Seven Strategies for Expanding Your Business

Ever since the recession dug in its heels nearly three years, survival, rather than growth, has been the goal for many catalogers.

But finally, things are looking up, and marketers are now looking to expand. It’s time to dedicate effort and resources to growing the business — bringing in additional customers, offering fresh product, tapping new niches, and so on.

Most marketers have a handle on the basics of growth, such as prospecting and increasing product-sourcing capabilities. But what about the less obvious, bigger-picture opportunities? Which strategies are most effective for which sorts of catalogers? Who’s doing what — and who’s doing it well? We’ve highlighted seven key growth areas, from retail and wholesale to corporate sales and direct response television.

Not all our growth strategies will work for every business, of course, but it’s worth taking at least a look at all the options. Perhaps you can expand your horizons — and your top and bottom lines.

Setting Your Sights on Stores

From Tiger Direct to Boston Proper, more catalogers are taking the plunge into retail. Since most already operate mail order and Internet channels, retail is the missing piece to the multichannnel puzzle. And since some consumers — up to 50% by some estimates — simply won’t shop via direct marketing, running a store is the only way to get their business.

Santa Barbara, CA-based apparel catalog The Territory Ahead, which is owned by Westchester, OH-based conglomerate Cornerstone Brands, opened its first store in Chicago in September. Another Cornerstone title, upscale home and garden products cataloger Frontgate, opened a 10,000-sq.-ft. store in an Atlanta mall in November. “It seemed a logical time to test a store,” says Paul Tarvin, Cornerstone Brands executive vice president and president/CEO of Frontgate, which he founded in 1991 and merged with Cornerstone in 1995.

Catalogers venturing into retail must consider several key factors when determining whether they have enough capital, cautions Dan Butler, vice president of retail operations for Washington-based trade association National Retail Federation. Chief among them are real estate costs, and whether a given location has a sufficient customer base.

Frontgate selected its store location because 40,000 — or nearly 2% — of its 2.5 million customers live in the Atlanta area, Tarvin says: “The lifestyle, seasonality, customer demographics — when we look at Atlanta, it scores very high in both number of our customers and customer density.” The store also includes a patio area, which gives Frontgate “a good amount of space to represent the brand appropriately, since a lot of our products are big and require more space,” Tarvin says.

Alternative — and cheaper — retail strategies

Signage, lighting, security equipment, and store fixtures alone can cost $50-$200 a square foot. Add inventory, staffing, training, and other expenses, and opening a 2,000-sq.-ft. store can easily cost you $300,000 before you even open your doors. For catalogers on a budget, such costs can be daunting. Fortunately, there are less expensive ways to enter retail.

North Adams, MA-based Eziba, which specializes in gifts from underdeveloped countries, opened a boutique in New York-based ABC Carpet & Home’s emporium in April 2002. This past September it followed up by leasing space in Marshall Field’s flagship Chicago department store.

Both boutiques offer 350-400 of Eziba’s 1,200 SKUs; shoppers can also order other Eziba catalog items from the store. Eziba operates the shops, hiring the sales staff and managers, and owns the merchandise, says president/CEO Bill Miller.

Although Miller won’t disclose costs, he says that both boutiques turned a profit within their first month, whereas Eziba’s one independent store, in Boston, is breaking even. Eziba’s boutiques cost 25%-50% less to run than the Boston store and its outlet at its headquarters, Miller says. The cataloger plans to open boutiques in more Marshall Field’s stores throughout the year; it’s also in negotiation with two other retailers to establish in-store boutiques this year.

Levenger is another catalog tenant in Marshall Field’s Chicago store. The Delray Beach, FL-based “reading tools” cataloger opened its shop in September. Initial results have been “well above our plans,” says president/CEO Steve Leveen. Levenger will likely open boutiques in other Marshall Field’s stores as well, and it plans to open its first stand-alone store this year in Boston.

Redmond, WA-based personal care products cataloger Garden Botanika is returning to retail by opening boutiques in 18 Nordstrom department stores in the West. Garden Botanika once operated 300 stores, but after filing for Chapter 11 bankruptcy protection in April 1999, it closed all its stores. In 2001, Garden Botanika was sold to St. Louis-based bath and body products manufacturer/marketer Schroeder & Tremayne, which has helped revive Garden Botanika’s catalog.

Garden Botanika offers 80% of its catalog products in the Nordstrom boutiques, which are similar to the branded cosmetics counters common in department stores. Garden Botanika sells Nordstrom the products on a wholesale basis, leaving other details, such as staffing, up to Nordstrom.

Garden Botanika wanted to get back to retail because “our products are high sensory — people like to touch and smell them,” says general manager Liz Bradley. Also, “more than 30% of our sales come from the West Coast. So it was important for us to get back into retail there.”
Paul Miller

Priming the Private-Label Pump

Catalogers have many compelling reasons to consider private labeling, or having products manufactured specifically for their business. For one, eliminating middlemen such as manufacturers’ reps enables you to sharply reduce your cost of goods. Depending on the size of your company, you can shave 50%-70% off the cost of merchandise, according to Waterford, ME-based catalog consultant Adrienne Cote.

By paying less for your merchandise, you can then lower what you charge customers to stimulate demand, Cote says, “or you can maintain your retail pricing and take more gross margin to the bottom line.” Another benefit to private label is the ability to have a unique product offering, with your own “stamp” on it, she notes: “Brand is king in today’s world.”

Indeed, private labeling is almost a necessity in the crowded apparel market, says Phil Iosca, president/CEO of children’s clothing cataloger Hanna Andersson. “It’s one of the few ways you can differentiate yourself in this noisy and price-competitive market,” he says. All of the Portland, OR-based cataloger’s products are private label, except for some shoes and accessories.

Gifts and tools cataloger/retailer Brookstone invests millions of dollars a year on product research and development, says spokesperson Robert Padgett. In 1994 the Nashua, NH-based company decided it “had to start relying less on other people’s merchandise,” he says. At the time, 15% of Brookstone’s sales were private label; in 2002, 75% of its sales came from private-label-branded products. In addition to the increased margins, private labeling extends the Brookstone brand “and reinforces quality because we have the tightest control over products when we design and engineer them ourselves,” Padgett says.

Getting started

You first need to ask, What kind of product can we private label, and how or from whom do we get it? Since most manufacturing is done overseas — 90% of private-label apparel, for instance — you’ll also need to figure out how to get the goods over here.

Assuming you want to import directly from an offshore manufacturer, you’ll need to set up a letter of credit to do business in another country. “You need a distribution line to get goods through customs and through ports,” Cote says, so it’s best to work with local expertise. If you want to import a sweater from Thailand, for instance, you would hire an agent in Thailand. The agent takes a fee in exchange for acting as a translator and your export contact for that country.

While your ability to handle the logistics of direct importing can determine your success with private labeling, perhaps even more important is whether you can meet a manufacturer’s minimum requirements. Minimums depend on the item, the price, the factory, the country, Cote says, “but you’d probably need a minimum of 600-1,200 units to order.” Minimums are negotiable, but the higher the quantities, the lower the price.

“The biggest mistake I see is companies that choke their inventories before they’re ready to handle the inventory volume and financial aspect of private label,” Cote says. In other words, if that sweater you ordered 1,000 units of doesn’t sell well, you’ve got funds tied up in inventory that you now have to unload. “Once you’ve had a product made for you under your brand or label there is no return,” she says.

If you don’t quite have the minimums required for private label, you can start out with exclusives, Cote says. For instance, if you want to import 100 picture frames to sell, you could contract with another company that’s importing a mass shipment of the goods to put your label on your 100 pieces and sell them to you. You pay more per piece for this than for importing the whole lot yourself, but it’s a good strategy for dealing with smaller quantities.

Hanna Andersson’s Iosca advises that you start with one product category, using a manufacturer that you can trust, “and develop product with them that is unique to your customer’s needs, not easily found in the market, and that plays to the manufacturer’s strength.”

The rewards of private label are plentiful, but the strategy has its risks too, in that it puts quite a bit of the responsibility on the company, Iosca adds. Depending upon how sophisticated your operation is, “you are designing, specifying fabric and details, and testing the product to make sure it is up to your standards.” If it doesn’t sell, you own it. And if it does sell well, unless you have arranged for backup, you may not be able to reorder. Says Iosca, “You need to make sure you are willing and able to take this on.”
Melissa Dowling/Mark Del Franco

Expanding Your Niche

The best way to build sales without increasing your mailings, says Larry Gaynor, president/founder of professional beauty supplies cataloger The Nailco Group, “is to get existing customers to buy more from you” by expanding your product selection — namely by going outside your core niche.

Another benefit to product expansion is increased customer loyalty, “so that your customers don’t ‘wander’ to competitors for new product categories,” says Andrea Lawson Gray, president of San Francisco-based merchandising consultancy Aesthetics Marketing. Once customers go to competitors for different products, she says, they could wind up buying some of the same things that they’d previously bought from your catalog.

That’s one reason Milwaukee-based National Business Furniture, an office products cataloger with sales of more than $120 million, in September added decorative office accessories to its line. Another, says president/CEO George Mosher, was that customers had been asking to buy such items that had been used as props in the furniture catalog.

The new products include lighting, pictures, artificial plants, rugs — as Mosher says, “all things you’d see in a first-class office to spruce things up.” Rather than mix the new product line in with its 322-page core book, National Business Furniture produced a 16-page stand-alone section that was polybagged with the main catalog.

But product expansion “just for product expansion’s sake isn’t good,” Nailco’s Gaynor says. His Farmington Hills, MI- based company has added bathing suits, sunglasses, earrings, weight-loss products, and vitamins in the past, and they all sold well — at the beginning. But the trendier products “typically worked for a year, and then we’d have difficulty selling them or liquidating them,” he says. “The ‘wow’ factor diminishes quickly.”

On the other hand, when Nailco expanded to such categories as salon furniture and equipment, educational materials, salon clothing, and body jewelry, it had more long-lasting success, Gaynor says.

Many mailers stick very closely to their core line when branching out. Chicago-based Direct Marketing Services Inc. (DSMI), which produces the HomeVisions catalog, sells home furnishings, says president/CEO David Milgrom, so “we’re not going to get into apparel or jewelry.” HomeVisions is instead focusing on different types of home goods for expansion, Milgrom says. Two years ago, for instance, the cataloger introduced a children’s home decor line.

The $150 million DMSI is also adding more upscale offerings to its line. Whereas in the past HomeVisions has offered basic upholstered sofas in the $500 range, this year it also sells $999 leather sofas.

Online, HomeVisions has ventured even further with more-expensive products. For instance, the company offered a high-end game table with four chairs set for $1,900 for the 2003 holiday season, “a price we’d never sold this at before,” Milgrom says. But to avoid alienating core customers, HomeVisions hasn’t added as many higher-priced items in the print book.
PM

Secrets to Corporate Sales Success

For consumer catalogers, targeting businesses can considerably boost sales and average order size. Carson, CA-based Mrs. Beasley’s, a 30-year-old baked goods cataloger, has been selling to businesses for 10 years, but during the past two years corporate sales have become “an increasingly important part of the business,” says president/CEO Ken Harris. In fact, they now account for 70% of the company’s holiday sales, he says.

For Burlington, VT-based Lake Champlain Chocolates, the corporate sales market was “unmined gold,” says marketing/communications manager Chris Middings. Lake Champlain mailed its first corporate catalog to Vermont businesses in September and will eventually expand to other parts of New England. “The average lifetime value of a corporate customer is about 10 times what it is for an individual customer,” he says.

How can you get a piece of the corporate sales pie? The following tips can help:

  • Offer personalization

    When giving gifts, companies generally want to see their name imprinted on the product or the packaging. Mrs. Beasley’s offered its first corporate-logo-inscribed box in 2001. In 2002 it introduced a photo cookie, in which a company’s logo is imprinted on the icing. The item is now a best-seller, says Harris. Mrs. Beasley’s also offers tins, ribbons, and small crates featuring corporate logos.

  • Tailor your catalog creative

    Corporate customers generally don’t have time to leaf through myriad pages of merchandise like consumers do, Harris says, so you should create a distinct b-to-b catalog.

    Mrs. Beasley’s mails a 24-page corporate gifts catalog selling 50 products to 85,000 business customers three times each fall. Its 32-page consumer book sells 75 products and mails seven times a year. The corporate gifts catalog is organized by price point, while the consumer book features the best-selling products up front. And the copy in the corporate catalog is more matter-of-fact, Harris says: “Most of our corporate clients are interested in what’s in the basket, how many will it feed, and what is the cost.”

  • Step up the service levels

    Lake Champlain Chocolates, for one, has found that corporate customers “require more personal service and customization because of the larger volume of their order,” says Middings. They also might have special instructions, such as cards inserted in or logos stuck on boxes of chocolates. For that reason, you may need a higher caliber of worker to handle sales to companies.

    Mrs. Beasley’s created a separate corporate customer service program six years ago. Each business customer who spends at least $250 an order is assigned a service representative who maintains contact with the customer through phone and e-mail from the time the order is taken to the time it is fulfilled.

  • Be prepared to clean up gift lists

    Recipient lists may pose an unforseen challenge to corporate gift marketers. Lake Champlain’s Middings notes that some recipient lists must be entered into the computer if they are faxed in or e-mailed in a format incompatible with the cataloger’s computer system.

    Petaluma, CA-based baked goods and candy cataloger Divine Delights has received business orders with invalid addresses of corporate gift recipients, says owner/president Angelique Fry. “We’re supplied with unshippable addresses or post office boxes that we can’t ship to. Delays can be a real problem and a real waste of money.”

    To help clean up corporate gift list addresses, Mrs. Beasley’s uses Quick Address Software from the U.S. Postal Service to check the recipient addresses submitted by corporations. This software cost the cataloger $13,000; the price is based on the number of users, Harris says.

  • Think outside the box

    A little creativity can go a long way in helping you land the corporate order. The majority of Lake Champlain’s corporate gift orders typically involve adding a customized ribbon to a gift of chocolates, Middings says. But one unusual request came from a company that sells stones for construction sites: It wanted the chocolate sent in a miniature version of the caged crate in which it delivers the stones to customers, he says.

This year Lake Champlain added a hand-blown glass dessert bowl from Vermont glassmaker Simon Pearce to its offerings. While the bowl is unlike the chocolatier’s other product offerings, it complements them nicely. “It’s expensive and impressive, and makes a statement,” Middings says. “If yours can be the most impressive gift they receive, you’ll make an impression at their office.”
Margery Weinstein

The Personal Touch

In a world of “me too” merchandise, one way to gain an edge over the competition is to offer product personalization. “Because we want to meet with the customer on a personal level, some type of personalized product offering is almost expected,” says Andy Travers, director of operations for Manchester, VT-based Orvis. The cataloger of apparel, gifts, and home goods offers engraved brass plates, watch engraving, leather embossing, and embroidery. “As each product is developed and chosen, we must look at its potential for personalization,” Travers says.

Orvis has an advantage, Travers notes, in that it sells “a diverse product mix with year-round volumes that can share equipment.” For example, the same machine used to embroider dog beds can also personalize children’s sleeping bags during the holiday season.

Travers would not disclose equipment costs, but Orvis charges customers an additional $5 for most personalized items, “to try to cover our costs,” he says.

Some marketers haven taken personalization a step further. Seattle-based manufacturer/marketer Filson has been customizing its outdoor apparel for more than 90 years, says sales and marketing director Terry Young. Customers can order apparel with longer arms or legs or with buttons instead of snaps, and can even have the shooting patch on a jacket moved to accommodate left-handed hunters. Filson charges an additional 20%-50% for customization, depending on what’s required. The fee offsets the cost of developing a new pattern.

Kicking it up a notch

Web technology is making it even easier for marketers to customize merchandise. Dodgeville, WI-based Lands’ End in October 2001 launched an online feature called Lands’ End Custom, in which visitors enter their measurements and answer a few questions about lifestyle and exercise habits. Lands’ End will then have a garment individually cut and sewn to a pattern unique to that body type based on the information provided. “When a garment is made to order, we cut a special pattern just for you,” says Bert Kolz, Lands’ End’s international e-commerce manager. The Website will retain the profile for future orders, but customers can change certain information if, for instance, they gain or lose weight.

“It costs more to manufacture made-to-order clothes than to mass-produce them,” Kolz says. A pair of customized Lands’ End chinos cost $54, compared with $39-$44 for a basic pair.

For customization to pay off, it must be made easy for the customer. Lands’ End in 2000 began offering a body-scanning technique that allowed it to create virtual models with customers’ exact measurements. But the customers had to be physically scanned by a special machine. The cataloger brought the scanner to customers in a specially equipped 18-wheeler that traveled to 14 cities throughout the U.S. and Canada over a 10-week period. But “the process wasn’t scalable,” Kolz says. “It made sense to do it on the Website.”
Regina Ryan

Tuning into DRTV

During the late 1980s and early ’90s, direct response television (DRTV) was synonymous with the Veg-O-Matic and the Ginsu knife. But the proliferation of cable television and available airtime has changed that. Mainstream marketers such as food gifts mailer Harry and David to gadgets cataloger/retailer The Sharper Image are now taking advantage of the medium. According to the Direct Marketing Association, direct response television in the U.S. generated sales of $154.1 billion in 2003. That’s up 8% from $142.1 billion in 2002.

While many think of DRTV as exclusively long-form, 30-minute infomercials, any television commercial featuring a call to action, such as “call to receive a free catalog” or “phone now to buy this product,” qualifies. DRTV can ring up immediate sales, quickly generate leads, and drive traffic to a call center or a Website.

Short-form ads, which run no more than 120 seconds, are generally best for building a brand or selling easy-to-understand products with moderate price points. New York-based Sure Fit Slipcovers has grown sales dramatically via short-form commercials on cable networks such as Home & Garden Television, Lifetime, A&E, and Discovery Channel, says spokesperson Marion Somerstein. In four years, DRTV has helped it garner more than 5 million names and 1.5 million e-mail addresses, as well as up to 40,000 Web visitors a day.

Medford, OR-based Bear Creek Corp. which owns Harry and David, tested DRTV this past holiday season with a 30-second spot promoting the catalog’s $49.95 Tower of Treats gift basket. According to Bear Creek’s senior vice president/general manager Bill Michel, the company selected major markets and bought time on programs such as A&E’s Biography to target upscale female baby boomers. The ads also ran on local stations in areas such as south Florida where Harry and David has multiple stores.

Long-form infomercials, such as those used by Sharper Image to sell its Ionic Breeze air purifier, are well suited for products that require demonstration and explanation, and that cost as much as hundreds of dollars.

Cost consciousness

Production costs for a DRTV spot vary wildly depending on the length, the complexity of the creative, and the number of people involved. You can expect to pay at least $10,000-$20,000 for a short-form ad which features a call-to-action, such as a catalog request, and as much as $15,000-$25,000 for a product offering.

Then there’s airtime. Compared with network spots during prime time, direct response TV time is often steeply discounted for the advertiser. The discount varies by station, but it could be 75% cheaper than general advertiser TV time. A 30-second spot that costs $8,000 may be available via DRTV for $1,500.

In return for discounts, the station does not guarantee when it will air your spot — or even if it will. DRTV airtime is usually bought in broad rotations (such as 9 a.m.-noon) to provide the station flexibility. What’s more, your ad can get bumped by higher-paying advertisers, and there are no make-goods for direct response television time. If a spot gets preempted, it does not run — but you don’t pay for it either, says Maria Eden, president of Wayne, PA-based Direct Response Media, an agency that helps marketers with media planning.

This lack of control on the part of the marketer can translate into a waste of money, say some critics. Piqua, OH-based gardening tools cataloger A.M. Leonard, for instance, ran a 60-second spot on cable TV last spring. The $25,000 commercial “wound up running at 6:00 a.m. in Paducah, KY. Nobody saw it,” says director of marketing John Snyder. Of course, he adds, “we could have dictated where the infomercial would have been shown if we wanted to spend more money.”

Even if you aren’t paying enough to request specific time slots, you can still ask for a placement schedule prior to airing so that your fulfillment center can be prepared for handling incoming calls, Eden says. And be sure your inbound telephone lines and personnel can handle large numbers of calls in short response bursts. Eden estimates that 70%-80% of your responses come within five minutes of the spot airing. You may want to set up a rollover, or overflow, outside call center to handle these calls — especially if the ad offer is for the catalog rather than for a product, so that your own reps aren’t tied up with non-revenue generating calls.
MDF

The Wholesale Route

For the first 10 years it was in business, Emeryville, CA-based rubber stamps cataloger Hero Arts sold direct to consumers. But in 1983, on the advice of San Francisco-based manufacturers’ representative group Jenny Hammons & Associates, it began wholesaling to retailers as well. Today, aside from a few starter stamp design kits sold through its Website, the company sells only to wholesale customers. “It’s a much more efficient way of doing business,” says executive vice president Louise Burns.

Hero Arts’ wholesale prices are half of what it would charge retail. Next Monet, a San Francisco-based direct marketer of art prints, usually charges wholesale customers half of the retail price as well. The exception, says director of operations Jim Ferro, is for the art prints copyrighted by the artist rather than the company, for which it is only able to slash 40% off. Next Monet began wholesaling to art galleries this past May, after the six-year-old company realized that some customers would not buy art from a catalog or off a computer screen without seeing it firsthand.

In addition to giving wholesale customers a sizable discount, you have to make it easy for the customers to resell the merchandise, points out Adam Strum, chairman/founder Elmsford, NY-based wine accessories cataloger The Wine Enthusiast. “You need to provide them with the wherewithal to sell it — sharp packaging, displays, and signage,” he says.

And if you’re going to add a wholesale component to your business, you may need to ramp up your back-end operations. When Hero Arts began selling wholesaling, “the orders became larger to fulfill,” Burns recalls. The company had to triple its headquarters and fulfillment space.

Hero Arts also had to begin offering seasonal products much earlier. “When you sell to trade for Christmas, you have to be ready in July; in the spring, you have to be ready in January,” explains Burns. At the very least, she says, Hero Arts needs to show wholesale buyers product prototypes six months ahead of time.

Making contact

While you can rent lists of prospective wholesale customers, when selling to retailers you will probably want to use a sales force as well. Next Monet, for instance, has sales representatives call on prospective wholesale customers, providing them with a CD-ROM of art images and a packet of information about the company and works of art available exclusively to wholesale buyers. The company’s goal, says Ferro, is to have 10-12 regional sales representatives traveling throughout the country. Most of these sales reps are established art dealers who already have connections to galleries and frame shops.

About seven years ago Hero Arts began attending retail trade shows. Burns estimates the cost of participation at $6,000-$7,000 per show. In addition to renting space at the shows and paying for travel expenses, Hero Arts had to create display materials. “We had to think about trade dress, how we appear in the marketplace in terms of logos and signage,” Burns says.

The Wine Enthusiast uses outbound telemarketing to fuel wholesale sales, Strum says. Wholesale buyers receive a separate catalog, Wholesale Direct, and have access to a separate Website, which launched in 1996.

While the relationship between the customer and the cataloger is important when selling to consumers, when selling to businesses it’s critical. Advises Strum, “Communicate with your customer often, and build a rapport with them through the catalog, e-mail, phone, or in person.”
MW

Ask the Experts

Partnering with existing retailers, as have Eziba and Levenger (see above), is a good way to get started. But if you open your own stores, consider enlisting the help of a retail expert. “Expertise in catalog retailing doesn’t automatically transfer to success in opening a store,” says Dan Butler, vice president of retail operations for the National Retail Federation. “I’ve seen where catalog companies have opened stores and struggled because they didn’t anticipate all that’s involved in retailing.” Among their more costly mistakes, he says, are underestimating payroll costs and overestimating demand.

Reading tools cataloger Levenger, for one, is working with Southfield, MI-based retail design firm JGA to open its first stand-alone store this year. Levenger also added a seasoned retail director and a retail systems specialist to its staff in 2003.

Multititle mailer Cornerstone Brands, whose catalogs include Frontgate, Garnet Hill, The Territory Ahead, and TravelSmith, in October 2002 hired Marvin Cooper as its president of retail. Cooper, who orchestrated Territory Ahead’s Septem

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