Slowdown Lowdown

Sep 01, 2008 9:30 PM  By

ParadyszMatera CEO Chris Paradysz has a theory: “The list business likes to put itself in a corner,” he says. “But it’s no different from any other business.”

He’s right, judging from the 2008 Direct/Multichannel Merchant list survey. It proves, as if we didn’t already know, that list firms also suffer during economic downturns. And so do their clients.

This year’s results are flat at best. Of the direct marketers polled, 44% are mailing their house files more and only 19% are boosting outside list use. Both numbers are the same as they were in 2007.

Yes, there’s modest growth in some areas — 31% of the marketers are using more postal lists, an improvement of five percentage points over last year. But our two-part study hardly documents a booming industry.

Of the list executives surveyed, 42% say their company’s revenue has risen this year. But that number is down from 68% in 2007, and 30% report a decrease.

And the volume of names rented? It’s gone up for only 40% of the vendors, compared with 61% last year.

These findings are supported by anecdotal evidence.

“It’s fair to say that direct mail volumes are either flat or down from last year,” says Ed Mallin, president of the InfoUSA Services Group, parent of Direct Media, Millard and others. “There are a lot of reasons — the economy, the postal increases — and it feeds on itself a little bit. There’s list fatigue, and the results are not as good as in years past.”

What does this mean for list companies (only some of which are still positioning themselves as such)?

ParadyszMatera’s brokerage business has expanded this year, “but the growth rate from ’07 to ’08 is not the same as it was from ’06 to ’07,” Paradysz says. He adds that mailer activity varies by segment.

Business also is up for MeritDirect — but not as much as it was last year.

“2007 was a breakout year for us, with 24% growth,” says CEO Ralph Drybrough. “But we’re in a much tougher environment in 2008, and our growth rate is in the single digits.”

ALC had added new business “in excess of 20%,” reports CEO Donn Rappaport. But total growth is “considerably lower” due to a flattening in its core area.

“A couple of key clients are sending 20% to 30% less direct mail or catalogs than last year,” Rappaport says. This has a dampening effect on brokerage and management revenue.

But it depends on the sector. Sources say consumer catalogs have been hit hard and publishing less so. However, some magazines have “cut direct mail acquisition to offset losses in advertising,” Paradysz notes. Mallin adds that business-to-business “has held up better.”

E-mail list use continues to climb — but not as rapidly as before. The number of DMers noting an increase fell to 62%, eight percentage points lower than in 2007.

“House file e-mail volumes have gone up,” Paradysz says. “But prospecting volumes have gone up only in some categories — like fundraising, political, financial and business. It’s a lot less true in the merchandising, publishing and insurance fields.”

Since the survey sample was smaller, vendor results should be viewed as snapshots. But they show that brokerage revenue fell for 33% of the list firms, and rose for 28%. Management dollars increased for 25% and dropped for 23%.

In 2007, 50% of the list suppliers handled more tests than they did the year before. That number was cut in half this time around. But there was a six-percentage-point rise in the number of firms seeing more continuations — to 39%. And the sheer volume of names went up for 40% of the providers (the same percentage indicated a decline).

Is there any upturn in sight?

“I’ve seen tough times before, and it’s kind of cyclical,” says Lon Mandel, CEO of Specialists Marketing Services. His prescription? “Great companies look for things that drive better margins and take us into the future.”

But here’s one more finding that may rattle a few list suppliers: Among the marketers polled, 23% changed list managers for some files during the last 12 months. In 2007, 16% said they’d done this.

Executives say that’s to be expected in a time of postal hikes and a bad economy.

“These things create a wonderful world of opportunity for the list services organizations with the wherewithal and confidence to take business from competitors,” Drybrough says.

As he sees it, companies often ask vendors what they can do to improve performance.

“There’s a great opportunity to expand our clientele,” Drybrough continues, “but it’s a double-edged sword. We also have to cover our flanks to make sure our clients are not asking the same questions.”

Rappaport agrees.

“We’ve been the beneficiary of a lot of it,” he says. “We have had an incredibly busy summer because so many companies are disappointed in their list rental income. Some list managers aren’t doing a good job — that’s a fact. And if they’re not, the client needs to make a move.”

“We’ve not seen major percentages of clients shifting from our brands, but list managers are surely under pressure,” Mallin adds. “Obviously, if volumes are down on the brokerage side, there have to be challenges in the list management world — one hand affects the other.”

But Mallin urges mailers to remain loyal.

“Most owners know that if they’re mailing less, people who rent their names are mailing less,” he says. “Hopefully, they don’t think that just changing the [management] brand is going to change anything.”

Finally, are there any lists to rent? Maybe not as many as brokers would like. Forty-five percent of the vendors say new-list volume is lower this year. And 30% believe the number of lists being taken off the market is higher.

Methodology

This survey was conducted by Penton Research, an in-house firm. It was e-mailed to 15,098 Direct magazine, Newsline and Listline subscribers who indicated they held positions in list management/brokerage, circulation or other list-related work.

Results are based on 214 questionnaires returned by qualified participants.

In some cases, subscribers who responded “don’t know” or “unsure” to certain questions were eliminated from vote totals. The minimum number of responses to such questions was maintained to ensure stable data.