Good Times will still roll

Jun 01, 1998 9:30 PM  By

The stock market is soaring, consumer demand is steady, unemployment has withered, and inflation is nearly undetectable. The catalog industry has thrived amid the healthiest U.S. economy in decades. But can catalogers expect to ride this wave of good fortune into the 21st century? Most pundits think so.

“The macroeconomic outlook is good. Lower commodity prices, sound monetary policy, and cheaper imports have been instrumental in driving down inflation,” says Robert Shapiro, U.S. Department of Commerce Undersecretary for Economic Affairs. “Higher cyclical inflation may surface at some point, but this influence will not affect the overall trend.”

Research from Kevin Silverman, managing director of Chicago-based Everen Securities, gives catalogers even more cause for optimism. “There’s a very big correlation between growth in mail order and growth in the economy,” he explains. “The trend toward market share gain by mail order over retail has been consistent largely because of demographics. Older Americans and richer Americans tend to use catalogs more than others, and we have a population that’s becoming older and richer. Based on these trends, direct marketing will continue to gain market share vs. retail.”

Figures from Simmons Market Research Bureau reported in the Direct Marketing Association’s 1997 Statistical Fact Book support Silverman’s assertions. From 1994 to 1995, the number of Americans buying from catalogs increased 38%. In 1995, direct marketing sales made up 11.4% of total U.S. consumer sales and 4.9% of b-to-b sales. In 2001, catalog sales are expected to make up 13.1% of the consumer market and 5.9% of the b-to-b market.

Analysts are unfazed by Japan’s stagnating economy and the recession in Indonesia and South Korea. Shapiro has said that he believes the effects of Asia’s financial crises on the U.S. economy will be slight, while Todd Slater, analyst with New York-based Lazard Freres, even sees advantages for U.S. catalogers manufacturing or buying goods in Asia.

“I think the impact of Asia is beneficial for any manufacturer producing in Asia and particularly in Indonesia and Korea, where it now costs as much as 70% less to produce goods,” Slater says. “We may see more devaluation before we see recovery. But it isn’t long-term enough for companies to rely on it for strategic plans. I would say the effects will be felt for the next couple of years.”

Reduced demand in Asia has flattened the oil market as well, which makes a jump in prices unlikely-more good news. But Silverman says that even if we were hit with skyrocketing oil prices, catalogers would be hurt less than their retail competitors. “If it became prohibitively expensive to drive to the mall, consumers would be more likely to turn to catalogs. And retailers could no longer afford to ship small quantities from their distribution hubs to every individual spoke in their distribution system.”

So all the visible economic signs point to Easy Street for catalogers’ transition into the next century-but what roadblocks could stall growth? When pressed, Silverman can offer up only the “Memphis Syndrome”: An act of God on Dec. 23 delays Federal Express shipping of a large number of last-minute holiday gifts.