Merchandising

Oct 01, 1998 9:30 PM  By

They say that behind every great catalog is a great merchant-many of whom are the owners or founders of the company. In fact, 48% of the participants in the 1998 Catalog Age Benchmark Report on Merchandising say that the catalog’s president or the owner is responsible for sourcing merchandise. Still, this percentage has fallen considerably from the 66% of respondents last year who said the president or owner was the chief sourcer. Part of this trend may be due to the fact that our survey sample this year included more large catalogers than in previous years. But, it’s also likely that more catalog founders are turning the sourcing duties over to merchandising specialists or hiring more employees to find products. For instance, the percentage of respondents who say that only one person sources for the primary catalog fell from 28% last year to 11% this year. The largest group-46% of respondents-say they have two people sourcing, while the percentage of respondents who have at least six employees sourcing doubled from 6% last year to 12% this year.

Trade shows remain the top source for finding products, with 80% of survey respondents rating them a “good” or “very good” merchandise source. But while the shows are popular, catalogers aren’t overly thrilled with them-the percentage of respondents rating shows as “very good” fell from 43% last year to 34% this year.

Several catalog merchandising experts who attended a whirlwind of shows this summer are not surprised that trade show ratings tumbled. “It’s discouraging-there’s not a lot of new stuff out there,” says Leila Griffith, an Atlanta-based consultant. The merchandise shows were “very unexciting,” says Sunnyvale, CA-based consultant Kathy Revello, adding that even some of the shows in major markets were downright “terrible” in terms of product selection and innovation.

One sourcing method that has picked up considerably is surfing the Internet. More than one-fifth (21%) rated the Web a “good” or “very good” source for products, up from 12% last year, and nearly 67% of the books and music catalog respondents rated the ‘Net a “good” or “very good” merchandise source. Still, 36% of total respondents have yet to try the Web as a source for new products, although that figure is down from 42% last year.

Where catalogers travel to find merchandise hasn’t changed much. The U.S. still rules, with 97% of all respondents rating it a “good” or “very good” place to find product. Interest in the Far East has dropped, with 35% this year rating it “good” or “very good,” compared to 46% last year. Although the lingering financial crisis in parts of Asia could mean bargains for U.S. merchants buying goods there, the pitfalls of sourcing in Asia-high travel expenses, long lead times, up-front commitments to carry inventory-haven’t changed, Griffith says.

But some mailers, such as jewelry and home decor products marketer Ross-Simons, have indeed found better pricing and profit margins from suppliers in the Far East as a result of the economic turmoil. The Cranston, RI-based mailer, which sources goods in Europe, China, the Philippines, Indonesia, Japan, and Taiwan, has added an additional sourcing trip to furniture factories in the Far East to its merchants’ overseas schedule, says vice president of merchandising Mary Morris. But the price tag for a trip to Asia can be prohibitive, she notes. “You could spend $5,000 on one airline ticket, plus another $5,000-$10,000 on hotels depending on the length of the stay,” she says.

Respondents take a mean of 4.6 domestic sourcing trips a year. Consumer catalog respondents travel domestically a mean of 5.5 times a year, while business-to-business respondents take a mean of 4.2 onshore trips, and hybrids-those that sell to both consumers and businesses-take a mean of 3.8 trips per year. About 30% of the total respondents say they increased domestic sourcing trips in 1997 over 1996, and 58% plan to take the same number of domestic sourcing trips in 1998 as they’ve taken this year.

This year’s b-to-b catalog respondents are more likely to source overseas-they take a mean of 5.4 international trips-than are consumer catalog participants, who take a mean of 1.6 overseas trips, and hybrids, who leave the U.S. to source goods a mean of 4.2 times.

Respondents overall find a mean of 10 products on each sourcing trip-both domestic and overseas-which is about the same as last year. Survey participants look for products a mean of 6.4 months before the mailing date, and they buy goods a mean of 3.4 months before the mailing date. Overall, respondents initially buy a mean of 37% of the projected volume.

Slightly more than half of all respondents (51%) employ a buyer specifically to purchase catalog products, while 27% say the president or the owner handles the buying duties. Company size makes a difference here: 55% of the consumer respondents with annual sales of less than $1 million say the president does the buying, compared to 29% of consumer participants with sales from $1 million-$9 million and 21% of those with sales of at least $10 million.

Overall, respondents say they make a mean of 4.1 rebuys on an item. But a whopping 68% of b-to-b respondents say they typically make five or more rebuys on an item, compared to 58% of hybrids and 26% of the consumer respondents.

Respondents consider product quality and vendor reliability the most important criteria for selecting merchandise vendors-98% of the respondents rate product quality “important” or “very important,” and 97% rate reliability “important” or “very important.” Profit potential is the next most critical vendor trait (rated “important” or “very important” by 88%), followed by uniqueness of product (83%), product back-up capability (81%), price (80%), and product exclusivity (54%).

Although only 28% of respondents rate an advertising allowance as an “important” or “very important” vendor criterion, 61% receive this type of discount, up from 51% last year. Ad allowances-merchandise discounts extended to help offset the production costs of putting a vendor’s item in the catalog-are more prevalent in the consumer sector; 68% of consumer respondents get an ad allowance, compared to 64% of business mailers and 50% of hybrids. On the other hand, b-to-b catalogers are more likely to negotiate a photo allowance; 22% of b-to-b and hybrid respondents say they typically receive photo discounts, compared with 14% of consumer participants.

But a tremendous 96% of all respondents receive volume discounts from merchandise vendors. And respondents are apparently creative in bargaining with vendors, as 52% claim to get an “other” unspecified vendor discount. Most of these catalogers are probably getting a freight allowance, in which the vendor picks up the tab for shipping the goods, Griffith says.

Ross-Simons, for one, has several vendor discount programs. “We may get a flat rate of $1,000 for a photo allowance,” Roberts says. “But if we can negotiate a 15% ad allowance of the invoice, that could amount to more than $1,000″ depending on the sales volume. While Roberts estimates the going rate for an ad allowance in the consumer gifts category at about 10%, our survey respondents are getting only a mean 6%-5% for consumer respondents, 6% for b-to-bers, and 9% for hybrids.

About 15% of respondents don’t manufacture (or contract for the manufacture of) any product, but those who do manufacture a mean of 27% of their products. Consumer and hybrid respondents who manufacture goods do so for a mean 29% of their products vs. a mean 20% among b-to-b respondents. Of the respondents who manufacture goods, 88% do so in the U.S., while 23% manufacture merchandise in the Far East, 12% in Western Europe, and 9% in Mexico or Eastern Europe.

Respondents who manufacture or contract for the manufacture of products have the goods produced a mean of 4.2 months before the book’s mailing date. While consumer respondents manufacture 54% of projected volume, b-to-bers make 35% of the expected volume, and hybrids 46%.

Overall, respondents say that new products account for a mean 22% of their merchandise mix. The percentage of new products added varies among consumer catalog respondents, however. For instance, apparel and shoe catalogers offer a mean 36% of new products, and gifts catalogers add a mean 32% of new items. By contrast, sporting goods respondents include a mean 17% of new items and food mailers a mean 14%.

More than 53% of the total survey participants-including 86% of the apparel and shoe catalogers-say they have expanded their merchandise niche in the past year. Of those who expanded their niche, 35% launched a spin-off, and 22% added a section in their primary catalog for new product categories.

In the industry at large, Saks Fifth Avenue and Coldwater Creek are among the clothing catalogers that recently branched out into the home decor market; DM Management and Brylane are in the process of doing so. Several years ago, hard goods catalogers, lured by the high sales volume of apparel, would add clothing to their catalogs, says Griffith-a strategy that typically didn’t work well, given the high return rates in that market sector. “Now everyone wants to get in on home decor” to cash in on the home products craze, she says.

In May 1998, the Catalog Age subscriber file was electronically sorted on an nth-name basis to extract a representative sample of 1,000 top-level catalog executives. These subscribers received a cover letter, an 82-question survey, and a postage-paid envelope in which to return the survey to an independent marketing research firm. Of the 1,000 surveys, 122 were completed and returned, resulting in a response rate of approximately 12%. This particular group of respondents reported mean annual sales of $29.5 million compared to a mean of $21.6 million for previous groups of respondents, and this difference may affect comparisons with past surveys.