In January, Catalog Age fled the freezing temperatures of the Northeast for the warm sunshine of Phoenix to speak with local catalog executives about the state of their operations. From system crashes and software upgrades to warehouse moves and construction nightmares, our lively discussion covered all the back-end basics.
Greg Cooper is operations manager for Arizona Health Foods, a cataloger/retailer based in Phoenix.
Sandra Dawson is operations manager for Tempe, AZ-based Beadbox, a wholesale/retail marketer of jewelry beads and related supplies.
David Kravetz is co-owner/operator of Chandler, AZ-based Fairytale Brownies.
Stevie Mack is president of Crizmac Art & Cultural Education Materials, based in Tucson, AZ.
Catalog Age executive editor Melissa Dowling and associate editor Margery Weinstein moderated.
The major issues
Catalog Age: What has been your biggest operations concern during past two years?
Stevie Mack: Mine probably has to do with catalog development — how to put more in the same amount of space and still make it attractive and interesting to a customer.
Catalog Age: Are your operations in the same facility as the creative?
Mack: Yes. We have a retail space, and behind that retail space are our offices, and then behind that is our warehouse, so we do all the fulfillment there. We do all the creative development there as well, except some of the printing and graphics.
David Kravetz: I started Fairytale Brownies about 11 years ago with a childhood friend of mine, Eileen [Spitalny]. She does all the sales and marketing, and I handle the operations. Our biggest concern or challenge for the past few years has definitely been IT. We have wanted to upgrade our system for a couple of years. We started this business with just personal savings and have kept growing it, so the idea of spending $100,000-$200,000 on software has been really tough to swallow for us, but we had some computer problems this past holiday season that solidified our decision.
We had a crash that was pretty significant, right in the middle of the season — our peak day actually, Dec. 15 — and it resulted in orders not shipping on time, and delays, and a couple of lost orders. I remember on Dec. 12 — it was a Friday — we were sitting there saying, Hey, we’re doing pretty good. Our software is going one more year, and we’ve managed to patch it all together, and we had to integrate between that and the FedEx computer, and all that. But then we had the crash, and by lunchtime on Monday we had pretty much decided that we were going to buy new software.
Sandra Dawson: At Beadbox we sell beads and other jewelry components for jewelry designers and people who make jewelry at home. I joined the company about two years ago. The company has actually been in business for about 11 years. In the time that I’ve been there, it’s been coping with fast growth. Facilities have been an issue for us. We’re getting ready to move into a new building in about two or three weeks, so we’re very happy about that. We’re also coping with our systems being able to support the growing business from the front end to the back. Having a system that copes with customers and taking orders is all well and good, but you also have to cope with inventory management and supplier management and things like that, so looking to the future with new systems that help support the entire business rather than just the mail order business is what we’re dealing with right now.
Greg Cooper: I’m with Arizona Health Foods — or rather I’m with NutriCorp, which is a company that had purchased us this summer. It’s a public company, so it’s a big stretch from family-run Arizona Health Foods with its chain of stores in the Phoenix metropolitan area to a large company that is international and really has multichanneling.
We’re still working with a point-of-sale system that we’ve integrated into the catalog side and made do with. It’s worked quite effectively, but we also use outside utilities to really work with [database co-ops] Abacus and iBehavior and others.
One fortunate thing with the acquisition is that they bring in a whole team of experts as far as IT is concerned. We’re using Voice over Internet Protocol [VoIP], which means with 1-800 calls, all our lines go up through Utah and then back down to Arizona, so there’s a huge cost savings there.
Catalog Age: Many companies say they’re charged with reducing costs without reducing service levels. Has that been the case with you? Have you had to compromise your service at all?
Mack: We have definitely had to deal with reducing costs, particularly in this last year with the education market being severely impacted by the fiscal changes and economic changes at large. We are looking at trying to support a 72-page catalog and keeping our Website up and fresh and functioning with reduced personnel. How we readjust responsibilities, that’s been one of my biggest challenges with reduced costs — how to get fewer people to do more is really the bottom line.
Kravetz: We are extremely seasonal. About 50% of our shipments go out in the first three weeks of December. So we need to have a large line of credit with a traditional bank, and all the profits have been self-funded. Now we’re at the point where we want to have our own building in another two years, so we need to really figure out how to be more profitable, and we see the new software as probably the biggest bang for our buck.
Right now, for example, when we ship, we have two labels on every box. We put our own label on, and then we send it down the line, scan it, and put a FedEx label on. With Ecometry [software], it will print out with the FedEx label, so there will just be the one label. That’s huge; if we add that up with every box, doing the two labels vs. the one, that alone is going to save us a lot of money.
Shopping for shippers
Dawson: We spend a lot of time focusing on customer service. FedEx shipments go out the same day. Anything else goes out within 24 hours. We are constantly purchasing because we don’t want customers to not have products, and we have 13,000 SKUs in our product line right now. It’s a tremendous balance between making sure that we have stock, making sure that we don’t have too much stock, making sure that we’re getting all the new products that the customers are expecting to find because [beads are] a fashion item. It’s a real difficult balance between maintaining costs within the operation.
Kravetz: There’s a flip side to the cost savings, and that’s raising prices. I think that’s something companies do a poor job of, raising the prices when they need to. I’ve seen other companies wait too long, and then they’re forced to do a large price increase just to survive. And then everybody notices that. We have had a price increase every two years since we started the business. Like a 5% increase in price, that goes right to the bottom line. We have found that we’ve not lost many customers when we’ve done that.
Cooper: That’s very subtle for the consumer.
Kravetz: Yes, a lot of times they don’t notice.
Catalog Age: What about with shipping and handling?
Kravetz: That is the number-one complaint: “Your shipping is too expensive.” We have a $4 surcharge in the summer, when we use ice packs, so a dozen brownies is $6.95 in the winter to ship and $10.95 in the summer, and that $10.95 gets a lot of complaints, so we will not raise our shipping prices anymore. We’ve totally capped those. We look at [chocolatier] Godiva as kind of a model. They’ve done a really good job with a similar type of product, and their shipping prices are some of the lowest in the food mail order industry, and their products are very expensive. That’s the way we’re going to approach it.
Mack: In the education market, there’s quite a lot of pressure to give free shipping. More and more companies are doing either free shipping or free shipping with $50 or more. And with nonproprietary product, in most cases the price is printed right on the product. So we can’t raise it, because you can go somewhere else to buy that same book for the price that is printed on it. So we really struggle with that in trying to make sure that we’re covering our cost. We haven’t had a shipping increase in two years. I cannot give them free shipping, so I said, “Okay, let’s just keep it consistent.”
Dawson: We primarily use the Postal Service because of the size of our packages. Most of them are a pound. A lot of them are under a pound. [USPS is] very cost effective for us.
Kravetz: Do you do delivery confirmation on everything?
Dawson: We will be shortly. Currently we’re using a Neopostage [mail processing] machine. We find that, yeah, occasionally, a customer calls and says, “I didn’t get my packages.” Unfortunately we don’t have delivery confirmation on those first-class packages. High-value items or orders we will ship on FedEx so it is trackable.
We use Priority Mail. We switched a year and a half ago. Anything under two pounds you’ve got to send out Priority because the cost savings is so great. We went out and tested competitors to see who used what. And we could go to UPS and negotiate for third- and second- and next-day delivery. I still felt Priority was best.
Kravetz: I’ve heard very good things about Priority Mail. We ship air, but we’ll find, especially with tough addresses, we do a lot of address scrubbing because virtually everything is a gift, so we have a ton of address problems — it’s not your address, so you don’t know. So whenever we have one that we just cannot find the address, I change it to Priority Mail. It seems like the Postal Service has the most comprehensive list of every address in the country. When you start getting to these rural addresses, where FedEx has problems, we just go Priority Mail, and it’s been really good for us.
Cooper: The losses occur through not being able to track a package. It’s just a blip, though, compared with the savings you can get when you’re looking at shipping things that are under two pounds. And that’s the bigger issue for us. We have a lot of large orders, but we also still have a lot of one- or two-bottle ships. Those go right to the Priority box. I’m amazed at the amount of stuff that they can go through without having a failure.
Mack: We often don’t ship to someone’s home. We’re shipping to a warehouse or a school building. So if you can’t trace and get a signature for receiving that package, forget it. Because then the teacher says, “But what about my $500 I just spent with you — I don’t have those products. Where are they? That was my whole budget.” So for us to be able to trace and follow up with a signature, to be able to say, “George Brown signed for this on such-and-such a date,” is really important.
Cooper: For higher-priced items, there’s no recourse with the USPS, so I agree that anything that creeps up toward $100, there’s a decision made to go to UPS because you’re protected that way. Even if you’re insured through USPS, it’s still a crapshoot.
Catalog Age: What about USPS’s new Basic service? Is anyone looking into that?
Kravetz: That’s where they drop the packages into the post office?
Catalog Age: Yes.
Dawson: We’re actually using a DHL service similar to that. They pick up the shipment. Certain sizes and weights and things all go together. They drop it into the Postal Service [mail stream] at a certain location. If you have the volume, it can save you 10%-12% over [using USPS from end to end].
Cooper: And is that ground?
Dawson: It’s a ground service, but typically it’s three to five days delivery to anywhere in the country. They got off to a little bit of a rocky start. We were having some customers calling at 10 days saying, “I haven’t gotten it.” But they’ve repaired the problems.
Kravetz: The tracking is so critical for us because of the gifting aspect. The person wants to know if their gift has made it. That’s why we are with FedEx for about 90% of our packages. I don’t think anybody does a better job with finding a package in transit than they do.
Dawson: Are you using the e-mail notification for FedEx?
Kravetz: We did, and then we wrote our own because the FedEx one is so generic. But we wrote something that pulls the data out of our software and sends the e-mail with the tracking number.
Dawson: No, I mean from FedEx when you have issues. We get FedEx notifications via e-mail when there’s a problem with delivery or something. It’s been really good because you know immediately. They’ll send you an e-mailing telling you exactly what the problem with the item is, if it was going out of the country, or if it’s a customs issue, or something like that. You can typically get it resolved and let the customer know that there’s going to be a delay on the shipment. It’s helpful tremendously from a customer service aspect because it saves days, especially on the customs and the shipments going out of the country.
Kravetz: For Christmas we dedicate one person full time for about three weeks just on tracing and rerouting.
Catalog Age: You mentioned international orders. Do you ship a lot of packages overseas?
Dawson: It’s a small percentage of the business overall, but we do ship to almost every country. We put up a map on the wall, and every time we ship to a new country, we put a pin in it. We ship quite a bit to Asia. The products of Beadbox originated in England, so we had a lot of customers in the U.K. As our Website has grown and developed, and will develop in the future, we’re going to focus more on the international market.
Mack: Our international market has grown since our Website launched, although it is still small.
Dawson: With the Internet, you’re not halfway around the world anymore. What we’ve found with customers is that we have what they want, and it doesn’t matter that we’re in Tempe, AZ, and they’re in Tokyo, Japan. We will use the Postal Service occasionally, but we also use FedEx International, and they get their packages within a week.
Fun with facilities
Catalog Age: Has anyone made changes to his or her facility? Added on? Moved? Built a new one?
Dawson: Any time you’re building you have to obviously get the permits from the city. Tempe is enforcing some very strict guidelines as far as the structure of buildings. We’re having a mezzanine put in [our new facility], and they’ve literally gone with the California guidelines for putting in a structure like that within a building. It has to be earthquake-proof and all kinds of things, so that tripled the cost of the footings [supporting] the mezzanine alone because they had to make it so much larger and deeper. But it’s going to be a good, solid structure when it’s done.
We probably went into every empty warehouse building in Phoenix until we finally determined that we could buy a new facility for the same price that we could purchase an existing one and retrofit it for what we needed it for. We’re going from about 5,000 sq. ft. to just under 13,000 sq. ft., so it’s going to be a nice upgrade.
Kravetz: We’ve run out of administrative space in our building, and we were going to buy or build now that our lease is ending, but we’ve decided to extend the lease as well as lease additional administrative space about a quarter-mile away. We’re moving customer service off site. This will be the first time that customer service and shipping haven’t been in the same building.
Mack: We bought a building two years ago and did a major remodel. We needed the space; we needed a much better environment than we had. And then, as we were — I guess about three years ago, we had a couple of good years of growth there — we were looking to moving our fulfillment site and continuing to grow our administrative spaces, and have some showroom/classroom type of spaces because we are an educational resource. And then, of course, we had the turn in the economy, So now we have plenty of room, but I know that won’t be that way forever. We probably will eventually move our fulfillment off site in another location and use that space for our administrative and development, and for classes and events.
Kravetz: When we started, we had folding tables and tape guns, and now, with a nice packing station with its own light and a tape machine, and everything’s got its space, you can just see the efficiency and the satisfaction the employees have here. They’ve got a nice place to work, and it makes a big difference.
Catalog Age: Does it improve productivity?
Kravetz: Absolutely, definitely.
Mack: We had gotten to the point where we were so crowded, I thought, I can’t even hire a new person. They would walk into the space and say, Why would I even consider working here? We were on top of each other. It was just awful. And I felt that for the company to own a building was probably a wise financial move because my husband and I own the company.
Catalog Age: Would you like to invest in technology improvements?
Mack: We did that when we moved into the new space. We did a lot of improvement in our technology — a lot of upgrades when it comes to computers and the server, and the whole system, everything. Although we’re facing some upgrades right now in some things that we need to do.
Kravetz: What do you use for order processing?
Mack: Sage. It’s compatible with StarShip [software from V-Technologies], which is what we use with UPS.
Catalog Age: Is anybody using or looking into radio frequency [RF] technology? Is it still just for the big companies?
Kravetz: We’re looking at wireless. Not RF for picking, but we’re going to look at wireless for our Internet access for a backup to our T1 line because we’re becoming more and more dependent on the Internet connection and our T1 line.
One upgrade that I would recommend to anybody is our server, a Citrix MetaFrame. Citrix is server-based computing. Before, everybody had their own computer and their own hard drive, and IT would go around and load Windows, and every time there was an upgrade, you had to upgrade 26 computers, and it was a total nightmare.
With Citrix, everything is on the server. When you log in, it puts a desktop on your screen, but everything is coming from the server, so upgrades are a snap. We put one upgrade on the server. You can’t download plug-ins and stuff like you would off the Internet; everything goes through IT. If it’s going to get loaded, it has to go through the IT person, so everybody’s got a clean copy of Word and Excel. The best thing, though, has been for the remote access.
Cooper: Are you concerned with the security of wireless?
Kravetz: With the Citrix it doesn’t matter whether it’s wireless or hard-wired, but I don’t really. We’re pretty open. We’ll share our sales, we’re very open with our information.
Cooper: The only thing I would think of is your list because that’s really your business.
Kravetz: And the credit-card numbers.
Cooper: We don’t keep credit-card numbers in our database, for safety issues. But the house file, that’s my biggest concern.
Dawson: Pretty much with wireless, [anybody is] going to be able to use your services, but if you have a firewall, they shouldn’t be able to get into your system. They’ll just be able to use your Internet access. It just depends on how good your firewall is.
Cooper: We have a pretty good firewall. Most people know more than I do, but that was kind of the biggest concern.
Catalog Age: I imagine the trend of more people ordering over the Web is continuing. Are you encouraging that because it costs you less to take the order?
Dawson: We put “Beadbox.com” on every single page of the catalog. Every single piece of postcard, any piece of postage that goes out, has “Beadbox.com” on it. We’re really encouraging it because it is an easy order to take.
Mack: We have done that as well. We also have specials on the Internet that are not available through our print catalog. We offer a bimonthly e-newsletter and invite people to sign up. When they give their e-mail address, they get an automatic incentive sent to them every two months. We’ll pick a theme and then write articles, develop lesson plans — the kinds of things that would be of interest to our customers, teachers. That does bring quite a few people to our Website.
Kravetz: We used to offer a 5% discount for ordering online, did that for almost two years, and we decided we were just giving away money. We took it away and did not find any significant drop in the percentage of orders coming in over the Internet.
Dawson: We’re at around 50% [of our orders coming from] the Web, which is way ahead of what was expected, but we find the customer service is transitioning from order-taking to more of customer support. Obviously, with a craft, people are going to call and have questions: “I just got this, I don’t know what to do with it” or “I want to do this, tell me what I need for it.”
We’re going to be focusing on having our customer service be more of a customer support for technical questions. And perhaps, because we do have a lot of customers that are businesses, we’ll transition a couple of those customer service people into being sales support specifically for businesses, so that we can anticipate their needs, rather than waiting for them to give us a call.
Service with a smile
Catalog Age: How do you handle Web orders and service: Do you have a special team of e-mail reps? Or are your customer service reps cross-trained to handle phone and Internet orders and questions?
Dawson: They’re cross-trained.
Kravetz: At the holidays we have two people, a day person and a night person, who only respond to e-mails. We also added a feature, which is nothing new, it’s e-mailing the tracking numbers to customers. That has helped a lot to prevent calls.
Catalog Age: What’s the climate like for hiring and retaining ops workers?
Cooper: Unemployment is up at 5.5% right now, so it’s still kind of high. Phoenix is a transient town, so you can get and lose employees rather quickly. It’s a highly competitive town. I think three years ago, you almost had to give signed bonuses to get people in here [laughs] and keep them at a reasonable wage. It’s getting, I shouldn’t say easier, but I think there’s a bigger pool to pull from, at least for us.
Kravetz: We have so many seasonal workers. We go from about 30 to about 70, and those people are hired for five months. We had a job fair for a couple of summers to get those people. Then we stopped. It’s been two years now that we did not have to do the job fair, because we had a lot of returning employees, which was great. We give a lot of incentives to return the next season.
One big issue for us is that we have a lot of Hispanic workers, and I’m very pro updating the immigration laws because we have lost a lot of really good employees because of immigration problems. We lost 15 employees in one day because of immigration. Our payroll services firm, something came up on one employee, the social security didn’t match, and they did an audit on the whole company, and they found out that 15 of our workers who had just been hired for the season were not who they said they were. It was a big hit, and it opened my eyes to how serious the problem is.
Dawson: When we look for fulfillment employees, it’s very difficult, because they’re entry-level positions. It amazes me how many young people come in thinking they should make twice as much as what an entry-level job pays even though they have no experience and dropped out of high school.
Mack: I found that too. And lots and lots of people way overqualified applied for jobs, and it’s just shocking to me. I had an ad in for a couple of salespersons, and I’m getting applications from Ph.D.s, and you know, the minute you sit down with them, they wouldn’t want that job.
Kravetz: It’s a good time for hiring, I think.
Cooper: We have employees who have been with us 15-20 years. One has been with us 25 years. In this day and age you don’t find that. I think the industry might have something to do with it too, because to work in a natural-food store you have to live the life, you want to interact with other people who do that. But also you have to create an environment or culture where they want to stay. Wage isn’t always the biggest issue. It’s peace of mind, and being comfortable, and enjoying what they’re doing every day.
Kravetz: We’ve been working on something the past few months, trying to get marketing and operations to be a little more of one team and to work together more. When we were small, we didn’t have that problem much. But now that we’ve grown, there’s that “Oh, man, I can’t believe marketing introduced this product. It doesn’t fit in the box.” And marketing never knew the product wasn’t going to fit in the box, so now we have operations people in every marketing meeting.
A lot of it is sharing more information, sharing the sales numbers, what are the goals, how did we do on this particular product, making that stuff available at bigger team meetings instead of just, like, “Oh, we’re behind the goal or ahead of the goal for this month.” A little more specifics, like “How’s this product doing? How’s that?”
Cooper: I think when you open up the books and let everybody know, everybody will pitch in when the going gets tough, and everybody gets excited when they see the numbers climb. But it can be a double-edged sword, because what totals do you want to reveal?
I would say everything comes down to customer service. That’s really what it is at the end of the day because you provide a better product, you get it out to the customers quicker, and there are no snafus throughout the process.
Kravetz: And so much of the service is in shipping and operations; [those employees] touch the box last. They can create a lot of problems, or they can prevent a lot of problems and catch a lot of mistakes and make the customer happy by doing that.