With the current economic climate inspiring a steady stream of layoffs and circulation cuts, there seems to be a lot more contraction than expansion in the catalog industry. Except when it comes to catalogers’ product lines.
Talbots, the venerable cataloger/retailer of women’s and children’s apparel, is taking the leap into menswear this fall. Knives cataloger Professional Cutlery Direct recently added hand-painted tableware to its product mix. Women’s clothing cataloger/retailer Coldwater Creek is now selling bath and body products. For holiday 2002, women’s apparel and home decor cataloger Bloomingdale’s by Mail is offering electronic gifts such as digital cameras and portable stereos.
These examples are hardly the exception. Of the participants in Catalog Age’s 2002 Benchmark Report on Merchandising (see page 39), during the previous 12 months, 52% had expanded into a new merchandise niche. And while 24% of those who expanded did so via a spin-off catalog, 77% incorporated the new lines into their primary catalog.
Without question, marketers expanding into new product lines are doing it to make more money. In particular, most mailers say they are motivated by two more M words: market share and margin — the latter of keen importance to catalogers whose core product line has traditionally had low margins.
The whys and wherefores
For Hingham, MA-based Talbots, expanding into menswear seemed to be the next logical step. The company had already expanded its women’s classic apparel line to include petites and plus sizes; it had also branched out into the children’s apparel market with its Talbots Kids line.
In fact, many customers had suggested the launch of a men’s line, says Talbots spokesperson Margery Myers. At the same time, “we saw a void in the marketplace for the classic apparel at both a retail and a catalog level with the brand reach that we have,” she says.
The 24-page Talbots Men book, which has 55 SKUs, debuted in early October. A portion of the 750,000 catalogs mailed went to rented names, but most were sent to women on the Talbots house file, since 60% of upscale men’s apparel buyers are women, Myers says.
Bloomingdale’s by Mail, which has an annual circulation of 50 million, has also traditionally gone after women, by offering apparel and home items, says Franz Weigland, president of Bloomingdale’s Direct. “But we are slowly positioning ourselves to be more representative of the brick-and-mortar store, adding a half-dozen men’s items such as robes and outerwear over the past year or so.”
Bloomingdale’s, part of Cincinnati-based Federated Department Stores, has done well with electronics and gadgets for men in its stores — especially around the holidays, Weigland says. “So this year we added a limited selection of some of the best-sellers from the store into the catalog.” Based on the first week’s results from the mid-September drop, the category is on plan, he says. Bloomingdale’s is considering adding some hand-held electronic games in editions mailing closer to holiday. Fall/holiday books will reach nearly 3 million households.
Another cataloger/retailer to expand its product offering this year is Restoration Hardware. The Corte Madera, CA-based home furnishings and gifts marketer began selling bedding, towels, and other textiles in April.
“In the past, we dabbled in textiles, but we were not dominant in the niche,” says director of catalog Marta Benson. “In March 2001, when [CEO] Gary Friedman came aboard, he wanted to make sure we gave textiles the proper push given the synergies that existed between the hard goods we sell and bed and bath textiles.”
The best textile sellers so far are window coverings — no surprise to the company, Benson says, since customers had been demanding them for quite a while. Response to the new line has been so strong, Restoration Hardware will likely expand its textile offerings, she adds. Although she won’t disclose specific figures, she says that the average order size has increased significantly.
As if that weren’t reason enough to offer more linens and the like, textiles offer Restoration Hardware another benefit: Their margins are higher than those of the beds, sofas, and other hard goods that the company has long sold.
Upscale bedding cataloger Cuddledown of Maine learned about the lower margins of furniture when it added beds and other furniture pieces to its product line in the late 1990s. Beds yield significantly less gross margin than the down comforters, blankets, and sheets for which the company is best known, says president Christopher Bradley. But since Portland, ME-based Cuddledown uses beds as props in the catalog photos and must devote a significant amount of space to them anyway, “we probably tolerate lower performance with beds than with other categories,” he says.
Consumer electronics have notoriously slim margins — 20%-30% by some industry estimates, compared with about 55% for general hard goods — which is one reason that $192 million electronics cataloger Crutchfield Corp. recently expanded into the auto accessories market. In its April catalog, the Charlottesville, VA-based company introduced a 16-page insert selling such specialized items as corner and taillight lenses, shift knobs, and accent lights.
The margins on the new line are “significantly better” than those of car stereos, TVs, and other electronics, says Crutchfield’s vice president of marketing, Dr. Alan Rimm-Kaufman. What’s more, “the new line gives us a good assortment of products from $15 to a few hundred dollars, which helps us increase market share and average order values, and encourages add-on sales,” he says.
When undertaking a product line expansion, catalogers should be sure that their customer base has an affinity for the new merchandise, advises John Lenser, president of the San Rafael, CA-based catalog consultancy and list marketing firm bearing his name. “You want to leverage your primary asset — your customer database — before you move into a separate trade,” he says.
Lenser points to several failed spin-offs by San Francisco-based cataloger/retailer The Sharper Image as a case in point. The marketer of high-tech gadgets tried selling jewelry more than a decade ago, spa products in the early 1990s, and furniture in the late 1990s — and failed with all those ventures.
“The Sharper Image didn’t leverage its existing product lines or customer base for these offshoots,” Lenser says. “Although it had some spa products in the main catalog before spinning off a new title, it was selling no jewelry or home furnishings before getting into either of those categories.” And although Sharper Image’s primary audience at the time was men, all three categories appealed mainly to women.
Even assuming that your customers will be more than happy to buy the new products you plan to sell, branching out brings other challenges. For one, you may have to find new suppliers. When adding its line of auto accessories, Crutchfield worked hard to establish relationships “with reliable vendors that could handle the amount of inventory that we planned to sell,” Rimm-Kaufman says. In all, within six months Crutchfield took on 10 new vendors for the 1,000 new SKUs it would offer.
It helps if your merchant team already has experience with your new product line. Such was the case with Restoration Hardware. To further beef up its linens sourcing team, “we brought on some additional merchants who came from a textile background,” Benson says.
Your merchandisers aren’t the only ones who will be challenged. A new product line can translate to new procedures and configurations in the warehouse. Lenser cautions against “aggravating your overhead. If you’re in hard goods, for instance, you should probably stay away from apparel because there are different operational, fulfillment, and distribution center issues.”
Such issues aren’t insurmountable, of course. For instance, when Cuddledown of Maine decided to add hard goods to its bedding line, the company opted to have all the hard-good items drop-shipped, says Bradley.
No time for subtlety
Once you’ve risen to the internal challenges, you still have the task of introducing the new products effectively to customers. One common error that many mailers make is being too timid.
Catalogers may look at their research, find that consumers are buying a lot of one type of product, “and think customers will buy things like it — so they’ll add a few of those items,” says Katie Muldoon, president of Tequesta, FL-based catalog consulting firm Muldoon & Baer.
But more times than not, offering just a few items doesn’t establish enough of a presence, Muldoon says. “You need a minimum of a spread full of products that says, ‘Here’s our selection, we’ll provide you with the best in this category,’” she explains. “Some catalogers assume that their customers know and trust them. But that’s based on the type of product they have been selling. If you adjust that, you have to regain that confidence” with a presentation and copy that establishes you as an authority in the new merchandise line.
If you don’t establish an entirely different and separate category, Muldoon adds, “all that’s going to do is make customers choose between the new items and the old.”
And if at first you don’t succeed, says Crutchfield’s Rimm-Kaufman, try again. You may have to present the new line to customers “at least three times to get an accurate read for demand,” he says.
Food gifts mailer Omaha Steaks seems to have found a recipe for expansion success. While its core merchandise appeals to gift-givers and consumers who like to cook, the Omaha, NE-based company decided last year to begin selling products for consumers who just like to eat.
Omaha launched two lines of prepared foods — A la Zing and Five Leaf — in February 2001. The goals, says spokesperson Beth Weiss, was to boost sales and average order values while attracting more customers.
After the initial tests online proved encouraging, the company unrolled the lines in their own stand-alone print catalogs. Response to the A la Zing and Five Leaf lines has consistently met or beat expectations, Weiss says: “We are seeing double-digit growth.” And to capitalize on the success of the lines, the company added three new family-size meals.
— Additional reporting by Paul Miller