Diverse arsenal helps catalogers take on the `dot-coms’
When e-commerce began heating up five years ago, many pundits felt catalogers had the edge over the virtual-only marketers. After all, catalogers had established brands, and fulfillment and customer service capabilities and expertise.
But now that the “dot-com” merchants have become Wall Street’s darlings, these upstarts have the funds to build state-of-the-art infrastructures and buy ad time on national TV and space in mass-circulation publications. All of this spending has catalogers worried that they may be losing their edge.
“Our fear is what every cataloger’s fear is,” says Steve Rowley, president of $50 million-plus gifts cataloger Paragon Gifts. “The amount of advertising money that dot-coms can throw at the Web is incredible.”
Want proof? Look at the roster of Internet-only companies advertising during Super Bowl XXXIV, the most-watched television event of the year. Nearly a dozen Web marketers, such as pets supply company Pets.com, are spending at least $2 million per 30-second spot in the big game. “E-commerce players have more to lose,” says Kevin Silverman, managing director of Chicago-based investment bank ABN-AMRO. “These dot-coms will lose their financing from Wall Street if they do not show significant sales gains. So they must make a big splash.”
Venture capital is enabling many dot-com start-ups to spend far more on advertising than they’ve yet reaped in sales. Catalogers lack that luxury, of course. According to consultant Curt Barry, catalogers typically spend about 23%-35% of net sales on advertising, which includes their print books.
“In the last five months, we changed our advertising budget six times,” says Alex Elnekaveh, president/founder of $32 million TopiX Innovation Gallery, a cataloger/retailer of gadgets and gifts. “Each time we added more and more dollars to the Website to compete with dot-com companies. If we don’t, we will lose market share on the Web.”
No matter how often it tweaks its ad budget, though, Canoga Park, CA-based TopiX still can’t afford a Super Bowl ad. Instead, it has started offering free shipping and gift certificates to first-time online shoppers. “You have to give consumers a reason to come to the site,” Elnekaveh says. The company, whose annual online sales are about $2 million, even changed the name of its Website to gadgetuniverse.com to better depict its product offering.
Of course, virtual-only marketers can – and do – offer similar discounts and promotions. But catalogers still have a promotional tool that is theirs exclusively: the print books.
“As an industry, our ad dollars are quickly identifiable into sales,” says Mark Friedman, executive vice president of The Company Store, a bedding catalog owned by multititle mailer Hanover Direct. “At Hanover Direct, we mail out 240 million catalogs – that’s 240 million names who are already qualified buyers.”
And given that many households hold onto their print catalogs for weeks, a URL on a catalog cover will be seen by customers more frequently than a few prime-time commercials – at far less expense. “The advertising dollars that catalogers spend are far more targeted and have a better return on investment,” analyst Silverman says.
But the dot-coms are spending their war chests on more than advertising. They’re whittling away at their margins so that they can undercut competitors on price. The proliferation of shopping bots, which scour the Web for the best prices on all categories of merchandise, is only exacerbating the price competitiveness.
Lincoln Cox, vice president of marketing for golf products cataloger Edwin Watts Golf Shops, cites the example of a steel-shaft golf club that costs $179 on Edwin Watts’s Website but costs $143 on a virtual-only site. Rather than engage in pricing skirmishes, the cataloger is relying on its customer service expertise. For instance, Cox says, Edwin Watts’s customer service reps can custom-fit a club to a customer over the phone.
“That level of service is something that most dot-coms can’t compete with,” Cox says. “We’ve been here for 32 years, and we’ll be here for the future. Customers know that they can trust us, before and after the sale.”
By selling exclusive merchandise, Stylesite, the $80 million parent company of women’s apparel catalogs Lew Magram and Brownstone Studio, makes it impossible for virtual-only competitors to undercut its prices. “We’ll compete by offering our niche customer a unique selection of merchandise,” says president Warren Golden. “Just as a product is exclusive to us in our catalogs, it will also be exclusive to our Website. Merchandising will be crucial in keeping our customers and attracting new ones.”
Other catalogers are convinced that their back-end experience will help them come out on top. “The hype in the media and on Wall Street is with the dot-coms, no question,” says Jack Kotowski, marketing manager for $25 million-plus travel supplies mailer Magellan’s, whose Website accounts for 16% of its sales. “But catalogers have a tremendous advantage because of their back-end knowledge of what could go wrong. How are e-tailers prepared for a package being delivered to the wrong address or if a Website is crashing?”
In fact, for every mailer worried about the deep pockets of the dot-coms, there’s a confident cataloger like Peter Canzone, president/CEO of Brylane, whose apparel and home titles include Chadwick’s of Boston and Lerner New York. “Catalogers have telemarketing, distribution, and a recognizable brand. Our customers know and trust us. We’re already established in the marketplace.”