Spiegel’s power play

Over the years, Spiegel Catalog has assumed more personalities than Madonna – and for the most part, with less success. The current Spiegel catalog tagline is “Style for Life.” This, in effect, replaces the “Live by the Book” tagline of the late ’90s, which replaced the “fashion at a fair value” theme of the early ’90s, which surpassed the yuppie elitist identity of the ’80s, which took over from the schlock purveyor of car batteries in the ’70s.

But here’s the good news: After nearly 10 years of slumping sales and a ping-ponging marketing identity, Spiegel is evidently onto something. Fourth-quarter sales for the repositioned catalog were up 38% in 1999 compared to the year before. At the same time, new customer acquisitions rose 60%, and the number of 12-month buyers increased 11%. In other words, more than 1 million new customers helped push Spiegel’s business from $587 million in 1998 to $716 million in 1999. (Total sales for Spiegel Group, which includes casual apparel and home goods cataloger/retailer Eddie Bauer and women’s apparel catalog Newport News, were $2.9 billion.)

What’s the reason? Well, it’s not the new “Style for Life” tagline – although it surely beats “Live by the Book.” (“That sounds like an order,” says Christian Feuer, vice president of marketing and advertising production.) And it’s not even that Spiegel’s core customer has changed: She’s still typically a college-educated, 40ish married woman with kids.

What has changed, though, is the way Spiegel markets to that customer base. Thanks to in-depth database analysis and market research, Spiegel in the past 18 months has revamped everything from its product assortment to its mailing strategies. With its half-dozen specialty catalogs, Spiegel now has more targeted catalogs reaching appropriate customers with the right product than perhaps at any other time in its 134-year history. “We’ve been able to understand our customer subgroups and identify them from a marketing and merchandising perspective,” says Feuer, adding, “That is the magic of our success.”

Moreover, the quest for database power continues. The Downers Grove, IL-based company has reportedly joined cooperative database company Abacus Direct (although Feuer won’t admit it) to find out which other types of catalogs get business from Spiegel customers. In addition, Spiegel intends to create what Feuer calls a “rapid model environment” that will access complex customer information more quickly and update it more frequently.

That means Spiegel will develop different regression models for the specialty catalogs as well as for the “big book.” Using the models, Feuer explains, Spiegel might find that Customer A is a strong On/View apparel buyer, while Customer B likes buying clothing out of Spiegel Life (a kind of J. Crew/Delia’s fashion book). “This allows Spiegel to target customers not only on a segment level [such as recency, frequency, or monetary], but also on style-driven purchase behavior,” Feuer says. “Going forward, we’re going to use a totally new marketing system.”

By segmenting its customer groups, Spiegel this spring will mail 13 specialty catalogs – more niche books than the company has published in a decade. Titles include Spiegel Life; Spiegel On/View (shades of Victoria’s Secret); Spiegel Kids; a large-size apparel book; and a home book.

Database research has even changed Spiegel’s big book. Feuer flips through the pages of the spring 2000 catalog, with its sunny, naturalistic apparel settings at one end, and seagrass baskets and distressed-finish chairs on the other. Stylistically, it’s a nice switch from the big books of old, with their sometimes haughty fashions on one side and gas grills on the other. Financially, it’s been a huge success. Mailing to Spiegel’s core 2.4 million 12-month buyers, as well as to requesters and prospects, the book helped drive repeat business, up 46% in fall 1999.

“We are now able to have a very, very consistent big book that exemplifies Spiegel’s promise, `Style for Life,'” Feuer says. “There’s a huge change in attitude and how we present home and fashion. We now focus on what the customers are: They are fashion-oriented, but very approachable.”

Ripe for turnaround

For the most part, the German-born Feuer directed that change. Having worked in strategic marketing at Spiegel parent Otto Versand (which commands 20% of all kids’ apparel sales in Germany), he spent four years at sister cataloger Newport News before arriving at Spiegel in October 1998. As head of advertising at Newport News, Feuer updated the product presentation and customer marketing for the troubled apparel book, which Spiegel had bought out of bankruptcy in 1992. By the time Spiegel recruited him, the $300 million Newport News was well in the black. “He’s a turnaround guy,” says Gina Valentino, who heads up customer acquisition at Spiegel.

When Feuer arrived, Spiegel was certainly ripe for a turnaround. Having relied primarily on specialty books through the ’80s and big-book mailings through the ’90s, the cataloger was having trouble finding the right formula to market to its middle-class suburban customers. Meanwhile, sibling Eddie Bauer had clearly assumed the favorite-child role at the corporate parent. As Bauer’s sales doubled to $1.8 billion over the past eight years, Spiegel’s sales dropped from $2 billion in 1991 to less than $600 million in 1998.

Ironically (and perhaps not coincidentally), Spiegel’s latest incarnation came on the heels of Eddie Bauer’s crisis. Two seasons of warm winters, coupled with out-of-touch fashions and a wrong turn into home furnishings, led to Bauer’s stagnant sales and a stock free fall throughout ’97 and ’98. As Bauer’s managers scrambled, Spiegel corporate finally recruited new management to jump-start the big book.

“Spiegel recognized that its catalog, as it existed over the past several years, wasn’t going to cut it,” says Bob Obernesser, partner in Chicago-based retail consultancy MacMillan/Doolittle.

Spiegel did, however, maintain one key asset: its customer database. Over the past decade, Spiegel – which keeps its database separate from Newport News’ and Eddie Bauer’s – had gained a reputation as a detail-oriented list owner with precise customer tracking. Currently, the cataloger has more than 3 million 18-month buyers on its file, each appended with credit data, demographic information, purchase history, and dozens of other data points. “The Spiegel list is well known for its selectivity,” says Karen Mayhew, vice president of consumer list management at Spiegel’s list manager, Direct Media. Besides offering 100 product selects, the cataloger every month updates its lifestyle and demographic marketing data; most other catalogs, she says, do so only once a quarter.

Spiegel, however, had done little else to exploit its customer gold mine. Because of its reliance on big books, the catalog’s mail plan focused strictly on cost efficiency and straightforward scoring: “Good” customers received more books, not targeted ones. New customers were acquired primarily via space ads and sales catalogs. Home and apparel merchandisers reported to separate departments, resulting in an unhappy mix of mass and class, aspirational fashion next to downscale TV stands and kitchen organizers.

“You could see that the woman we portrayed on the one side could not live in the home we portrayed on the other side,” Feuer says. “We had a marketing and merchandising strategy that was not going for the same customer.”

To figure out the Spiegel customer, the company’s market research division conducted scores of one-on-one interviews and surveys, soliciting both attitudinal and demographic information. Ask Feuer today about the customer base, in fact, and you’re likely to hear more adjectives than statistics. “Our customer is female, a working woman, approachable, outgoing, very fashion-oriented, an intensive shopper. She loves to buy merchandise, compared to the U.S. average. She’s focused on relaxed dressing.”

Having defined the customer, Feuer next brought home and apparel merchandisers under the same department head. This “outgoing” Spiegel customer, Feuer reasoned, wanted a more consistent, casual assortment. Under Melissa Payner, Spiegel’s senior vice president of merchandising, the catalog’s home and apparel divisions joined up to coordinate offers. “We were for a time very elitist,” says Feuer. “We were not focused on what the customers are.” By dropping the severe fashion shots and adding more casual, functional home products, “we really represent more than ever the same level of style and taste between home and apparel, based on how the customers see themselves,” Feuer claims. “We’ve really created a Spiegel style of function and fashion.”

To forge better response to that “Spiegel style,” Feuer turned to the database. Spiegel’s core customer base preferred the product variety and long shelf life of the big book. On the other hand, purchase analysis identified customer subgroups that Spiegel could better target with specialty books. To that end, Spiegel last year reduced page counts in the big book (spring 2000, at 544 pages, is about 28% smaller than spring 1984) and added a stable of specialty books aimed at the various niches in its customer base.

Today, for example, an On/View catalog mails eight times to Spiegel’s young career customers who prefer flowery, feminine clothing styles. Meanwhile, a subgroup of younger “postfeminist” shoppers culled from the On/View file now receives relaxed natural fibers apparel catalog Spiegel Life. Thus, while On/View features curvy women lounging in lingerie, Life displays gamines in natural fabrics declaring “I am confident.”

That’s a different approach from Spiegel’s specialty-catalog onslaught of the 1980s. At that time, most of the smaller books focused on product, such as tabletop goods, linens, or Tuscany home decor. Spiegel’s books today reflect the needs of specific customer groups.

“In the past, Spiegel’s objective was, `There’s a catalog and let’s mail this as efficiently as possible,'” says Feuer. “That’s only one side of the game. The other side is managing the customer file. And we did not manage that customer file. We now try to define which customer has the highest affinity for which catalog, and [with the specialty catalogs] we created a much larger tool kit to fulfill this marketing objective.”

Formerly, Spiegel mainly used discounts, big books, and sale books to revive lapsed buyers. Today, “we test all kinds of approaches,” Feuer says. An On/View catalog, for instance, might mail with a “last chance” cover wrap to inactive buyers. Or the Spiegel kids’ catalog might serve as an acquisition book sent to a list of parents, or as a follow-up to a big-book purchase. Overall, Spiegel mailed 129 million books in 1999, 15% more than in 1998.

Big deal, or big coincidence?

Of course, from one perspective, Spiegel’s marketing and database efforts don’t exactly look like rocket science. The cataloger has only just tapped Internet marketing (see “Treading lightly on the Web,” page 66), and it doesn’t share customer data with sister catalogs Eddie Bauer, Newport News, and the newly acquired Clifford & Wills. As Feuer points out, the company likes to keep brand identities separate, which means separating the customer lists as well. Even at Clifford & Wills, which will soon carry mostly Spiegel-manufactured merchandise, “it should appear to a customer that Clifford & Wills has nothing to do with Spiegel at all,” Feuer says.

Moreover, Spiegel continues to preserve its big-book catalog, which seems something of an anachronism in this era of targeted marketing. “Generally, the smaller the [targeting] segment, the better the success you have,” says Dierdre Girard, cofounder/principal of customer relationship management company PreVision Marketing, based in Lincoln, MA. In Spiegel’s case, though, customers generally shop a number of departments, which actually makes a big book efficient.

You could also argue that at least part of Spiegel’s recent success has been due to the economic upswing. A rising tide, after all, lifts all boats, even a lumbering tug like the old Spiegel. It’s worth noting, for instance, that despite Feuer’s strenuous marketing efforts over the past year, few catalog observers have even noticed Spiegel’s latest identity shift. “Spiegel has hung on, but it isn’t great,” says Sid Doolittle, partner at MacMillan/Doolittle. “It’s sort of middle of the road, sort of ordinary.”

But if catalog observers haven’t noticed the “new” Spiegel, catalog customers have. That alone is evidence of Spiegel’s improved marketing touch. Through research, focus groups, and database analysis, “we have been able to understand our customers much better,” Feuer insists. “That means we have been able to focus merchandise offers in a broad variety of catalogs, which allowed us to increase our [catalog] productivity in a major way.”

Better database productivity also means Spiegel doesn’t have to find a new customer base to fit its new identity. “Our core customer, I would say, did not change,” Feuer says. “It’s really how we dealt with that customer, and what we offer her that has changed.”

SPIEGEL CATALOG MAY BE GUNNING AHEAD, but its improved performance has yet to show up in the company’s stock price. The stock dove 60%, from $15 to $6, after the company’s earnings release in December and failed to recover even after year-end results were released in February.

Corporate fortunes still rise and fall on Eddie Bauer, which accounts for nearly 60% of corporate revenue. Almost half of Spiegel Group’s revenue, in fact, comes from Eddie Bauer’s 532 stores. Same-store sales were up just 6% for 1999, missing Wall Street’s expectations.

Spiegel Catalog, on the other hand, may be up 22% in sales for the year, but at $716 million in sales, “it hasn’t become a driver yet,” says Jonathan Klinefelter, senior research analyst at investment banker U.S. Bank Corp. Piper Jaffrey. “The catalog is stabilizing its top line, it’s revamped its approach, and it’s figuring out how to effectively target key customers and mine the database. But it’s still insignificant relative to Eddie Bauer.”

JUST HOW CLOSE CAN A BIG BOOK GET WITH ITS customers? For Spiegel, the question isn’t just how to get one-to-one with its customer base. The bigger question is whether to get one-to-one at all.

That’s an especially sticky issue as Spiegel grows its Website, Spiegel.com. Currently, the site – which takes in only about 3% of Spiegel sales – is no more than a standard online catalog, featuring no loyalty marketing, no online membership appeals, no customized customer pages, no targeted e-mails. The potential, of course, is for Spiegel to do all these things. Whether that’s good for Spiegel customers, though, is still a matter of debate.

“What we can theoretically do [with one-to-one marketing] may not be what the customer really wants,” says Christian Feuer, Spiegel’s vice president of marketing and advertising production. For some niche catalogers, he admits, specifically targeted messages make sense. Flower cataloger Calyx and Corolla, for instance, sends specific reminders to customers on Valentine’s Day and Mother’s Day. “That’s a relevant message,” he says. But how do you address someone who orders a sheet set and a pair of sneakers?

At Spiegel.com, “being able to target better is absolutely one of our objectives,” says Feuer. “But our objective also is to be relevant. And as you get into more and more smaller customer groups, it is really, really difficult to come up with relevant messages.”

That’s not to say, though, that Spiegel won’t improve its Website. At this point, Feuer wants to fine-tune Spiegel.com’s product assortment, arranging merchandise by customer lifestyle. A travel-oriented page, for instance, might carry versatile clothing, luggage, hats, and a Walkman. Or a teen gifts page might carry the same Walkman, along with backpacks, jewelry, and shorts.

Feuer calls this “e-tailing” – that is, setting up Websites to emulate retail stores instead of catalog pages. “A retailer,” he says, “helps the customer by sorting merchandise in a way that customers shop.” That’s easier to do in a Web than print environment, he says, where separate departments – outerwear, shoes, and electronics – are more the norm.

That’s a long way, of course, from customized, interactive Web pages – where customer Laura Jones, for instance, can pull up a Web page featuring favorite products in her size. But for Spiegel.com, retail-like product assortments are a good start. “It’s exactly the right kind of thing to do,” says Bob Kestnbaum, president of Kestnbaum, a KnowledgeBase Marketing company. As he sees it, the more Spiegel refines its product pages, the more it learns about customer likes and dislikes – and the more it can create relevant Web pages.

“The one-to-one concept has its best applications around the notion of mass customization,” says Kestnbaum. “It’s the same principle as the bike manufacturer that takes different parts and builds a customized bike for you. That’s what we can do on the Web: We can take pages we’ve created and string them together in an appropriate way for you.”