Participants in Catalog Age’s roundtable discussion reminisce about the good old days of kitchen-table launches, ponder the brave new world of increasing personalization, and try to predict what lies ahead
In March, Catalog Age met with several marketers in San Francisco to discuss the past, the present, and the future of the industry. For the most part, the mood was somber rather than sanguine. That wasn’t surprising; at the time the roundtable was held, publicly traded companies were starting to issue warnings of disappointing first-quarter profits, rumblings of additional postal increases were growing louder, and several large marketers had just announced substantial layoffs. Catalog Age editorial director Sherry Chiger and special projects manager Shayn Ferriolo moderated the discussion.
The roundtable participants
Marta Benson, director of catalog for Corte Madera, CA-based Restoration Hardware, a cataloger/retailer of home furnishings, home accessories, and gifts.
Tim Blair, vice president of operations for The Parable Group, a marketer of Christian books and music based in San Luis Obispo, CA.
Kathy Hecht, vice president of Web strategy for Learning Star, a Monterey, CA-based marketer of toys and educational products for children.
Steve Jones, vice president of marketing, and Kelly Kautkzy, forecast planning manager, for Norm Thompson Outfitters, a general merchandise cataloger based in Hillsboro, OR.
Miya Mackenzie, senior director of marketing for iGo, a marketer of mobile-technology accessories based in Reno, NV.
Kathleen Mahoney, president of Celebration Fantastic, a San Francisco-based gifts cataloger.
John McManus, president of Magellan’s, a cataloger of travel supplies based in Santa Barbara, CA.
Kathy Revello, director of merchandising for Libertyville, IL-based Panache Catalog, which sells tabletop items and other products for home entertaining.
The times they were a-changing
Catalog Age: What would you say is the most striking difference between how the catalog industry is now vs. how it was when each of you started?
Miya Mackenzie: The obvious part is how the Internet has changed the landscape for catalogers. First, it seemed, catalogers started to create Websites and build their brand online as well as off, and now the e-commerce companies are starting to do the opposite by launching catalogs as well.
Kathleen Mahoney: The cost structure has changed drastically. I have been in the industry for 10 years, and I think the cost of acquiring a customer has become challenging. There is a lot of competition in the mailbox and on the Internet, and — I’m stating the obvious here — postage and paper have really made it hard to prospect in an easy way. I have a small, privately owned company. The doomsayers have been saying for the past five years that it is very hard to stay in business as a small, independent catalog company. I used to not believe them, but now I am starting to believe them a little bit! [General laughter] It’s hard to be small. You need scale in this business, I think, to be nicely profitable. I mean, we can be profitable, but we are not making big money for our investors.
Kathy Hecht: I think the privacy issue is much different from 10 years ago, when I started. Sure, people called and said, “Don’t send me your catalog,” but it happened less often than now. There are just so many catalogs out there now, and the Web. The dot-coms have created this paranoia about what companies know about people and what information they are collecting. We’ve all been [collecting data] for a long time, but now it’s a bigger issue.
John McManus: Business has become a lot more complex. I remember back when we started out in ’89, and it was almost easy. Now it’s like slim pickings, and then it was easy pickings. Maybe it just comes with the maturing of an industry. And the growing number of competitors makes it tougher.
‘Every time I think of reducing the amount of copy in the catalog I am afraid, because the customer is going to have questions, and he may not get answers from the CSRs’
— Kathy Revello, The Panache Catalog
Kathy Revello: And in terms of merchandising, there are so many catalogs out there that it is hard to be exclusive.
Marta Benson: From my perspective, the [biggest] issue — and this might not affect you if you are a single-channel cataloger — is the interaction between the different channels within the company. [Restoration Hardware is] primarily a retail organization that has launched a catalog that has been growing during the past three years and has had a fair amount of success and been able to leverage those assets online. How the catalog drives retail traffic is an age-old issue for companies like Williams-Sonoma, but it is a shift for others. The whole issue of channel shift is a moving target. You can look at a catalog P&L and say, “We are not making money,” and then look at the Web P&L and see how profitable it is. But you are not fairly charging the online P&L for the marketing costs of the catalog, even though the catalog is increasingly driving traffic online. And then there’s the fact that as catalogers we are really good at understanding customer data in that channel, but we have all this data in retail and online, and we don’t have the tools to manage the data across all three channels yet.
Steve Jones: It used to be that you would plug in the catalog source code and you could clearly tell what was working and what was not. Now it is not so clear-cut. This is probably the thing we spend the most time on: how are we going to get the data back together so that we know what is working. If you have false information, you can cut off a valuable piece of the pipeline because you didn’t credit the appropriate channel.
Benson: Or you have a board or investors who look at the data and say, “Why should I fund the catalog; I’ll just fund the Website.” And you’re stuck there saying, “But you don’t understand…”
Mackenzie: At iGo we make the distinction of thinking of our catalog as the marketing vehicle; our call center and our Website are sales channels. A Website is not a marketing vehicle; it just sits there. You need to drive traffic to a site. And so the catalog definitely gets credit on both sides.
Catalog Age: Of all the changes you’ve seen, what has been the most unexpected?
Mahoney: The obvious one is the Internet. None of us saw that coming a few years ago! And I think a lot of people got seduced into thinking of it as a cure-all for [rising] postage and paper costs. But the cost of acquiring a customer online is up there, and it is hard to know how to do it on the Web.
Tim Blair: It is easy to lose focus on the real core business. Internet for our business is not huge, yet it got a lot of focus for about a year and kind of pulled away some of the key people and sucked a lot of the energy out of the catalog business. That is what really snuck up on us: the complexity of what it takes to get a site online that actually works for your customers while still sustaining your existing business — especially for a smaller staff.
Mackenzie: It used to be that you would go on your gut about a dot-whack or a new cover, and then test it afterward. Now if you see a business increase on your Website you almost have to go on your gut afterward as well because, while some people were nice enough to give you a key code online, some weren’t.
McManus: Isn’t it ironic: When you start out as a mom-and-pop company on your kitchen table, you do things by the seat of your pants. “That list felt like it worked.” “I think it worked; let’s do it again.” And now you are getting to a point where it is so hard to handle that you continue to work by the seat of your pants.
Getting personal
Catalog Age: Five years ago, in addition to e-commerce, people were talking about on-demand printing and other forms of one-to-one marketing. Do you think we are ever going to truly see this?
Jones: You won’t see it in the print world. But I think there will be continued evolution in the electronic world. At the [February] Net.marketing show, everyone seemed to have an opinion on this. [Online personalization] is probably the way to go, but the question is how much you do it and how you do it — for instance, whether it is rules-based or customer-based. There is more harm in doing it wrong than in not doing it at all.
Benson: Giving the customer the opportunity to identify preferences so that you can use them makes a lot of sense. At Restoration Hardware we sell everything from $1,200 club chairs to 75-cent moon pies, and the person who buys one may not buy the other. The person who bought bath hardware doesn’t necessarily need more bath stuff. He may be finished with that project and on to the next. But personalization can be hard to apply, and if you do it poorly you look dumb, and that is not brand-enhancing.
Mahoney: The other thing that is counterintuitive to this high degree of personalization is that people love to shop, and they love to see things. Single-product catalogs don’t work. Shopping is the number-one hobby in America. I know that, personally, I want to choose and not have someone pare down the offering based on what they think I will buy.
Jones: I think it varies by what you are selling too. I think it would be harder for apparel companies. But let’s say that I go on a trip and I buy an item I need, and you make the suggestion about a product that I was unaware of — if it fits what I need, I will buy it.
McManus: It is easier for us at a catalog like Magellan’s because we will ask them where they are going, and we can pull up appropriate items for that destination.
Hecht: Operationally, I never understood how one-to-one marketing could work for print catalogs. We could feasibly determine that customer A requires a 24-page offering and customer B gets a 32-page book of products. But how are you getting this through the bindery and the postage chain without losing discounts? You can certainly do it on the front end, but how can you do it on the back end without it costing you a ton of money?
Blair: We do some generalizations in looking for the presence of children in a household, and we will insert a kid’s catalog in with our core catalog for holiday. We also do some event mailings, for new customers and for birthdays, and for lapsed customers as well. But for larger print runs, I can’t see it.
Jones: There are far too many other opportunities to exploit.
Catalog Age: Let’s zero in on the customer. Have you seen customer expectations change? Are they getting much more demanding?
Jones: Back in the early ’90s everyone was shipping overnight for free — only it wasn’t for free, but customers thought it was. We gave special deals and such, and we were responsible for essentially training customers that the minute they hung up the phone they could open their door and find the package on the doorstep. And none of us can afford to do that anymore. So I think that is one example of how we are the center of our customers’ expectations. Plus, they have more choices, busier schedules, and therefore less tolerance.
Mahoney: Also, the quality of customer service has gone down. For $7 an hour it’s hard to get someone to answer the phones who speaks excellent English, spells correctly, and cares. And that’s not only in the mail order industry; you see it at McDonald’s and at the shoe store down the street. But customers get frustrated with the inadequacy.
McManus: I think you can tolerate that in fast-food places; you can settle for a curt “Here’s your fries.” But in other industries it doesn’t work. It used to be that the airlines rolled out the red carpet for you: “Oh, Mr. Jones, welcome…” and the mail order industry did as well. Now it is a lot tougher to get people to care.
Jones: It may also be the economy. I came from the operations side and ran a call center. The great person that you may have had is now vice president of some division at another company because the economy made it easy to move up the ladder fast.
Catalog Age: A cataloger I recently spoke to said that the key asset of her business was the high level of customer service compared with that of stores. Are catalogers delivering better customer service?
Benson: It is easier on the catalog side [than in stores] because all we are asking is for the reps to greet the customers and to respond to their inquiries, but the store associate has to be a little more conversant and be able to upsell. We don’t ask our CSRs to upsell.
Catalog Age: But in some fields, such as computers, it seems it would be important to have well-trained CSRs.
‘Without a strong e-commerce component we cannot survive. The Web content will have to go beyond what is in the print book’
— John McManus, Magellan’s
Mackenzie: In fact, the most important thing is for our people to have product knowledge. They are in training every week. That is what we are all about: knowing which part goes with your cell phone or which battery goes with your particular laptop. We do expect CSRs to upsell — for instance, to suggest a hands-free kit with a cell-phone battery.
Kelly Kautkzy: You need to invest in your associates. Every time I have that discussion, though, we go around and around about it because people are often not with a company long enough. For example, I have only one [employee] from three years ago.
Revello: The turnover is ridiculous. And every time I think of reducing the amount of copy in the catalog I am afraid, because the customer is going to have questions, and he may not get answers from the CSRs.
‘Personalization can be hard to apply, and if you do it poorly you look dumb, and that is not brand-enhancing’
— Marta Benson, Restoration Hardware
Mahoney: We outsource our fulfillment. I was sending two buyers out there to do product training that lasted five days because they had so many different shifts, and they would train just two people at a time. I can’t afford to have my buyers out of the office for that amount of time.
Benson: Everyone is passionate about the idea of having a core dedicated team of people who understand the products and love your brand and can speak your customers’ language. But there are so many labor issues that my attitude is “just get the transaction right.”
Mackenzie: But with so many choices, people will look to customer service to define where they shop: “I chose you because I wanted it to be easy, and you’d better make it easy.”
Hecht: The customers really want everything on their terms. They want 24-hour ordering, and the product had better be in stock. We get a lot of resistance when things are out of stock. If you put it in the catalog, you’d better have it.
Jones: Also, [service] is about trust. People are giving you their personal information over the phone. You need to make sure that you get the transaction correct, but also that the connection with the customer is sincere. As a customer you don’t want to be on the phone with someone who sounds sketchy.
Blair: It’s also about time. In the retail stores it is about time. You’ve got to get in and get out — you have things to do. [As catalogers] we are in the enviable position to capitalize on that.
Catalog Age: In fact, according to Catalog Age’s Consumer Shopping Survey, convenience is still the key driver of shopping by catalog.
Mahoney: One thing I’m perplexed about is how we can “sell” the convenience benefit better to our customers. We get a lot of complaints about our shipping and handling charges. In fact, I think it is our number-one complaint. And I have thought about calling it a “convenience fee.” It’s a wonderful convenience to shop by catalog, and you need to get the customers to understand that. It not just the $2.90 — well, more with Priority Mail — for shipping that we’re charging customers for.
Jones: And catalog shopping is even saving them money because they are not driving to the mall and using the gas. And then there’s the time value. You are paying for the service of having someone do all the rushing around.
Mahoney: I would love to take a portion of the catalog to say something like “Have you ever figured out how much you are saving by placing your order through a catalog, instead of driving to the mall? I will outline it for you: babysitter fees, gas money, time.” [General laughter]
McManus: It might be better to call it a convenience fee rather than a shipping-and-handling fee. Andy Rooney did a bit on 60 Minutes about how he didn’t want to pay someone to “handle” his merchandise.
Looking into the crystal ball
Catalog Age: Do you have any concerns about increasing postal rates?
Benson: They’re just another hurdle making things more competitive.
Mackenzie: I think that because it is becoming more expensive, catalogers are going to rely on catalogs less for prospecting and will need to find less expensive sources for acquiring customers. I think it will still be cost-effective to mail to customers, but for prospecting it will be a different situation.
Catalog Age: Where will you be prospecting if not by mail?
Mackenzie: We will see more companies partnering to find new customers. We call it co-opetition.
Catalog Age: Does anyone else see prospecting changes?
McManus: With our next book we are experimenting with a lighter paper, going from 45-lb. to 40-lb. and seeing how that performs. The postal savings are tremendous. We experimented with a smaller book once, and that did work. It was 28 pages, but I guess whether it works would depend on the company. If you generally send out reference-book type catalogs it may not.
Benson: You need to cast a wide net to get those new customers. And if you give them a smaller offer it may not work. Companies that I have worked with have found that the bigger book prospected the better customer.
Mahoney: I heard someone say you need to be sending a 64-page book with at least 250 depictions to get the customer’s attention.
Catalog Age: What else are catalogers worried about?
Mahoney: One of the things that affects me and all small catalogers is credit. The bankers are getting nervous and tightening the screws with their customers. All the small catalogers I know have received a call from their bank. Hopefully it is a short-term issue.
Hecht: When the dot-coms were in, and people were giving them money hand over fist, it didn’t matter if they were making money, because most of them didn’t. When that backlash came, it came all the way back to most of us because now it is not just about performance, it is about higher performance. The bankers don’t want to find themselves in that position again of funding things that go out of business.
Catalog Age: Let’s wrap up by predicting where the industry or your business will be in five years.
Blair: I think people are going to start mailing smarter and learn how to integrate the mass of data coming from various channels.
Benson: What I am excited about is the ability to conquer integrating all the channels. Because I think when you create a brand like Restoration Hardware, you get a loving band of customers who want to shop across all the channels. They want to stroll the store on the weekends and then maybe buy online, and keep with the seasonal items by thumbing through the catalog.
Mahoney: I see the loss of small, specialized, eccentric voices, which is how most of us started. It is hard to start now in this business without scale. I see more blandness in merchandise assortment.
Revello: I agree. As a merchant, my biggest challenge is to stay focused on our core business. It is so easy when we get an analysis of what is selling to go out into another category. We need to be able to stay focused, especially when there is so much competition and we have only our book and the Web.
Jones: The focus on the brand is going to be paramount. I also think there is going to be more consolidation and M&A, and I fear we may lose some originality and innovation, not in terms of technology but in terms of creativity and uniqueness. This is because of the rising cost of doing business for the small guys.
McManus: I can see that we are going to need to be multichannel given the rising costs. Without a strong e-commerce component we cannot survive. The Web content will have to go beyond what is in the print book. I also see a strengthening of affiliates and having marketing strategies for prospecting on the Web. I suppose Miya’s company is really onto something with that. Of course in five years we will probably be sitting around a table saying that we never saw the next big thing coming just like we never saw the Internet. Wall Street has never been fond of catalogs, but even with tightening everywhere, we have a solid base in this industry, and we are not going away.
Hecht: I think it’s going to be a multichannel challenge for [my company] over the next three to five years. We’ve had an offline b-to-b catalog and a magazine, and we’ve merged with an online b-to-c company [Smarterkids.com]. So we are trying to find out how to close the loop and get them all to work together. Can we do it on the front end? Yes — the challenges are on the back end.
Mackenzie: It is all about multichannel and allowing your customers to shop with you the way that they want to and are most comfortable. It is going to become all about the customer. Additionally, I see the development of more partnerships and sharing.