As a nonprofit business, the catalog/retail division of The Museum of Fine Arts, Boston (MFA) has long faced a host of challenges. Like for-profit multichannel marketers, the purveyor of art-related gifts struggles to manage inhouse catalog design, fulfillment, and integration of its channels.
But the Enterprise division (as the catalog/retail group is referred to) also has to await approval from the MFA board of trustees before it can implement any changes regarding how the business is run. And it relies on the board for the approval of funds.
“Being a nonprofit can be political,” says director of marketing Kelly Worrell. “It’s sometimes difficult to make quick decisions, because we need to put all large decisions, such as choosing a new computer system, before our board of trustees.”
In its quest to have more control over its business, this summer the Enterprise division plans to establish itself as a for-profit business, separate from its nonprofit namesake. But while the change may pay off in the long run, in the short term the transition could create even more challenges.
From gift shop to $40 million business
The MFA launched its catalog in 1970, 100 years after the museum was founded and about 15 years after the opening of the museum’s on-site gift shop. The catalog today has an annual circulation of approximately 11 million. The MFA also runs six stores throughout the Boston region, and the catalog’s e-commerce Website, www.mfa.org, launched in spring 1999.
The catalog accounts for about $18 million in annual sales, and the Website for another $2 million. Together they account for approximately 50% of the Enterprise division’s overall sales. Retail accounts for approximately 45% of sales, while the company’s wholesale business accounts for roughly 5%. All proceeds after sales go to the museum.
The decision to establish the catalog and retail business as a separate, for-profit entity has been in discussion since last summer, says general manager Joe Gajda. “What brought it to a head is that the performance of the Enterprise division has been inconsistent over the past couple of years,” he notes. “Some years we saw a modest profit, and some years we saw a modest loss, and the museum needs an expectation as to how to budget.”
Without those expectations, the catalog cannot count on the museum to approve the funds necessary to maintain all of the channels. This, says Worrell, accounts for an understaffed Website division.
“We plan to eventually designate two CSRs to oversee Web orders,” she says. “Providing good customer service online is a challenge. People expect immediate responses, but the Web business has grown quickly, and we were never staffed up well enough to do it all.”
Once the division becomes a completely separate entity from the museum, the museum will receive a percentage of its sales, Gajda says, “which is more consistent revenue than if it waited for a profit.” He would not disclose the actual percentage of sales that the museum will receive.
No doubt some of the inconsistency resulted from multiple management changes throughout the late 1990s. “With each new general manager came changes in senior management, as well as changes in business strategy,” Worrell says. “Each general manager had a different formula for ‘fixing the business,’ and that lack of continuity in staffing hurt our catalog business, where knowledge of historical performance is key to making future decisions.” Gajda, whom Worrell describes as “sharp and decisive,” was hired in 2000.
The cost of becoming for-profit
Profits may be hard for the division to come by once it becomes a for-profit business. For starters, it will lose its tax-exempt status. For another, it will no longer be able to mail at the lower postage rates for nonprofits.
“For-profit postage rates will require us to pull back our circulation somewhat,” Gajda says. “It adds about a dime per piece to our current mailing, so we’ll be scaling back circulation about 10% for the year to absorb the costs.” MFA will continue to mail three books in fall and three in spring.
“Higher postage costs and higher taxes are a high price to pay for having the freedom to make business decisions more quickly,” says Katie Muldoon, founding partner/president of Sugarloaf Key, FL-based catalog consultancy Muldoon & Baer. “And the other concern is what kind of royalty they’ll be paying to the museum. The catalog will have increased costs with decreased margins, at least initially.”
The division may have decreased sales as well. Earlier this year MFA closed two underperforming suburban stores. “But our main museum shops [there are two shops in the museum], as well as others in Faneuil Hall and Copley Place in Boston, do well because they’re high-traffic areas,” Worrell says. The company has a fifth store in a mall in suburban Burlington, MA, and was slated to open an outlet store on Cape Cod in April.
MFA hopes that any customers it might have lost by closing the two stores will migrate to other stores, the catalog, or the Website. But while the Website is promoted in the catalog, “the listing of stores has been left out of the book in the interest of space,” Worrell says. “Our stores are local and the catalog is national, so we took the listing off.” But the company might reinstate the store listing to cross-promote the channels. “And our catalog does feature inkjet messages for people in the areas near the stores,” she says. In another attempt at channel integration, MFA hopes to eventually install kiosks in its stores that will give customers access to the MFA Website.
Giving customers the ability to shop from the MFA Website while in an MFA store isn’t an exercise in redundancy. The Web may have items that have sold out in a particular store.
In fact, the various channels do not sell the same merchandise. “Retail has a much wider assortment of merchandise than the catalog, because we can sell one-of-a kind products and lower-ticket items at the stores,” Worrell says. These include impulse buys such as individual cards and refrigerator magnets. By the same token, “higher-ticket items, such as artisan jewelry that is not mass-produced, are sold only in the stores,” because the company does not have enough in stock to offer in the catalog.
The stores typically offer 8,000-10,000 SKUs, 50% of which are books. The Website sells about 600-800 SKUs, while the catalog features 500-700 SKUs. MFA is working on introducing catalog-exclusive merchandise, which will be mostly apparel products and large home décor items that are harder to display or house in the store.
MFA handles all of its own product development and distribution. The product development department is divided into eight merchandise categories, including jewelry, paper products, decorative arts, and games and toys. MFA’s distribution center in Avon, MA, handles fulfillment for the retail, catalog, and online channels.
“Each merchandise manager works with our museum’s curators to identify works of art that would be saleable if they were reproduced, adapted, or used as inspiration for other products,” Worrell says. “Then our development managers seek out manufacturers to produce the product. On occasion, product managers can go into the marketplace and find [ready-made] products suitable to our product line, but most of what we sell is custom-made for us.”
By drawing upon the museum’s own collection, MFA ensures that it offers product that is unique. “There are other museum companies and museum lookalikes,” Worrell says, “and we must be innovative to differentiate ourselves from the rest.”
‘Higher postage costs and higher taxes are a high price to pay for having the freedom to make business decisions more quickly’
Worrell credits director of merchandising Leslie Phillips, who joined MFA in April 1999, with reinvigorating the product offerings: “Leslie Phillips was responsible for revamping our strategy, and as a result our fall/holiday 2000 season was phenomenally successful.”
MFA also makes a point of informing customers and prospects about the distinctiveness of its products. For instance, to promote one of its current product lines — poppy-themed bed and table linens crafted in India — the stores feature computer screens that introduce customers to the artisans and offer a virtual tour of the linen-making process.
The catalog copy emphasizes the lineage of the merchandise as well. A necklace, for instance, “is adapted from Alfabeto di Lettere Iniziali, etchings from 18th-century Italy in our collection of Prints and Drawings”; porcelain bowls are “similar to an early-15th-century Ming bowl from our Art of Asia Collection.”
The proprietary merchandise, the virtual tours, the educational catalog copy, all speak to what Worrell describes as MFA’s greatest challenge: “maintaining a strong brand identity that is uniquely ours.” The team are optimistic that by switching from nonprofit to for-profit status, it will gain the control to be able to build upon that image and achieve a key goal: Says Worrell, “We want to have the same brand image in each of our channels.”
Merchandising, by Channels
Museum of Fine Arts, Boston is like many marketers in that it does not sell the same merchandise across all channels. In its stores, the cataloger sells both high-end, limited-quantity items as well as many lower-ticket items, such as individual cards and magnets, that are not available online or in the print catalog. Conversely, it offers more furniture and apparel in its Web and catalog channels.
For tips on how catalogers should choose which merchandise to sell in its channels, Catalog Age talked to Kathy Revello, director of merchandising for Sunnyvale, CA-based Panache, a cataloger of tabletop and home-entertaining products. Prior to working at Panache, Revello was a merchandiser for upscale home accessories cataloger/retailer Gump’s.
Q. Is there a rule of thumb that catalogers should go by when deciding which merchandise they should sell in their assorted channels?
A. It depends on your customer base. If your catalog is mailed to mostly moderate-income buyers, then you might want to put some of your higher-end merchandise in the stores to capture your upscale, impulse buyers. At Gump’s, for example, we sold some of our $1,000-plus sculptures only in the store because the proportion of very high-end customers we reached by catalog was small. But if your customer base is largely the same across channels, what you choose to sell in-store might simply depend on how much retail space you have to house your merchandise. Oftentimes, the store has more space than the catalog has pages to sell product. Neiman-Marcus, for example, is a huge department store that sells much more in its stores than it can show in its catalogs. Conversely, smaller stores may have room to offer more product selection via their unlimited Website space or in their catalog.
Q. How can a cataloger avoid losing sales in one channel on products that are offered exclusively through another of its channel?
A. I don’t think they can. There is always going to be some loss. But catalogers can cross-promote their venues as well as the products that are available in only one channel. If they have a store, they should make the catalog available to customers in the store. And they should promote the Website and stores in the catalog.
Q. If a company wants to liquidate items, is it more cost-effective to do it by retail, a sale catalog, or the Internet?
A. You should at least test all channels to see what works best. But quantity is really the issue. If you have a limited quantity of a product, it might be not be cost-effective to promote it in a sale catalog. If you have an outlet store, you can liquidate product through there.
Store launched: Mid-1950s
Catalog launched: 1970
Website launched: 1999
Current number of stores: Six
Catalog circulation: Approximately 11 million
Number of employees: 82 full-time; another 250-plus workers are hired for the holiday season
Annual sales: Estimated to be around $40 million ($18 million catalog revenue; $18 million retail revenue; $2 million online revenue; $2 million wholesale revenue)
Biggest challenge: Maintaining, or growing, the channels while it absorbs the cost of becoming a for-profit business