Damark takes the long view

What better way to retain customers than to make them members of a buyers club. At least, that was Damark International’s philosophy when it began refocusing its business on membership services last year. And although the strategy resulted in a fourth-quarter loss of roughly $10 million, some observers say that Damark’s long-term prognosis makes up for such short-term setbacks.

The Minneapolis-based marketer introduced eight membership clubs in the past three years. Four of the clubs-ValuePlus, which offers members the steepest discounts of all the Damark clubs; Gift Gallery, which sells inexpensive gifts; Budget Savers, which offers members grocery and product coupons, insurance discounts, and gasoline rebates; and Buyer’s Guard, which provides product warranties, low-price guarantee coverage, and product repair rebates-were launched in 1998. Damark’s other clubs offer discounts on travel, lodging, entertainment, and merchandise. All told, the $484 million company has 1.7 million club members who pay annual fees of $49.99-$109.99.

Calls to Damark went unreturned at press time, but according to the company’s 1997 annual report, club members averaged $8.18 in sales per catalog, compared to $3.38 for nonmembers. Combine that with increased competition from retailers, other catalogers, and Web merchants, says Walter Morris, managing director at Milwaukee investment research firm Robert W. Baird & Co., and it’s no surprise that last year Damark “cut down on its prospecting and made a strategic decision to concentrate on and grow its membership base.”

While membership fees provide an additional source of revenue for Damark-in 1998, they accounted for $89 million of total revenue-converting nonmember catalog customers to members costs money, with Damark relying in part on outbound telemarketing. Of a first-year membership fee of $49.99, acquisition and operating costs account for nearly 70%. And so last year’s emphasis on recruiting members is biting into the bottom line. In 1998, Damark lost $19.6 million, compared to net income of $6.3 million in 1997.

But the payoff comes in the second year of membership: Acquisition costs are eliminated, and Damark claims operating costs account for a mere 9%. Keeping that in mind, “Damark’s numbers aren’t as bad as they seem,” Morris says. “It needed to make a substantial up-front investment to build its membership programs. The growth will come from the membership side of the business.”-SO

Partner Content

Hincapie Sportswear Finds Omnichannel Success in the Cloud - Netsuite
For more and more companies, a cloud-based unified data solution is the way to make this happen. Custom cycling apparel maker Hincapie Sportswear has leveraged this capability to gain greater visibility into revenue streams, turning opportunities into sales more quickly while gaining overall operating efficiency. Download this ecommerce special report from Multichannel Merchant to more.
The Gift of Wow: Preparing your store for the holiday season - Netsuite
Being prepared for the holiday rush used to mean stocking shelves and making sure your associates were ready for the long hours. But the digital revolution has changed everything, most importantly, customer expectations. Retailers with a physical store presence should be asking themselves—what am I doing to wow the customer?
3 Critical Components to Achieving the Perfect Order - NetSuite
Explore the 3 critical components to delivering the perfect order.
Streamlining Unified Commerce Complexity - NetSuite
Explore how consolidating multiple systems through a cloud-based commerce platform provides a seamless experience for both you, and your customer.