

Hybrid respondents (those that sell to both consumers and businesses) are the most discouraged about future growth-only 32% expect to grow sales faster over the next year or two than they had over the previous two years, compared with 39% of business-to-business respondents and 44% of consumer participants. But b-to-bers and consumer respondents have downscaled their expectations the most: Last year 54% of b-to-b participants and 59% of consumer participants had anticipated increased sales growth, compared with 38% of the hybrids.

B-to-bers, in fact, have the most cause for pessimism, judging from last year’s sales performance among respondents. Nearly half (49%) fell short of their revenue expectations, a startling increase from 17% the previous year. Showing more consistency, 30% of both this year’s and last year’s consumer respondents missed their revenue projections, as did 29% of hybrid respondents for the same two years.

Along the same lines, while the percentage of consumer respondents that missed their profitability goals rose slightly (to 40% among this year’s respondents from 36% of last year’s) and the percentage of hybrid respondents that fell short dropped slightly (to 29% from 35%), the percentage of business-to-business participants that missed their profitability projections more than doubled, to 30% from 13%.

Reflecting concerns about improving profitability, the need to mail smarter to their house file is the top concern among b-to-bers, with 55% rating it a “5″-the most pressing-on a scale of 1-5, followed by rising distribution costs (52%), increasing attempts by the states to assess use tax (42%), and the impact of price on customers’ purchasing decisions and the need to keep creative fresh (38% each).

The concerns of other segments of respondents are similar to those of the b-to-bers. The need to mail smarter to the house file, for instance, is also the top concern among consumer respondents (52%). What’s more, 53% of all respondents with annual sales of $10 million-$49.9 million rate the need to mail smarter a “5,” making it their top concern. It was also the most pressing concern among all respondents with annual sales of more than $50 million: A staggering 81% rated it a “5.”

Oddly enough, only 24% of hybrid respondents cite mailing smarter as a top concern. Perhaps if more of them worried about mailing smarter, though, fewer hybrids would rate rising catalog distribution costs (tied with package delivery costs) as their top concern; as it is, 46% of hybrid respondents consider catalog distribution costs a vital issue.

Lists and databases To mail smarter to your house file, you need to know the buying habits and demographic traits of the names on your database. “Catalogs used to be pretty simple in terms of merchandise and circulation strategies,” says George MacNaughton, president of uniforms cataloger WearGuard, “but as you try to get more out of a small group of customers, you have to understand them better than in the past. We’ve always applied a high degree of statistical analysis to our customer file.” Not enough other catalogers can say the same. Among participants in Catalog Age’s 1998 Benchmark Report on Lists and Databases (July issue), 51% do not use any sort of modeling, 87% do not reverse-append data collected from other marketing venues, and 56% don’t conduct lifetime value studies of their customers.

Among other database and list issues, only 11% of respondents to the Critical Issues survey consider the lack of new catalog-buyer names a top concern. But for 29% of respondents (including 50% of those with annual sales of at least $50 million and 47% of those with annual sales of $10 million-$49.9 million), acquiring customers profitably is a key issue.

Marketing Among participants in Catalog Age’s 1998 Benchmark Report on Marketing (February issue), 24% of those that have bought magazine space ads rated them a “very good” source of new names, making them the second-highest rated alternative prospecting method.

Multititle mailer Ebbets Field Flannels, which sells apparel bearing the logos of vintage football, hockey, and baseball teams as well as licensed Late Night with David Letterman items, has had great luck with space ads in magazines such as The New Yorker and Smithsonian, says catalog spokesperson Suzy Davenport. “Finding our customers is harder than you’d think, because what we sell isn’t licensed sportswear; it’s not fashion exactly; it’s not really nostalgia.”

Only catalogers’ Websites rated higher than space ads as a “very good” source of new names among participants in the Marketing survey, by 1 percentage point. Three-quarters of respondents to the Critical Issues survey (80% of b-to-bers, 78% of consumer respondents, and 70% of hybrids) have their own Websites, up from 64% last year (and appreciably greater than the 36% of participants in the Benchmark Report on Print and Production, which appeared in the November issue). But far fewer respondents to the Critical Issues survey-26% of consumer catalogers, 27% of b-to-bers, and a scant 12% of hybrids-rate the growth of interactive media a critical issue. Yet it is the third most-pressing issue among respondents with annual sales of $10 million-$49.9 million, with 41% considering it important. And though 28% of respondents with annual sales of less than $10 million rate Internet growth a top issue, only 12% of respondents with annual revenue of at least $50 million do.

“I think for mail order companies to grow, they have to become aware of the Internet,” says Mike Shoup, president of The Antique Rose Emporium, a cataloger/wholesaler of plants. The Brenham, TX-based marketer jumped onto the Internet four years ago, selling product through the cooperative Garden Escape Website. Garden Escape covers the cost of building and maintaining the site in exchange for a percentage of the sales. The partnership with Garden Escape provided the horticultural marketer with a “harmless” introduction to the Internet, Shoup says. “Right now less than 10% of our total sales [of $2.3 million] are from the Web, but with the growth that’s occurring, it shouldn’t take long for that portion to be much more.”

Ebbets Field Flannels just made online ordering available in September, “and already we’re seeing results,” Davenport says, although she won’t give figures. “To have that unlimited space and be able to market in unusual, grassroots ways, without the expense of producing and mailing catalogs-it’s a godsend.” The cataloger’s “grassroots ways” of marketing itself online include establishing links to and from baseball Websites and the home pages of sports historians and hobbyists.

Leaving aside the Internet, respondents to the Critical Issues survey don’t seem preoccupied with marketing issues in general. Increased competition has 24% of consumer respondents and 23% of b-to-b respondents on their toes, but only 12% of hybrids list it as a top concern.

Still, MacNaughton says WearGuard has “seen an incredible increase in competition” over the past few years, as the growing popularity of casual workplaces has induced more consumer catalogers to begin personalizing shirts, jackets, and the like with company logos. Partly as an outgrowth of this increased competition, MacNaughton cites customer retention as the primary concern of the Norwell, MA-based mailer.

To boost retention, WearGuard stepped up its outbound telemarketing efforts three years ago. “We’ve seen strong top-line growth among those customers that we contact with an outbound call,” MacNaughton says, but “modest incremental earnings improvement. It’s a very expensive method of sales because of the number of salespeople needed, but you do a better job of retaining customers.”

Operations Marketing efforts such as increased outbound telemarketing aren’t the only strain on catalogers’ bottom lines. Rising package delivery costs are a critical concern for 37% of all respondents, and for 41% of those with annual sales of less than $10 million, compared to 24% of larger respondents. Mailers that sell heavy products, such as Antique Rose Emporium, have reason to be concerned about shipping costs and their effect on sales. “In some cases shipping adds 30%-40% to the price,” Shoup says.

Among participants in the 1998 Benchmark Report on Operations (April 15 issue), 41% of respondents charged just enough for shipping and handling to cover costs; 11% took a hit on S&H, and 48% made money on S&H. For this last group, increases such as United Parcel Service’s annual rate hike and next month’s Postal Service rate boost could force them to sacrifice profits to stay cost-competitive.

“We use our S&H as a profit center,” says Jim Fitzgerald, vice president/ general manager of $1 million-plus APG-Direct, a Richmond, VA-based cataloger of spiritual and family-oriented gifts. We need to deliver the same bottom line without losing sales.”

Respondents to the Critical Issues survey are less concerned about their customer service standards than they are about costs. An unimpressive 19% cite service performance as a top concern-the same percentage as last year. Also consistent with last year, b-to-b respondents are more likely to worry about their service (36%) than are hybrids (15%) and consumer catalogers (10%).

Perhaps the consumer and hybrid catalogers should worry more. Of respondents to the Operations survey, hybrids had a mean phone abandonment rate of 4.9%, and consumer catalogers had a 4.7% mean; in comparison, b-to-bers had a mean abandonment rate of 3.5%.

Merchandising Only 17% of total respondents view the availability of fresh merchandise as a top concern, down from 26% last year. Generally speaking, the larger the catalogers, the less likely they are to worry about finding new or unique product: While 18% of the respondents with sales of less than $10 million regard finding fresh product as a key issue, only 12% of respondents with annual revenue of $10 million-$49.9 million do. And not one respondent with annual sales of at least $50 million considers it a top concern. (By the same token, not one of the respondents with sales of at least $50 million sees increased competition is a key concern.)

But respondents to Catalog Age’s 1998 Benchmark Report on Merchandising (October issue) were more concerned with product freshness-not surprising given that many of those respondents were merchants and buyers, whereas the vast majority of respondents to the Critical Issues survey are presidents, CEOs, and owners. Nearly half of the Merchandising survey respondents (48%) rated uniqueness of product as “very important” when selecting a vendor; 30% rated exclusivity of product “very important.”

Production A significantly smaller portion of respondents cite rising paper and production costs as a top concern this year than last: 36% of b-to-bers this year vs. 68% last year; 30% of hybrids this year vs. 46% last year; and 24% of consumer participants this year vs. 48% last year. This easing of catalogers’ minds reflects several years of relatively stable paper prices; in fact, a paper rate hike expected this past summer failed to materialize, as the mills realized that demand had not yet outstripped supply. Production costs have held steady, too, thanks in part to increased competition among digital production vendors.

The paper and production price stability is apparent on financial ledgers. This year’s mean revenue allocation to print and paper is 7.8%-little more than half of last year’s 15.5%. Some catalogers may have whittled their print and paper expenditures by trimming their book size, as did 15% of the respondents to Catalog Age’s Benchmark Report on Print and Production (November issue). Or they may have cut page counts or, like The Antique Rose Emporium, added a thinner prospecting book to their marketing mix.

“Our 100-page reference guide is still available for $5, but to show our product to many more people, we’ve taken the best garden varieties and put them in a book that’s half the size, which we can now afford to send free,” Shoup explains. Although the response rate from requesters who paid $5 for the catalog was 30%, compared to roughly 10% response from requesters of the free catalog, “we can send the free catalog to more customers, because it costs around 60 cents a book, while the reference guide costs $2.37. And our mail order sales are about 20% ahead of what they were this time last year,” he adds.

Indeed, many catalogers have had a good run over the past few years, with stable production and distribution costs, confident consumers, and an upbeat economy. But lackluster early fall sales (“Fall shortfalls,” November issue) are doubtless causing some to readjust their expections. Then again, diminished expectations may result in more catalogers meeting-if not exceeding-next year’s sales and profits projections.

In July 1998, the Catalog Age subscriber file was sorted on an nth-name basis to extract a representative sample of 1,000 catalog presidents and owners. These subscribers received a letter of explanation, an 87-question survey, and a postage-paid envelope in which to return the survey to an independent marketing/ research firm. Of the sample group, 22 were undeliverable and 118 were completed and returned, resulting in a response rate of approximately 12%.