When seeking ways to increase sales and their companies’ long-term prospects, few catalogers consider expanding into an overseas market. And it’s true that mailing into, say, Japan or Brazil isn’t a simple proposition. The language, the currency, the privacy regulations, the distribution systems, the product and payment preferences differ from those of the U.S.
But a number of catalogers have found the risk-reward ratio to their liking. In many countries, competition is sparse and mailbox glut nonexistent. So in addition to working for incremental growth in their mature domestic operations, numerous mailers — large and small, consumer and business — are seeking greater opportunities abroad.
GARNET HILL: MODIFYING AND SURVIVING IN JAPAN
When upscale bedding and apparel cataloger Garnet Hill began mailing into Japan six years ago, that nation’s economy was roaring. Consumers in Japan had loads of disposable income, U.S. goods carried quite a cachet, and “personal importing” — using catalogs and the nascent World Wide Web to buy products from overseas — was a growing trend.
Several years ago, of course, Japan’s boom went bust. And U.S. catalogers such as REI, Hanna Andersson, and Victoria’s Secret that had entered Japan in headier times have pulled out or scaled back drastically. Dana Springfield, circulation director for Garnet Hill, believes that as many as 65% of the U.S.-based catalogers that had been in Japan have ceased marketing there, making prospecting much more difficult.
Nonetheless, the Franconia, NH-based cataloger is staying the course. Although the last two years “have been a bit troublesome,” Springfield says, “we are going to stick it out, because we feel that the economy will improve soon and that it is a great market filled with opportunity.”
In fact, even last year, Garnet Hill still managed to break even in Japan. The year before, its Japanese operations had turned a small profit, Springfield says, “and years ago we were doing quite well.” Japan currently accounts for 6% of Garnet Hill’s business, down from 10% a few years earlier.
What with higher shipping, fulfillment, list rental, and other expenses, marketing in Japan costs two to three times more than marketing within the U.S., Springfield estimates — but the response rate is three to four times higher, he adds. For Garnet Hill, the average Japanese order is also about 25% higher than the average U.S. order, and the return rate is 5% compared with 20% stateside.
To better adapt to the still-dismal Japanese economy, Garnet Hill is making some changes to its upcoming spring catalog, which will reach Japanese consumers in February. For starters, it is pricing items in yen rather than dollars. “We had changed the copy to Japanese characters in 2000, and that yielded a 35% increase in sales,” Springfield says, so the company feels converting the currency will boost business as well.
At the same time, Garnet Hill is removing the additional customs and duty charges. “We will build a portion of the charges into the prices,” Springfield says, “but for the most part, we will absorb the cost. The extra revenue that we get from people who will now respond should help cover the rest.” The mailer is also reducing its shipping costs to be more competitive with Japanese catalogers.
And Garnet Hill will begin to accept C.O.D. payment from Japanese customers. It’s a very popular payment method in Japan, Springfield notes: “Only 17% of the people in Japan use credit cards.” This move should help win over prospects who balked at having to pay by credit card or check.
Springfield offers one piece of advice to catalogers venturing into any international market: When selecting a parcel carrier, “the two key considerations should be communication with your vendor and their ability to deliver the highest percentage of packages possible. Undeliverable packages are extremely expensive anywhere, but especially overseas. In the end, the more parcels you can deliver successfully, the more money you can save in the long run.”
— Sherry Chiger/Shayn Ferriolo
MAGELLAN’S ACES ITS ENGLISH TEST
If you’re going to sell internationally, you have to make sure that your product is in demand overseas. Magellan’s, a $30 million cataloger of travel accessories, is in luck there. Items such as compact bags, wrinkle-resistant apparel, portable security devices, and electronic adapters are in demand among all travelers — especially Europeans, who travel by air more frequently than Americans do, says Bob Manning, chief operating officer for the Santa Barbara, CA-based cataloger.
So in summer 2001, Magellan’s entered England with a 100,000-book mailing to names from several rented lists. “I came into contact with [U.K. catalog consultant Justin Metcalf] a few years ago through a mutual contact at [co-op database] Abacus, and he was looking to introduce American catalogers to the U.K. market,” Manning says.
That Magellan’s wouldn’t have to translate its catalog and order form also made England an attractive market to test. Aside from Anglicizing the spellings and converting the prices from dollars into pounds, Magellan’s made few changes to its book.
Although sales dried up after Sept. 11 in England just as they had in the States, subsequent successful tests this past spring and fall have proven Magellan’s hunch about England to be right: For last spring’s test mailing, for instance, sales beat projections by a whopping 300%, Manning says. For fiscal 2002, ended this past June, the company reaped about $600,000 in English sales.
“Response to our core product line has been very positive — better than our U.S. response rate by 50%,” Manning says. “Surprisingly, we thought we’d have to pull products out from our U.S. book, but performance has been fairly consistent. About the only disappointment has been our clothing, but that’s a sizing issue that we have to work out ourselves. There’s more variability than we had anticipated. We have to work on our sizing charts and get them to a point where they’re more accurate.”
Despite Magellan’s challenge with apparel, Manning attributes much of its strong results in England to a lack of competition. But while “there just aren’t as many catalogs over there,” Manning says, finding lists of mail order buyers wasn’t much of a problem. “The selects aren’t as refined as they are here, though,” he says. Whereas Magellan’s is used to renting three-month buyers domestically, to obtain enough names it needs to rent 12-month buyers in England. It’s also more difficult to obtain selects for order sizes, Manning says.
And whereas Internet-placed orders account for 30% of Magellan’s domestic sales, they represent just 7%-8% of those in England. “The whole e-commerce process isn’t as sophisticated there,” Manning says. “We do a lot of e-mailing to customers in the U.S., for instance — close to a half-million e-mails a month. But we don’t do any there yet. We will, however, as our house file increases.”
Magellan’s English customers phone orders in to a third-party call center in England. The call center electronically transmits the orders daily to Magellan’s order-entry system in Santa Barbara. Magellan’s then uploads the orders directly using its own electronic order processing software, reviewing them “to make sure all the information is accurate and all the address fields are filled in,” Manning says. All orders are fulfilled and shipped out of the U.S. via the U.S. Postal Service.
Encouraged by the results, this year Magellan’s plans to increase its circulation in England to 750,000 over three editions with two drops apiece, up from two editions last year. Next year, the company hopes to increase its circulation to at least 1 million. For fiscal 2003, the cataloger hopes to reach $2 million in sales from England.
Magellan’s may also establish its own call center in England next year so that “we can provide a higher level of customer service, because we can train our own people on our product line,” Manning says. “We can handle product questions more effectively and cover some of the more esoteric products that are more difficult for people who have no ongoing training from us. While it’s fine using a third-party call center for our tests, having our own call center is ultimately the only way to go.”
Magellan’s will also begin mailing into Scotland, and by next fall it hopes to test-mail into Germany. “We think that will be a very strong market for us,” Manning says. “There are a lot of travelers in Germany, and it’s a bigger market than the U.K.”
— Paul Miller
DIGI-KEY’S EASTERN PHILOSOPHY
Thief River Falls, MN-based Digi-Key is no stranger to international expansion. The $356.3 million cataloger of electronics components has been mailing to Canada since 1997. And although it doesn’t produce catalogs specifically for buyers outside of North America, the company has customers in nearly 90 nations.
But now Digi-Key has set its sights east. Make that the Far East.
In September, Digi-Key unveiled its Japanese-language Website. Its nearly 100,000 products, which are the same as Digi-Key sells in North America, are priced in yen.
“We’ve taken a different approach with the Japanese market than some mailers,” says vice president of marketing Steven Tsukichi. “We’re using the Web to test the Japanese market, and we’ll support the Website with magazine advertising in Japanese trade magazines. We’ll see what kind of traffic we’ll drive to the Website. As we’re able to penetrate the market we will consider mailing a catalog with in-country facilities, such as a distribution center.” In the meantime, Digi-Key has contracted with a call center in Osaka to handle any phone orders.
Tsukichi jokes that “we picked the most difficult country” with which to begin expanding beyond North America. Not only has Japan been enduring an economic slump for several years, but the culture differs in some dramatic ways from that of the U.S. and Canada. Checks and credit cards aren’t widely used, and the Japanese tend to be resistant to change and very loyal to their suppliers. “We have to prove we are worthy before they start to buy from us,” Tsukichi says.
Nonetheless, Digi-Key is betting that the challenge will pay off handsomely. For while expanding into a South American or European country may have been somewhat easier, Japan is the world’s second-largest market for electronic components.
And some of Digi-Key’s contacts have helped smooth the way for the company. For instance, through existing relationships with Japanese vendors such as Panasonic, the company already understood many of the nuances of doing business in Japan. Digi-Key also benefited from a 15-year relationship it’s had with a sales agent in Japan. “It’s extremely important going in to have someone who understands the market,” Tsukichi emphasizes.
This month Digi-Key expects to launch a U.K. Website, with sites for Germany and France to come. Again, if the sites prove successful, catalogs in the countries’ local languages and currencies will likely follow. And within two years Digi-Key hopes to launch Websites for China and Taiwan.
— Mark Del Franco
AN ACORN GROWS IN THE U.K.
Ask Acorn Publishing Media president Peter Edwards about his core business and he’ll flatly tell you “We’re a publisher first, then a cataloger.” While the Silver Spring, MD-based company began producing and wholesaling videos of British television programming 15 years ago, it didn’t launch its U.S. consumer catalog until March 2001. Less than 18 months later, with circulation of the U.S. catalog at 3 million, Acorn rolled out a U.K. version.
Strictly speaking, the new catalog isn’t Acorn’s first foray into Britain. The company launched a wholesale publishing operation there about five years ago; it now accounts for about 20% of Acorn’s business. The company also tested a consumer catalog in the U.K. four years ago.
But in November, Acorn inserted a 16-page “minicatalog” into My Weekly, a British magazine for women ages 55 and older with a circulation of 55,000. “These results are just coming in,” Edwards says, “but it looks strong. We plan to grow organically, but we have yet to make the decision on a huge investment that mirrors our American catalog business.” The company is already working with co-op database provider Abacus to help grow the U.K. business, however.
Distributing a catalog with a magazine isn’t uncommon in the U.K. Given that the renting of names is more strictly regulated in the U.K. than in the States, piggybacking with a magazine can be an efficient means of prospecting.
So is space advertising in publications. During the past few years Acorn has acquired about 20,000 British consumer customers via space ads in such women’s magazines as Women’s Weekly and Chat.
“In the U.K., once we have collected a contact we are free to mail information about Acorn’s range of videos to him,” explains Peter Smart, Acorn’s London-based acquisitions and marketing manager. “However, we cannot pass the name on to a third party for their use unless we have specifically asked the customer a question along the lines ‘Please tick this box if you do not wish to receive special offers or promotional material from selected companies.’”
But building a list wasn’t the primary reason Acorn began advertising in British publications. Rather, it was to support sales of the videos and DVDs for Acorn’s retail clients, which include bookstore chain WH Smith and the Past Times catalog. “From talking to our customers we soon realized that those who like to buy our titles from retail stores and those who like to buy via mail order are two fairly distinct groups,” Smart says. “Acorn has found that advertising in this fashion successfully addresses both parties.”
SYSTEMAX’S ‘GLOBAL’ APPROACH
Systemax, a $1.55 billion multititle cataloger of computers, office supplies, and industrial equipment, was formerly known as Global DirectMail. And that original name would still fit the company, seeing as Europe accounts for nearly 30% of the company’s business.
Overseas, Port Washington, NY-based Systemax does business through three catalogs. Global Industrial, the company’s first book, launched in 1976, sells warehouse shelving, lockers, and conveyers; Global Computer, launched in ’82, and Misco, acquired in ’92, sell computer equipment. Misco has operations in Spain, France, Germany, Italy, the United Kingdom, Belgium, Portugal, Austria, and Sweden but no longer any presence in the U.S. Beyond the U.S., both Global catalogs are represented only in the U.K.
The company launched both Global catalogs in the U.K. in 1990 complete with operations and fulfillment facilities there, prospecting through British business lists. And when Global bought Misco, the latter had been operating overseas for a half-dozen years “and already had a good reputation abroad,” says Robert Leeds, Systemax’s domestic operations president. So rather than rebranding the catalog, Systemax retained the Misco name. In fact, “after Global had been in France for two years,” Leeds says, “we ran into a legal problem with the Global name there. So rather than litigate, we changed the Global name to Misco there.”
Up until four years ago, Systemax operated all of its European businesses out of London. But it then chose to organize separate businesses in each core country, to allow local salespeople to negotiate better deals and set prices more reflective of the local market. Each operation publishes distinct catalogs in the local language and currency. “What might sell well in one country won’t necessarily in another,” Leeds says. For instance, while IBM accessories typically sell well in the U.K., Toshiba products sell better in Spain.
In some markets, the company has effectively expanded into neighboring countries. For instance, the Spain operation expanded into Portugal; the German division reaches Austria, and the French operation sells in Belgium. From Sweden, the company is building up a mailing list in Norway through space advertising. “That expansion is about a year away,” Leeds says.
Aside from accounting for some $465 million in annual sales, Systemax’s European business “gives us exposure to market economies” when U.S. business isn’t strong, Leeds says. “Over the past two years, when there was a downturn in computers in the U.S., we did quite well in Europe.”
Additionally, Systemax shares ideas between its European and American businesses. For instance, a few years back, both Global U.K. businesses ran effective space advertising campaigns, “and we learned something there and brought it back here,” Leeds says. Also in the U.K. several years ago, the Global Computer catalog successfully published a catalog bound in a computer magazine, so the idea was repeated in the U.S. with a computer magazine that’s no longer publishing today, Leeds says.
Not all ideas translate, however. Early on, Systemax printed catalogs in the U.S. and mailed them abroad. “We found out an interesting difference,” Leeds says: “Almost every mailer in Europe sends catalogs in polybags, and we did not. It hurt response because customers expected to see catalogs in polybags.”
On the other hand, when Systemax began polybagging its U.S. catalogs, “we drew a lot of complaints from customers here because of environmental concerns,” Leeds says. “And as a result, response was much lower.”
FOOT LOCKER’S WORLDLY WEB OPERATIONS
It’s called the World Wide Web for a reason. And in August, New York-based athletic apparel marketer Foot Locker took full advantage of the Internet’s international reach with the introduction of its Footlocker.com Europe division.
The parent company of the Foot Locker and Champs retail chains and the Eastbay catalog, Foot Locker had online sales of $100 million in 2001, says vice president of investor relations Peter Brown. That’s up 72% from $58 million the previous year. With its European Web expansion, the $4.4 billion million retailer wants to continue enjoying such gains.
But the European Web division will also help Foot Locker scout out “potential markets for retail,” Brown says. The company has 3,750 stores worldwide, but only 330 in Europe, including Austria, Belgium, Denmark, France, Germany, the Netherlands, Spain, Sweden, and the U.K.
“Opening retail stores in Europe and using its Web business is what Foot Locker should be doing,” says Lee Backus, senior vice president at New York-based equity research firm Buckingham Research Group. “Clearly, they see a huge growth opportunity in Europe. The margins and productivity are better in Europe than they are here. Plus, Foot Locker is building the brand.”
At press time the European Website (www.footlocker-europe.com) was available only in English, though the company is working to offer more language options. Pricing is in euros, with a pop-up screen available to convert the prices to Danish, Swedish, Swiss, U.K., and U.S. currencies. Likewise, though American sizes are given, they can be converted to European and U.K. sizing.
The merchandise mix varies somewhat from that of the U.S. site, Brown says. Whereas basketball-related apparel and footwear account for much of Foot Locker’s North American business, in Europe sneakers for running are the best-selling type of product.
Getting Your Books There
Here in the U.S., many catalogers rely on work sharing — presorting catalogs and shipping them directly into postal destination delivery units (DDUs), for instance — as a means of reducing their mailing costs. But work sharing can also save catalogers money when they mail overseas, says Joseph Amalfitano, director of operations at Melville, NY-based Fala International Mailing Services.
Catalogers that sort their mail, either manually or using software, and place it in designated bags or trays before sending it abroad can cut their international postage costs by up to 50%. What’s more, because mail received in this manner can skip many steps in the sortation process, it can reach the recipient several days quicker than it might otherwise.
The more countries you mail into, the more complex sortation becomes, since every country has its own rules and requirements. For that reason, many mailers prefer to outsource the work sharing and sortation to an international mail services provider. When seeking an international mail services provider, as with any other sort of third-party service provider, you need to shop around. Here, Amalfitano lists questions to ask before signing a contract:
How many countries can the provider presort to? Even if you’re planning to start by mailing into, say, the U.K., you may want to mail into other countries in Europe later. If further expansion is in your plans, you should consider providers that have expertise in multiple nations.
Does the organization have any quality accreditations from postal authorities? Focus on companies that have quality assurance accreditations (such as the ISO 9002) or service quality awards presented by postal administrations (for instance, the MPTQM certification issued by the U.S. Postal Service).
Does the company adhere to a strict security program to safeguard your mail? Surveillance systems and doors operated by badge access should be minimum requirements when selecting a provider.
Does the company have access to lettershop services? Many international work-sharing programs require the mailer to presort a data file and then either ink-jet or laser-print the presorted address onto the actual mail piece. A company with lettershop expertise can ensure that your materials are properly addressed without destroying their attractiveness and effectiveness. And if the provider does work with an outside lettershop, be sure that it does not outsource your mailings without your knowledge.
In what type of media does the service provider need to receive the data file?
What is the return mail policy for bad addresses?
Keep in Mind…
When it comes to entering foreign markets, Americans have an advantage over other nationalities, says Susan Adams, director of international services for R.R. Donnelley Logistics: Many overseas consumers and businesses are already accustomed to buying U.S. goods and services. And Adams insists that marketing overseas is much easier than most catalogers believe it is. Here are a few pertinent facts and suggestions from Adams to help make the process simpler still:
Consider direct entry — using air freight to transport your mail to the foreign country and then drop in into the local mailstream — as a mailing option. With some countries, this can be cheaper than using a domestic service to process your mail pieces. Then again, in some countries this option can take longer and be less reliable.
If you use the U.S. Postal Service’s international services, you may be eligible for discounts if you’re a certified wholesaler.
Most items needs to be tabbed, bagged, or otherwise enclosed when mailed overseas. Don’t assume that envelopes are cheaper than polybagging. The latter tends to be more cost-effective.
If you are mailing into a country where English is the first or second language and you therefore see no need to modify the U.S. version of the catalog, at least change the order form. Convert shipping and handling costs to the local currency, and provide at least rough estimates of the currency conversion rates for overseas readers to use when determining the prices of the items advertised throughout the rest of the book.
Research the customs of the country into which you are mailing. What times of year are inappropriate times to mail catalogs? Are there any colors, phrases, or design elements that can be considered offensive?