Merchandising Roundtable: The Goods on Getting the Goods

In August, CATALOG AGE sat down with several catalogers in Woodstock, VT, to talk about merchandising matters, from sourcing to liquidating. Regardless of their market segment — jewelry, baking supplies, educational tools, crafts — the participants had many of the same concerns and faced many of the same challenges.

The roundtable participants:

Knansie Griffing, director of catalog sales and marketing for Nashua, NH-based Delta Education, which sells school supplies to educators.

Mary Morris, vice president of merchandising for Cranston, RI-based Ross-Simons, a multichannel marketer of jewelry, gifts, and home decor.

Jane Patton, vice president of merchandise and planning for Eziba, a marketer of global gifts based in North Adams, MA.

Jack Rosenfeld, president of Medfield, MA-based Potpourri Collection, a multititle gifts marketer whose catalogs include Potpourri, Expressions, and Back in the Saddle.

Steve Voigt, president of King Arthur Flour, a manufacturer/marketer of baking supplies based in Norwich, VT.

Moderated by CATALOG AGE editorial director Sherry Chiger and special projects manager Shayn Ferriolo.

Getting rid of flea-ridden dog biscuits

CATALOG AGE : What is your biggest merchandising challenge?

Knansie Griffing: Our audience is educators, and in the next two years 50% of the teachers are going to retire. There will be a whole new group of educators, so we are trying to merchandise and market to them. Also, people who are teaching in other disciplines are migrating to math and science because of openings there. So our challenge is meeting our current customers’ needs while using the same book to prospect for new customers and educators. Not only are we looking to market and merchandise differently, but the way we handle our list rentals may also have to change because we now need to go to not just teachers but also maybe people who are about to graduate [from college]. You have [old-line teachers who are] real technophobes vs. people who want only technology in the classroom, and we are trying to find a way to meet and greet them all.

Jane Patton: Eziba’s biggest challenge has been our initial merchandising philosophy, which is to sell handcrafted goods from around the world, and being able to ramp that up to a scalable business. Since December we have been to Peru, Colombia, Portugal, France, Italy, Mexico, and South Africa, and we have plans to go to Tahiti, Thailand, Haiti, and Indonesia — and the list goes on and on — in an effort to go directly to the people, work directly with the artists…. We are doing a lot more direct sourcing rather than relying on intermediaries.

Steve Voigt: For [King Arthur Flour’s] Baking Catalogue, with baking being relatively ancient and a simple process, our biggest challenge has got to be trying to keep the catalog fresh and coming up with new products that meet our standards. We’re in a very niche marketplace, and we want to sell the best quality, and it is hard to constantly meet our own benchmarks when bringing in new product.

CATALOG AGE : How much new product do you usually aim for?

Voigt: About 20%. That is a tough goal for us because we sell consumables. We have flour, and you want to eat more hopefully [laughter], so that is an advantage on the one side. But on the other side, what else is new?

We are always doing recipe development, so it is not always a matter of going outside and finding new products that others make, but rather we are rapidly expanding our own mixes that you can cook with. We used to think that scratch baking was how we defined ourselves, but that was too product focused. For example, my wife will, in any given week, buy products from King Arthur Flour to do scratch baking, buy mixes to make something quick, and buy goods from [the King Arthur Flour] bakery that we opened a year ago. We have become more customer-focused; we have to take into account the type of lives that our customers lead. Sometimes we have time to bake from scratch, and sometimes we barely have enough time to stop by and buy a baguette.

Mary Morris: The challenges, especially within the past six months, have been the economic challenges that I am sure everyone has had to deal with a little bit. We’re continuing to try to understand them and think about how we can best react to them.

The other issue is that we have a very mature tableware business, which is not unique product but is the backbone of our corporation. We have been selling tableware for 40 years, so we need to continue to find interesting ways to present offers to customers so that they want to buy through us instead of going to their local department store.

Also, we’ve been aggressively working on how to merchandise the Internet so people will shop there, where we can provide them with offers that are friendly and with services such as our bridal registry.

Jack Rosenfeld: Our biggest challenge is continuing to differentiate our product from that of our competitors. Everyone is going to the same [merchandise] shows, and you see, unfortunately, the same products and the same vendors in a lot of catalogs. So we’ve been over the years, and hopefully accelerating now, trying to develop exclusive product with domestic and international vendors.

Our second challenge would be that we bought a company called In the Company of Dogs [which sells gifts for dog lovers], and it was owned by a dot-com that had…enormous excess. We found ourselves with hundreds of thousands dollars’ worth of merchandise we had to get rid of. That was quite a challenge — especially the dog biscuits with fleas. [Laughter]

CATALOG AGE: Does everyone have a different strategy for the Internet than for the catalog, or is pretty much everything that is sold via the one channel also sold via the other?

Patton: Our strategies are definitely very different. We use the Internet for the merchandise that we cannot get a large quantity of; we don’t want to mail a book to 1 million people and be able to get only 20 [of a particular item]. The beauty of the Net is that we put it up, and once we sell through we pull it down. If a product is sold quickly we may bring it back. We also use the Net to churn and burn, which helps my inventory turns.

Griffing: We have four channels, and they don’t share the same products. We have the catalog, the sales force, retail, and the Internet. We use the catalog to sell supplementary math and science products. We use the sales force to sell curriculum products, which start at $2,000 and go up from there…. We have the Internet pretty much for information, activities, and shared project ideas. We have a purchase order environment — they buy it now and pay for it within 60 days — so we cannot really use the Internet to sell because we are not a credit-card environment.

The downside of maturity

CATALOG AGE: Steve mentioned he aimed for about 20% new merchandise in each catalog. Does everyone have similar goals?

Morris: Atypically for a mail order catalog, we have to divide our business into segments…we have the fine jewelry, which is one entity, and then we have the bridal business, which is another entity, and then we have a gift and home business, which is more true to the mail order model than any of our other business segments. The tableware hardly ever changes and is really a function of what brides are registering for and what has mass appeal. The rest of it we do try to change.

When I started in this business at [gifts and home decor catalog] Horchow, there would be things in every single catalog year after year after year, and they would sell constantly. Now we see that the repeat items have a shorter lifespan. We change anywhere from 45% to 65% of our merchandise depending upon the season.

Voigt: Do you think that it’s changing tastes that have shortened the product lifespan, or do you think everyone else is looking at your book and going to the same vendors or creating knockoffs?

Morris: I think part of it is taste and part of it is the maturity of the business. And shopping patterns have changed…if you look at the fashion industry, things used to have a longer lifestyle. Now a fashion trend can be hot today and gone in a month, and I think has trickled down to categories that are not so trendy…. What do you think?

Voigt: I think that companies have gotten better at competitor analysis and that they actively look to see what works well for someone else.

Rosenfeld: Potpourri has 11 titles, and [catalog] acquisition is part of our strategy, so we are always looking at other catalogs, and I have in the past dealt with a lot of other catalogs, and I would say that the range of new products goes from a low of 20% to a high of 70%-75%. Generally what I have found is that the higher the target market’s income, the more change there is. So in a high-income catalog you get a 65%-75% change in merchandise each season, using the four basic seasons. In the lower-income catalogs, you tend to have 20%-25% range.

But I agree that the products used to [have] a lot longer [lifespan] than they do now. We have seen that over the last few years, dramatically. I think Steve is right, that people learn very quickly. I have heard this from vendors especially. One way to get an exclusive is develop it yourself and have it made overseas, but then the guy who owns the factory wants to sell more than he is selling to you, and then you hear stories about how for $20 he will sell the molds to the next guy, and what you had once as an exclusive is within six months available somewhere else. There is tremendous amount of copying, and it is happening a lot more quickly with everything being computerized.

Griffing: Our catalogs are on the shelves for 18 months, and we see the majority of the sales within the last few weeks [of its shelf life]. People get the catalog and figure out what they want, and they get their budget, and they get it approved, they order it, and they don’t want it until next year. So we have to make sure we have [any given product] in the book for at least three to five years because if we pull it and the customers have already put it in their budget, then they can’t get that back.

CATALOG AGE: Let’s discuss merchandise analysis for a moment. What techniques are catalogers using?

Rosenfeld: Presentation analysis with a few SKUs is done instead of single product analysis sometimes, and then the other way is to use the square-inch analysis. But you have to lighten up a bit — you can’t be totally rigorous and just follow the numbers. Certain things that help you in certain ways go beyond pure square-inch analysis. Though I think you have to start with that, and anyone who doesn’t is making a huge mistake. I have seen people not use square-inch analysis, and it has generally not been good…. I can tell you that happened with the dot-coms. All they looked at was sales. They didn’t talk about space or gross margins or returns. Remember how dot-coms for a while would measure performance based only on revenue?

Stalking the elusive exclusive

CATALOG AGE: According to our Benchmark Report on Merchandising from last year [November 2000 issue], catalogers source a mean of about six months ahead.

Rosenfeld: That sounds about right. Obviously it’s much longer if you’re doing direct importing or product development, and apparel is certainly well beyond that.

Voigt: But with the Internet isn’t it just that you are always doing everything, and if you happen to catch [a product] in time it makes the book, and if it doesn’t you get it up on the Web and e-mail a promotion and queue it up for the next book? Yes, you certainly need to be clear about the lead times, but your worst vendors will always screw it up anyway, so you need to multiply that time by three so that you can get it right and have the good stuff when you need to sell. But [sourcing] is ongoing, and you do it as fast as you can and push it to the appropriate channel.

CATALOG AGE: Speaking of the Web, are you doing a lot of sourcing on the Internet?

Voigt: What I haven’t seen is a quality-driven model for Web sourcing. For instance, if you are a school district and you want to buy lots of chicken for the entire year, you put that out to bid, and you are going to get chicken. Well, not all chicken is the same; Frank Perdue taught me that when I was a little boy watching TV [laughter] …and where is the quality distinction in that model? We have held back from going that route and are working on finding ways to play the quality card again. None of us really want to commoditize our businesses.

CATALOG AGE: We’ve found that merchants think Web sourcing is great in theory, but we haven’t found a lot of catalogers actually doing it.

Morris: [Thanks to the Internet] the communication and the product development is a lot easier than it used to be and a lot more economical. That’s great. And I think that is how we use the Web the most. It has shortened our time frame immensely for getting samples and that sort of thing.

CATALOG AGE: Is the Web replacing the wholesale catalogs that you may have used in the past?

Morris: Not necessarily wholesale catalogs…it is helping us with our product development and our offshore sourcing more than anything. Before, we would typically receive a sample into our warehouse that we were interested in developing, and it would come in wrong — maybe the wrong color or the wrong item — and we would be disappointed and say, “Well, now we need to get another sample made.” Now somebody can take a picture of the sample, and we can get a JPEG and see if it’s wrong and have them fix it so that it is right when it comes in the first time, and you can approve it earlier so that the lead-time window shortens for production.

Rosenfeld: But I do think that also the wholesalers are using the Web to show you the samples quickly. Their catalogs are out once or twice a year, so instead of waiting for the new catalogs, they can send JPEGs of new products. That has definitely speeded up the cycle and been helpful.

Griffing: That has been helpful to us to for nonproprietary products. If they want to bundle something together, the vendors can show us different bundles without having to come to our door. We can do it all via Internet. And one of the things that we like to punctuate the catalog with is educational awards and testimonials. The awards come out at a very odd cycle, and we can usually swing those right in from a Website and drop them right into the catalog. So there has been a lot of streamlining, and we can reduce vendor meetings as well.

Patton: When my guys were in South Africa, they could send me images and I could tell them, Pursue this, this, and this. It is a much more instant conversation than if they were spending time and money on samples and coming back to me for the approval.

CATALOG AGE: Several of you mentioned the challenge of not having unique product. Does anyone have an innovative way to ensure exclusivity?

Rosenfeld: One thing to do is to work with designers. With our needlecraft catalog [The Stitchery], design is critical…. It’s like buying art. It’s all about the quality, so working with good designers is critical. Of course it depends where you are in the spectrum. As you get lower in the spectrum the customer wants to pay only $29 for a replica print, so he might not be as critical, and the product can be a knockoff.

CATALOG AGE: What percentage of your product is exclusive?

Rosenfeld: I was going to say less than I would like, but really, it’s about 50% in one form or another.

Voigt: You know who talks about exclusivity a lot is The Sharper Image. Even in their annual reports they talk about how they are successfully moving to a higher percentage of exclusive items.

CATALOG AGE: Jane, given that your products are handmade, you must have some unique challenges in terms of receiving and maintaining stock.

Patton: If there is any hint that there will be any type of supply issue, the product doesn’t go in the catalog…. We don’t take backorders, so I need to have it there. We set up a network wherever we go so that there is one person who will oversee everything from [quality control] to shipment….

Yes, last year we put some baskets in the catalog made by Indians from the Amazon forest, and we weren’t getting the baskets. The rains came early there, and the baskets that they had already made they were using to gather food. So we turned that into a PR positive. We told the customers we were really sorry and they could give us their e-mail addresses and once the rainy season was over we could e-mail them and send them their baskets. Almost 100% loved that aspect of the story and hung in there, and it finally stopped raining, and they got their baskets. We do not dictate to these artists.

Morris: Jane, you are not taking backorders?

Patton: Because Eziba was originally an Internet company, the whole idea was if you have the inventory, it’s on the site, and if you don’t, you take it off. When we introduced the catalog we set things up to take e-mail addresses, and it is amazing how effective that is. We’ll send a message that says that we are sorry that the item is unavailable, but we expect it to be available at a specific date and if you would like we can e-mail you when it comes in. I would say that upward of 80% of the e-mail names we capture wait and then purchase. It has been a great way to avoid all of the administrative costs associated with backorders.

Of discounts and fast-food fractions

CATALOG AGE: What do you expect from your vendors in terms of discounts and advertising allowances?

Rosenfeld: It depends on the vendor, but I think we all ask for discounts and advertising discounts, and in some cases you get them. It is definitely volume-driven. I think we get discounts from most of our vendors, but not all.

Morris: It is definitely volume-driven. We do multimillion-dollar deals with some vendors, and their treatment and their willingness [to provide discounts] is much different [from that of vendors with whom we do less business].

Voigt: It’s driven by their volume as well. If we [account for] a half-percent of their [revenue], even if it is a lot of money for us, we don’t tend to have our [discounting] expectations met.

Patton: If we are dealing directly with the artist and the item is $10, we pay $10, because one of the missions of Eziba is to support the artisan. Either we pay what the artisan wants, or if we don’t think the price point will be a good fit we say, “Thank you very much, it is a lovely piece” and walk away. If we are dealing with an intermediary, then yes, we might ask how much are they marking this up and can we get a discount from them. But not ever, ever from the artisans themselves.

Griffing: Our products are marketed and merchandised best in the catalog when they are shown in use with a child or an educator, so if a vendor cannot supply an image with the product in use we will ask them to pay for photography. We have never had an issue with that policy. We do see a lot of discounts even though we are comparably small. We are also in a unique position in that states will “adopt” [educational] catalogs; once they adopt a catalog, they can order only from that catalog. Having the assurance of all of that business gives us leverage. These contracts run for seven years…. We were just adopted by Texas, so that was huge.

CATALOG AGE: What has been the most successful source for each of you? Has there been any one show or buying trip?

Morris: The way we typically work a show is not typical of the industry. Typically our greatest source is one-on-one meetings. That may be a meeting at the Wedgwood factory or at the Lenox factory. I have never found a show to be productive. It’s hard to make a business plan in the middle of an aisle at a gift show, but that’s just us.

Griffing: Actually, the shows is where we get the most done. That is where our most productive meetings happen. There’s a show called the National School Supply Show that about 3,000 vendors attend, and there are about 250 buyers. So the vendors really draw you in and spend time with you. And they really want to work discounts and work exclusive products. However, one of our greatest sources this year was to partner with one of our vendors, which had amazingly low costs on manufacturing but did not have the credibility or the distribution channel. So we became its sole distributor for two years on some products, and I think that will pay off handsomely down the road.

CATALOG AGE: Has there ever been one product that you thought would be a runaway best-seller and you still have it in the warehouse seven years later?

Rosenfeld: That hasn’t happened to us — in at least a month. [Laughter] I think it happens to all of us, and I think that the challenge of merchandising is to be able to live with the fact that you are always going to choose some items that you are convinced will be great and yet they are not going to be.

CATALOG AGE: Has the Web helped in getting rid of these errors in judgment?

Rosenfeld: It has truly helped liquidation, there is no doubt about that. But there is a laundry list of other ways to liquidate, such as sale catalogs and retail outlets. So while the Internet is effective, it is just an addition. If you have a warehouse full of an item, it is going to take a lot of Web work to get rid of it.

Morris: We are still learning what we can expect from Web liquidation. I will share this with you because it just blew my mind. We had a focus group up in Boston a couple of weeks ago, and we had a bunch of catalog and Web shoppers. There was a woman who is a travel agent and a loyal shopper who had just spent her afternoon looking at all 1,057 items on the earring clearance portion of our site. She said she was obsessed with getting through all of them. Never in my mind did I think that anyone would ever do that!

Rosenfeld: What about stories about the opposite — what has really worked for you and why?

Griffing: In our math catalog — and we are primarily known in the science community — we have a line of math manipulatives called Fast Food. Kids learn about fractions with hamburgers that you break down and tomatoes that get sliced into 12 pieces…. It came about because our president at the time was trying to teach his nephew math, and he resorted to using french fries. We have seen the compliments in knockoffs. We are going on 10 years with the product.

The economy factor

CATALOG AGE: Has the stagnant economy led any of you to modify your price points or anything along those lines?

Rosenfeld: With the postage increases we are trying to get more merchandising margin. If you look at your P&L and your postage goes up, it has to come from somewhere, and there are only a couple of places it can come from. Merchandise is one, so we certainly have made an effort to increase our merchandise margins.

Patton: We are introducing a new-format book in mid-November that is more of a gift/jewelry book, and more than half of the products in it retail for less than $50. We want to be prepared for people not wanting to spend as much money but still wanting to find something different that they are not going to find in one of the more common books. We have definitely merchandised [the new format catalog] to lower price points to lower the barrier to entry and drive up the units per sale. It will be interesting to see how that will work.

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