Hanover do-over

Aug 01, 1998 9:30 PM  By

Hanover Direct spent the last year shrinking-consolidating warehouses, cutting staff, and trimming circulation. In doing so, the multititle consumer cataloger managed to reduce its losses to less than $11 million for 1997, down significantly from $105 million in ’96. In the fourth quarter of 1997, Hanover even posted net income of $4.8 million-the company’s first quarterly profit since 1994.

So what is the $557.6 million company up to now? Why, planning to expand once again. Hanover is exploring international growth, providing third-party fulfillment services, and even testing a new catalog title.

“Our goal last year was to focus on each catalog’s brand and core customer, and to get our backend operations under control,” says Rakesh Kaul, president/CEO of the Weehawken, NJ-based company. “Hanover is no longer downsizing but thinking about long-term growth. Our goal this year is to grow our brands.” Hanover produces 12 titles, including apparel catalogs Tweeds, Silhouettes, and International Male, and linens titles The Company Store and Domestications.

It will also add another brand to the mix. Next year, Hanover plans to test Scandia, a luxury bedding catalog. Hanover owns the Scandia brand name, and the Scandia bedding products are already available in 23 Scandia Down retail stores on the West Coast. “Through the catalog, we will take the Scandia brand national,” Kaul says.

And to leverage the names of roughly 20 million customers, Hanover is combining its catalogs’ house files. “We needed to refine our database models to improve performance across all titles,” admits senior vice president, chief marketing officer Richard Hoffman. “The [warehousing] program should be fully operational by the end of the year. It also gives us the flexibility to add new titles into the system.”

And Hanover is looking beyond selling merchandise. Last year the company launched Keystone, a third-party fulfillment service, giving over some of its Hanover, PA, warehouse to fulfill orders for other catalogers, Internet marketers, and retailers entering direct marketing. Keystone claims to have several clients already, but the company declines to name them.

“Hanover’s timing couldn’t be better,” says Bill Kuipers, principal of fulfillment consultancy Spaide Kuipers Co. “Interest in outsourcing has never been higher than right now, especially with retailers and Internet-based businesses.”

Not only will the Internet provide Hanover with clients for Keystone, but electronic commerce is also helping attract new customers, Kaul says, now that all of Hanover’s catalogs are online. Nearly half of Hanover’s online shoppers are new to the company, he adds, and a number of them are ordering from overseas.

So far, Hanover has mailed catalogs only into the U.S., Japan, and Canada. But in response to interest from overseas Web shoppers, in mid-June the cataloger applied for foreign trade zone status for its Roanoke, VA, and Hanover distribution centers. The status would allow the company to delay paying duties on imported goods until they are released for sale in the U.S., and Hanover would not have to pay any duties on imports that are then exported to foreign customers. The company projects saving nearly $390,000 a year should the foreign trade zone status be approved.

Cutting and consolidating Like a gardener, Hanover realized that to encourage growth, it first needed to prune. In 1997, the cataloger slashed $65 million in costs, largely by downsizing its telemarketing center, consolidating its fulfillment operations, and reducing its 2,800-employee staff 20%.

The company also consolidated all of the catalogs’ computer systems, including telemarketing, fulfillment, purchasing, distribution, and administration. Each title, which essentially operates as a separate company, used to have its own computer hardware, making it difficult for managers to compare administrative and operational performance among the titles, according to Hoffman. “By having one common system platform, management can finally speak the same language.”