What Slowdown?

Costs are up, economic growth down – but mailers insist they aren’t worried

Like an overzealous New Year’s Eve celebrant, catalogers could be starting 2001 with a post-party hangover. Postal rate hikes, high fuel prices, and increased costs combined with the slowing economy suggest that for catalogers, there will be less to celebrate than during the past several years. In short, they may no longer be able to party like it’s 1999.

Forewarned is forearmed? Catalogers can’t say they haven’t been warned. The U.S. Postal Service, for starters, initiated its rate case in January 2000. Now that its proposal has been approved, rates for catalog mail are increasing up to 16% starting this month.

Paper’s on the rise. Verle Sutton, editor/publisher of Schaumburg, IL-based Reel Time, a publication covering paper trends, expects the cost of supercalendered A paper to rise by $20-$40 per ton this month.

Then there’s the increased fuel costs that are being reflected in shipping expenses. And those rising fuel costs aren’t hurting just catalogers; customers are feeling the pinch as well. Increased energy costs, along with the downturn in the stock market and spiraling credit card debt, have led to declining consumer confidence. In November, the Consumer Confidence Index of market research group The Conference Board fell to 133.5 from 135.8 in October and 142.5 in September.

Moreover, the U.S. Department of Commerce says consumers owed $591 billion in debt in 1999 – more than double the $276.8 billion of debt in 1992. And that could dampen discretionary spending.

“While consumers view the current economic conditions as good, they are getting much more concerned about economic conditions during the next six months,” says Alexander Paris Jr., an analyst with Chicago-based investment bank Barrington Research Associates. “We’ve suggested in the past that consumer confidence data may be a good early indicator of an economic slowdown.”

Despite such early indicators, a number of catalogers insist that the party’s not over yet – or at least, not for them. “Our target audience of women 18-25 years old will not be affected,” says Darryle Scott, president of Jacksonville, FL-based Venus Swimwear. “Even if girls might not be going to Daytona Beach for spring break, they’re still going to buy a bathing suit for $50 or $60 to wear in the backyard.”

Certain product categories, such as food and footwear, in fact, tend to perform steadily regardless of economic trends. Bill Jeffries, general manager for Pasadena, CA-based PetSmart Direct, claims that pet merchandise is one of those categories. “We believe that people will continue to buy the basic pet supplies such as pet beds and treats even in an economic downturn,” says Jeffries, whose company’s holdings include the PetSmart catalog and online marketer Flying Fish Express. “We haven’t skewed our sales goals or plan downward in anticipation of an economic slowdown.”

Just as pets need to be fed and bathed regardless of the economy, so do business travelers need to fly from coast to coast to wheel and deal, says John McManus, president/founder of Magellan’s, a $25 million cataloger of travel accessories.

“Travel seems to be something that would continue if the economy turned sour; it might slow down, but I think the catalogs that sell high-end travel items will be the ones to be hit,” McManus says. “We have been through slow periods in the early 1990s and found that to be true. Catalogs that deal with the basics – the nuts and bolts of travel – will hold up okay, but companies selling expensive clothing, luxurious luggage, or cruises would probably take a hit.” Because the Santa Barbara, CA-based mailer specializes in “basics” such as travel toiletries and dual-voltage converters, McManus says he expects the company to “stay the course” in the coming year.

Lobster Gram sells what McManus might term a luxury: live lobsters, filet mignon, and other culinary delicacies. But owner and “senior lobster consultant” Dan Zawacki says he’s not concerned about the economy either. In fact, Lobster Gram plans to double circulation in 2001 (from 300,000 to about 600,000).

Zawacki believes that because he targets an upscale audience, he is less likely to feel an economic pinch: “Our customers still have discretionary monies.” It also helps that 50% of Lobster Gram’s sales come from businesses. In an economic slowdown, “companies offer sales incentives and corporate gifts to fuel their own sales, so we would actually benefit,” he says.

Still, others believe that luxury goods will be the first expenditure to go in a downturn. Alexander Paris Sr. (Alexander Jr.’s father), an economist with Barrington Research, says, “The bigger the item, the more likely it’s affected in an economic slowdown.” During the past three years, consumer spending has increased 5% annually. But having reached historic spending levels, and no doubt concerned about the stock declines, consumers will be purchasing fewer homes, autos, and luxury items, Paris Sr. predicts.

“I expect high-end catalogers, such as Tiffany and Neiman Marcus, to have a harder time of it than Lands’ End, for example, because Lands’ End sells casual clothing considered staples,” Paris Sr. says.

False confidence? During the 14 years he has owned Chicago-based Lobster Gram, Zawacki says, “This is the most confident I’ve been heading into…a new year.” But not all catalogers share his confidence.

“The problem is that an economic downturn is inevitable,” says Jack Rosenfeld, president of Medfield, MA-based multititle gifts mailer Potpourri Collection, whose books include The Pyramid Collection and The Stitchery. “We just don’t know when it’s going to be. It’s silly to predict the timing of it.”

To hedge against an economic slowdown, Rosenfeld will be reducing the circulation of some of his company’s 10 titles. In the past, the circulation for most of the books has increased by at least 10% a year. “While the circulation of some titles will continue to go up,” he says, “overall we’re planning for a flat-ish upcoming year.”

Like Rosenfeld, Greg Harper, vice president of marketing for Beverly, MA-based women’s apparel cataloger Appleseed’s, is shying away from making predictions about the coming year. “Clearly all the indicators are suggesting the economy is slowing down,” he says. “But the question is: Will we have the proverbial soft landing, or will we go into a recession? At this point, no one knows the answer.”

Harper does disagree with those catalogers who contend that their businesses are recession-proof: “I don’t think anyone is immune from an economic downturn unless he is in an absolutely countercyclical business,” such as energy-saving products.

As Harper sees it, there’s not much to do but watch and react: “We are always watching the performance of our mailings. We monitor them and respond accordingly. And we’ve had meetings to discuss how to try and be one step ahead of it.”

Rosenfeld has a similar take. “How you run your business is more important than what happens in the economy. I was [president of multititle cataloger] Hanover Direct during the downturn of 1989-1990, and we managed to increase sales by about $200 million during those two years.”

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