In the mid ’90s, expanding internationally was a great way for catalogers to conquer new markets and reap additional revenue. But now some catalogers are rethinking their overseas agendas.
In June, Seattle-based cataloger/retailer Recreational Equipment Inc. (REI) closed its unprofitable Japanese Website (which it started in 1999), and in December it sold its Tokyo store to Japanese retailer Mont-Bel. REI, which began mailing catalogs in 1989, stopped mailing there in spring 1999.
“We felt that with the resources available, it was much better for us to focus on our core U.S. business,” says Mike Collins, spokesperson for the $690 million REI. “To continue in Japan would have required much more of an investment than we felt was prudent. We were simply too small to operate effectively.”
Similarly, Shrewsbury, NJ-based business-to-business software marketer Programmer’s Paradise, which started overseas by acquiring Lifeboat Associates Italia SRL in 1993, sold its European operations to PC-Ware Technologies in January 2001. The business simply wasn’t central to its operations, according to vice president of marketing Jeff Largiader. At the time, James Meyer, director of research for Philadelphia-based analyst group Jannery Montgomery Scott, noted that “Programmer’s Paradise has been unsuccessful in achieving consistent profit overseas in the past 18 months.”
Even women’s apparel mailer Victoria’s Secret, which does about $50 million in international catalog and online sales in more than 150 countries, is trimming circulation in certain countries based on productivity, with cuts ranging from 5% to 25%. Why? Says a spokesperson, “The overseas market continues to be softer than the U.S.”
Market challenges
For certain, U.S. catalogers marketing overseas face a multitude of challenges, from different languages and currencies to foreign postal and distribution issues. “There are heavy levels of support needed,” says Programmer’s Paradise’s Largiader, “and if the venture isn’t central to your operations, it’s going to be difficult to be successful.”
Irwin Helford, chairman/CEO of Viking Office Products, agrees. “My view for operating internationally is to be fully committed and willing to invest in the infrastructure,” Helford says. “You have to jump in with both feet.”
Helford should know. Los Angeles-based Viking, part of Delray Beach, FL-based Office Depot, began marketing overseas by establishing a base in Britain in 1990. Viking’s U.K business broke even in seven months, Helford says, and today Viking takes in about $700 million in revenue from the U.K. alone. Viking now has operations in Belgium, France, and Italy, to name just a few countries; about two-thirds of its $2 billion annual revenue comes from overseas.
When Viking launched in the U.K., it had the advantage of entering a relatively young market. And while most overseas markets are several years behind the U.S. in terms of direct marketing penetration and infrastructure, many are catching up, which means there’s much more local competition. In the U.K., for example, mass-market retailers such as John Lewis Enterprises and Debenhams have started mailing catalogs and developing e-commerce sites to grab a larger piece of the $15 billion U.K. catalog market, says Tony Stockil, managing director of London-based consultancy Javelin.
Shrinking internal resources pose yet another problem for many companies. With the U.S. economy lagging, many marketers facing soft sales at home may be loath to invest the time and capital needed in an overseas venture. Programmer’s Paradise, for one, will continue to market overseas through its Website and e-mail promotions, but the cataloger is concentrating on its North American business, says Largiader.
Playing devil’s advocate
You could, however, argue that some of the reasons U.S. catalogers are avoiding overseas markets are reasons they should be expanding internationally. For one, it’s true that a rise in the number of local catalogs in a market means more competition. But it also means an increasingly sophisticated infrastructure, which typically translates to more mailing lists and improved distribution.
Moreover, many of the major European markets aren’t suffering from the recession plaguing the U.S. For instance, “unlike in the U.S., the [UK] market for consumer retail is quite strong,” says Stockil.
The fact is, though some catalogers are pulling back on their international initiatives, others are going forward. New Pig Corp., a Tipton, PA-based cataloger of industrial cleanup supplies, sells to 40 countries worldwide. The company recently expanded into Japan, Chile, and South Africa and is investigating entering in Hong Kong and Australia. Although it sells primarily through distributors, New Pig has its own facilities in the Netherlands, the U.K., and Germany.
In selecting which countries to enter, “some of the factors that we include in our benefit/risk analyses at the front end are market size and potential, cost of mailing, cost of prospecting, and whether a local presence is needed,” says Ed Engle, New Pig’s international product marketer. “Back-end factors include the lifetime value of a direct customer, how quickly the venture pays off, and the reliability of the postal system.”
Dodgeville, WI-based apparel and home goods cataloger Lands’ End is also marketing in multiple countries with great success, with operations in the U.K., Germany, and Japan. For the first nine months of fiscal 2001, Lands’ End’s international sales were $90.6 million, or 10.1% of its total sales for the period.
And then there’s Viking, which is launching a catalog and Website in Spain this year. The operation will include a fulfillment center in Madrid with native Spanish- and Catalan-speaking employees. (A significant portion of Spaniards speak Catalan.)
Seeking new countries to enter is critical for continued success, Helford says, regardless of the challenges. For instance, Germany “was certainly more difficult to enter” than many other markets, he says. But now it generates $500 million in revenue for Viking.
Additional reporting by Anthony Coiaat deadline