Deciding whether to operate retail and direct divisions separately or together can be a taxing decision for a marketer. When the units are run as independent companies, the catalog division does not need to collect sales tax in states where there are stores if it doesn’t have a physical presence there. At the same time, though, a company that runs its divisions separately cannot enjoy all the benefits of multichannel marketing.
This summer, women’s apparel cataloger/retailer J. Jill Group decided that the benefits of merging its retail and catalog/Web subsidiaries outweighed the drawbacks. In late July, the Quincy, MA-based company removed the “wall” between marketing divisions in hopes of boosting long-term customer loyalty.
J. Jill can now accept catalog returns in its 99 stores in 31 states. Previously, explains president/CEO Gordon Cooke, the distinct units could not act as “agents” for each other without facing costs and tax implications. So the company couldn’t, for instance, transfer inventory from one channel to the other. Rather it had to sell the inventory between channels, which meant that “financial documents must be prepared, and we had to settle the accounts at the end of each day,” Cooke says.
Besides that sort of back-end advantage, there are considerable front-end advantages. For instance, J. Jill can now apply promotions, including gift certificates and customer loyalty programs, across all channels. What’s more, “the company is better equipped to look at the customer as to the overall dollars spent throughout the organization,” says Gina Valentino, vice president/general manager of Shawnee Mission, KS-based catalog consultancy J. Schmid & Associates.
And from a customer acquisition and retention standpoint, Valentino adds, you can identify their purchase behavior and influence additional spending. As an added benefit, your organization can better allocate funds and alleviate channel squabbling because, as Valentino says, “all marketing dollars support all customer activity. So the channels are complementary, not competitive.”
A taxing matter
The down side, of course, is that J. Jill must now collect sales taxes from catalog and online buyers located in the states in which J. Jill has stores.
The $347.6 million company, of which $220.6 million comes from catalog/Internet sales, has spent the past nine months developing a tax collection and remittance system. Cooke won’t discuss the cost of establishing the system, but he says that in comparison to the long-term sales payoff of a unified company, “it’s like comparing hundreds of thousands of dollars to millions and the future viability of the company.”
Initially, the collection of use taxes from catalog and Web customers will “have a negative impact on direct sales,” admits Cooke. That’s not good news for its balance sheet: The same day it announced its plan to merge the units, the company posted lower earnings for the second quarter ended June 28 than it did for its first quarter; it also forecast a loss for the third quarter. What’s more, second-quarter sales productivity in the direct division, as measured by demand per 1,000 sq. in. of catalog pages circulated, was down 3% from the previous year, while retail sales per square foot had dropped 6%.
But Cooke is adamant that the consolidation, which will not result in any layoffs, is what’s best for J. Jill and its customers. “Over time, it will have a positive effect on retail, because our 80 million catalogs will be able to promote retail locations and do other cross-promotions,” he says.“We know that the customer experience will be enhanced. That’s the most important goal of this strategy.”