Making the Cuts

Edmund Optics canceled all fourth-quarter travel. Girlfriends L.A. is using lighter packaging materials to lower its shipping costs. Newark Electronics is printing on lighter paper to reduce the weight of its 1,700-page catalog, which is cutting its mailing costs about $0.20 per book, or $70,000 overall.

Welcome to cataloging, recession style. The question isn’t “Are you cutting costs?” but rather “How dramatic are your cost cuts?” Some catalogers are making sweeping changes — double-digit circulation cuts, for instance. Others are reevaluating even seemingly minute decisions.

For certain, circulation is one of the more obvious areas in which to make cuts. A reduction in mailings results in postal, paper, production, and even list rental savings. For the first half of 2002, Creative Irish Gifts in Macedonia, OH, is reducing prospecting 20%. Chief operating officer Robert O’Connor estimates that the cutbacks will save the gifts marketer about $150,000 in list rental and postage costs.

But Creative Irish Gifts isn’t reducing its total circulation so drastically. “We are mailing a little deeper into our house file,” O’Connor says, “and we’re adding a fifth drop, in May.”

Vernon Hills, IL-based American Hotel Register, which sells to the hospitality market, is cutting the circulation of its core Buying Guide 7.5% in 2002, from 135,000 to 125,000. Since each copy of the 2,200-page book costs about $15 to produce and mail, American Hotel stands to save $150,000. But the $400 million cataloger will replace some of that circulation with smaller-run, targeted mailings to certain customers, says vice president of marketing Ron Ehrens. The cataloger may also send a series of fliers, rather than the Buying Guide, to certain prospects.

Cindy Marshall, vice president of marketing for jewelry and gifts marketer Ross-Simons, characterizes her company’s overall circulation as “down only slightly.” But the $270 million cataloger has cut seven “customer contacts,” she says. “We eliminated a few mailings of specific editions to prevent cannibalization in the core book.” Cranston, RI-based Ross-Simons also put off the launch of a new title, though Marshall is hoping to introduce it in the third quarter of 2002 “if the spring is strong.”

Granted, reducing circulation — particularly prospecting — has its drawbacks. “Any cuts you make in prospecting are going to affect sales in future years,” warns Al Schmidt, president of Manasquan, NJ-based consultancy The Schmidt Group International. “Then again, when times are tough, you need to get through today first.” Before deciding to wield the ax to your prospecting plans, Schmidt suggests running a separate profit-and-loss plan for prospecting only. “Compare revenue from your current prospecting and weigh it against the savings from prospecting cuts,” he says.

Employing options

Beyond cutting circulation, other tried-and-true cost-cutting methods are to reduce trim size and test lower paper weights. (See “Pinching Your Production Pennies,” page 31.) And, of course, there are layoffs.

“The past four to five years have been so good, staffs have grown 10%-15% in many cases,” Schmidt says. “It’s not popular to lay off that large a percentage of workers and expect the remaining employees to build up the company again, but you may need to do it.”

During the past year, catalogers large (Dell, Brylane), midsize (Lillian Vernon, Edmund Optics), and small (Kids Stuff, iGo) have laid off workers. Other marketers have taken the less drastic step of implementing hiring freezes or reducing the number of part-timers they employ. At Vermont Country Store, a general merchandiser based in Manchester Center, VT, “we have created hybrid jobs combining a few positions rather than hiring new people,” says Larry Shaw, vice president of marketing and creative.

Rowena’s, a food gifts cataloger based in Norfolk, VA, used to hire 125 temporary employees during the holiday season to complement its 18 full-time workers; this year, says owner Rowena Fullinwider, the company hired just 65. Creative Irish Gifts cross-trained its customer service operators and its order-takers to handle each other’s calls so that it has had to hire fewer seasonal workers as well. O’Connor estimates that doing so has saved the company 10%-15% on payroll.

Allan Share, owner of Minnetonka, MN-based salon products marketer New Life Systems, has a creative way to keep payroll costs down. “We sell small jars with lids that spas use to give samples of products, such as lotions or oils, to clients,” Share explains. “The jars are sent to us in sets of thousands, and we need them broken down into smaller sets.” Rather than have warehouse staff sorting and counting all the jars and lids, “I bring them home and pay my daughter $20 to sort them.”

Wage freezes are another option. Barrington, NJ-based Edmund Optics, which sells optical components, implemented an across-the-board freeze in July. According to vice president of marketing Nicole Edmund, the wage freeze will remain in effect at least until July 2002. Salary cuts are another way to save jobs. Officers at Portland, ME-based bedding cataloger Cuddledown of Maine agreed to take pay cuts this year, says president Chris Bradley.

You could also consider salary deferrals. Sovietski Collection, a San Diego-based mailer of gifts from overseas, in September implemented deferrals for top management and executives, says president Mitch Siegler. Five months earlier, the company, which also mails the Treasures from a Bygone Era title, had reduced its distribution center staff to one-third of what it had been.

Nothing’s set in stone

Keep in mind that things are tough all over. In other words, other companies and industries are suffering from sales downturns as well — which means they’re eager for your business, which in turn means they’re open to negotiation.

Stump’s, a multititle mailer of accessories and decorations for school and sporting events, recently renegotiated its phone service contract. “We told them we would extend the contract if they would give us a lower rate,” says chief financial officer Jeanice Croy, who estimated that the new contract saves the South Whitley, IN-based cataloger 12%.

Stump’s, whose titles include consumer book Shindigz and business-to-business catalog Spiritline, also took advantage of the soft paper market to renegotiate the cost of cardboard boxes and other packing materials: “We are saving 8% in that area,” Croy says. Likewise, softness in the computer market enabled the mailer to save 33% on the cost of leasing its mainframe computer.

New Life Systems has renegotiated contracts with suppliers, “and not just our merchandise vendors,” says Share. “For instance, we told our water vendor that they had to charge us $2 less per water bottle or cut our order in half, so they obliged. Especially when dealing with vendors whom you pay at least $100,000 a year, you should have some leverage to renegotiate.” Share estimates renegotiating has reduced New Life’s merchandise and operating costs 28%.

Tom Webber, president of Greenville, SC-based Super Duper Publications, says the cataloger of speech therapy supplies saved about $60,000 by taking bids from new printers. “We would have spent about $490,000 to print our book, which is 240 pages,” Webber says, “but we spent only $430,000.”

One caveat when taking bids: Factor in the value of continuing a long-term relationship with your current supplier. Perhaps a new vendor can give you a better price, but it may not offer you the value-added help that you receive from a long-time supplier.

Opportunity awaits

Despite the doom and gloom of the current economy, several catalogers prefer to see this as a time of opportunity and as such are taking pains not to cut back in certain areas. Super Duper Publications, for instance, hasn’t reduced its travel budget. “As part of our prospecting, we attend trade shows and give industry talks,” Webber says. “Many of our competitors have cut back on travel, but we’ve more than doubled the number of shows that we’re going to this year. In some cases, we’re the only company of our kind there,” which makes it easier to grab additional market share.

Along similar lines, Tessco Technologies, a $259 million marketer of wireless-systems products, is increasing its circulation (from 75,000 to 80,000-85,000), the page count of its core catalog (from 1,512 to about 1,638), and the number of SKUs offered (from 17,000 to 19,500), says a spokesperson.

Then again, the Hunt Valley, MD-based cataloger is also negotiating “significant reductions” in paper costs, says the spokesperson, and expects to save about $40,000 in overseas distribution costs by mailing CD-ROM and print catalogs in orders as freight.

Whenever possible, cost cutting should be invisible to customers. In other words, customer service and the perceived value of the product should not reflect changes you’ve had to implement. “People look under every rock when they lose $1 million, but when they earn $1 million they don’t assess what helped them get there,” Schmidt says. “Look at what helped you become profitable, and you will probably find some tips to help you reduce costs.”

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