The prospect of a war with Iraq coupled with heightened fears of terrorist attacks at home have made it tough for Americans to go about business as usual. Like many other businesses and individuals, catalogers are paying greater attention to disaster preparedness and contingency plans.
Then too, the unstable international situation may make importing more difficult and costly. And because the fears of war and terrorism are depressing the already moribund economy, many catalogers are scaling back their mailing plans for the rest of the year.
Over there to over here
If a war arises, the president could implement wartime restrictions, such as limiting the number of inbound shipments received at certain ports or from certain countries. The defense department could also call civilian air and ocean carriers into service, which could lead to transportation backups and delays.
Because gifts cataloger Eziba imports virtually all of its merchandise, “we’re watching the situation in the Middle East carefully,” says CEO Bill Miller.
But at least the North Adams, MA-based company has experience working with vendors in volatile countries. Because of fighting in Afghanistan and civil wars in several African countries, the cataloger has had to place shipments on hold in the past. “We try to work with our customers and our artisans to get the product moving as soon as it is reasonable to do so,” Miller says.
John Voelker, vice president of business development, adds that more than 90% of Eziba’s product is imported from Europe, Asia, and Africa, “so we’re not totally dependent on a given region. But if there is a war it could have an impact on us.”
Not only might merchandise get tied up at the ports, but catalogers may end up paying more to transport the goods. “One of my clients has already been notified by its Eastern European freight carrier that additional container charges — between $400 and $800 per container depending on the size and origin/destination — will be levied as a war-risk premium,” says Curt Barry, president of Richmond, VA-based catalog operations consultancy F. Curtis Barry & Co. Rye, NY-based Lillian Vernon Corp. was also recently warned by its freight carrier that it might be subject to additional surcharges, says spokesperson David Hochberg.
Concerns about imports aren’t the only merchandising issues catalogers are dealing with. Beverly, MA-based women’s apparel mailer Appleseed’s, for one, is focused on how to manage its inventory. “In a more certain environment,” says CEO T. Neale Attenborough, “we’d take more of a chance on big bets” by ordering substantial quantitites of unproven items. “Instead we’re buying more cautiously,” shying away from stocking up on new products.
International freight carriers aren’t the only suppliers likely to levy surcharges should the U.S. go to war. You can count on domestic parcel carriers to levy additional fuel surcharges as well.
Carriers began implementing the surcharges late last year and early this year to compensate for the dramatic increases in oil prices. As of late February, says Bill Wilson, founder/president of Boyertown, PA-based consultancy DM Transportation Management Services, all the major package carriers and freight consolidators have been charging clients fuel surcharges of up to 7%.
For instance, Oak Brook, IL-based R.R. Donnelley Logistics increased its fuel surcharge in March from 3.4% to 6.4%. That same month, Federal Express raised its surcharge from 4.0% to 4.5% for express service and from 1.25% to 1.5% for ground service; United Parcel Service’s fuel surcharge rose from 1.25% to 1.5%.
Should war become a reality, Wilson says, those surcharges would likely double. A war would drive oil prices upward not because Iraq is a major producer of oil but because the U.S. military would be consuming so much, tightening the market, he says.
Entrees to Excellence, a Shorewood, IL-based food cataloger, increased its shipping and handling charges 6% in February to meet rising parcel costs, says Glenn Pasiewicz, vice president of sales and marketing. Should its carriers, Federal Express and United Parcel Service, raise their surcharges again, Entrees to Excellence will try to absorb the costs, Pasiewicz says, “or at least split the charge with our customers and hope that the charge is only short-lived.”
For the past year, $192 million consumer electronics cataloger Crutchfield has avoided raising its shipping and handling costs. “We’ve have been paying for fuel surcharges and price hikes from parcel carriers for some time now, and we have been taking on the cost,” says Kurt Goodwin, vice president of operations for the Charlottesville, VA-based company. “However, if it is a huge charge, like 10%, we may have to pass some of that on to our customers.”
Playing it safe
Raising S&H charges, of course, can lead to lost sales and customers at the best of times. And these are hardly the best of times in terms of consumer confidence and spending. The Conference Board reports that consumer confidence plunged nearly 15 points from January to February, after falling almost 2 points in January. The February reading of 64 was the Conference Board’s lowest since October 1993.
What’s more, only 13% of consumers surveyed by The Conference Board for February expected more jobs to come on the market over the course of the year, where 28% said they expected fewer jobs to be available. So it’s a safe bet that consumers will be keeping a tighter grib on their wallets for the next few months.
Some catalogers are reacting to this lack of consumer confidence by cutting back on circulation. Spring Valley, CA-based Chinaberry Book Service — which mails the Chinaberry catalog of children’s books and the Isabella title of spiritual-related gifts — had originally planned to increase circulation for Isabella 15% this year while keeping Chinaberry’s circulation flat. But concerns about a war combined with disappointing early-year sales led the company to keep the circulation of both titles flat, says director of marketing Mel Concors.
Chinaberry has also postponed many of its prospect mailings from February-April to May-July. “We decided to wait for things to calm down and move mailings from spring to summer,” Concors explains.
What’s more, the company will be renting only tried-and-true lists. “I’m going to do virtually no list testing this year,” Concors says. “About the only kind of testing I will do is build regression models using a number of outside resources and test-mail those.”
Unionville, PA-based home furnishings mailer Frecklefarm cancelled its spring catalog altogether, says president/owner Robin Sherwood. The $30,000 company, which launched in July 2001, had hoped to double its circulation this year with a 40,000-name spring mailing. “But we decided waiting a few months wouldn’t hurt, since we hadn’t put the spring catalog together yet anyway,” Sherwood says. The fall catalog will be 36-40 pages — double the size that the spring book would have been.
Assuming that miltary action happens in mid-March, $30 million travel items mailer Magellan’s will decrease the size of its drops scheduled for April and May by 30%, “and add those addresses to our June and July drop dates,” says CEO John McManus. The company expects to mail roughly 3 million books between April and July.
“We have flexibility in terms of our drop dates depending on how we gauge when and if the war will happen,” McManus says. Such conflicts always hit the travel industry hard, he notes. “Our phones got very quiet during Desert Storm,” the military conflict with Iraq in 1991.
While consumers generally stay closer to home during wartime, they also have too many worries on their minds to think about throwing clambakes, says Jo-Von Tucker, owner/CEO of Chatham, MA-based Clambake Celebrations, a small cataloger of prepared meals. “Our product is celebratory by its very nature, pricey, and not a necessity,” Tucker said. “The sobering effect on sales has been notable.”
The company, which is mailing 50% fewer catalogs than it mailed prior to the economic slowdown of late 2000, was already working with a scaled-back budget before February’s heightened terror alerts and talk of war. Clambake Celebrations will not prospect this year, keeping circulation flat with last year’s, Tucker says.
Watching and waiting
Not surprisingly, many list industry professionals advise against changing circ plans on the fly might not be such a good idea. Says Don Mokrynski, president/CEO of Hackensack, NJ-based list firm Mokrynski & Associates: “Catalogers that made their circulation plans three months in advance should stay with them.” When mailers try to time the market, “that’s often when the wrong decisions are made,” he says.
Dallas-based Goodies from Goodman, which sells food gifts primarily to businesses, has considered changing its mailing plans in light of the threat of war, says vice president Chris Canis. “But the wrong thing to do is to take a negative bend on it.” The company’s plan was already a conservative one, however: It’s mailing the same number of catalogs this year as last year and only to its house file.
“Cold prospecting for us is mainly inserting our catalog in local newspapers, such as the Dallas Morning News, since we have a lot of clients in the Dallas/Fort Worth area,” Canis says. “We mail nationally, but mainly to our existing customers.”
Mia Antognoni, CEO of Lawrence, MA-based children’s clothing and books cataloger Mia Bambini, says her company is sticking to its original mailing plan as well. “No matter what happens, people are going to take better care of their kids than themselves,” she reasons. “The kids’ business doesn’t slide like women’s apparel does. Mom will stop buying for the household, but not for the kids.”
Other mailers, such as $30 million gifts cataloger Design Toscano, are staying the course because of lessons learned from the recent past. The delayed mailings and 15% circulation cuts that the Arlington Heights, IL-based cataloger put in place three months after Sept. 11 ultimately backfired, says president/owner Michael Stopka. So although the cataloger was already planning to keep its circulation level with last year’s, due to the poor economy, Stopka says he won’t cut it.
Upscale apparel and gifts cataloger Neiman Marcus Direct is not altering its circulation plans, says a spokesperson. Nor is Skokie, IL-based Anatomical Chart Co., which sells body diagram charts to hospitals, schools, and health practitioners. “We’ve already had three drops this year,” says vice president/general manager Bill Demas, “and we’ve been very successful, exceeding budget by more than 7% — which is 10% ahead of last year at this time.” Demas qualifies his enthusiasm by pointing out that the health industry hasn’t had the kind of downturn that other sectors — such as apparel and gifts — have had over the past few years.
For some mailers, the potential war and the terrorist threats on top of the soft economy mean that “nothing is more important than maintaining a presence with our customers,” says Bill Flynn, president of Burlington, VT-based religious products mailer Bridge Building Images. The $500,000 company will increase catalog circulation for holiday 2003 by 10%-15%, regardless of the Iraq situation. About the only change Flynn says he would make if war or terrorism affects the U.S. would be inserting messages of prayer for peace.
Minding the Store During War
Rather than decreasing circulation in a time of economic and political uncertainty, South Orange, NJ-based consultant Fred Anderson and Direct Marketing Association senior economist Peter Johnson suggest possibly increasing catalog circulation — albeit only to the strongest segments of the house file, and at the expense of some cold prospecting efforts.
In a DMA white paper released in mid-February, Anderson and Johnson advised catalogers to consider an extra drop to their best customers “to pick up some of the demand lost if [catalogers] cut bottom-performing prospect segments.” Among other suggestions from their report:
- Consider mailing postcards or sending e-mails, perhaps containing incentive offers, to coincide with eliminated catalog drops.
- Fine-tune your cross-selling efforts. Once you have a responder on the phone, suggestive-sell truly related product rather than the specials of the day.
- Consider trading off 4, 8, or 16 pages of your weakest-performing merchandise for faster-moving sale and closeout items to bolster cash flow and consumer excitement — especially if the sale items are early and still in season.
- Add a section of “favorites” or “best sellers” — proven items that your buyer file has bought season after season through good times and bad.
- Consider bold, time-sensitive price promotions to spike demand.
- Survey your employees to see if any of them are subject to a call-up to military reserves or support, or if they have immediate family on active duty and might have special needs. Ascertain which employees in key roles might have difficulty traveling in the event of threats to, or loss of, the transportation infrastructure.