What Happened to Harry & David?

Harry & David has long been a leader among food-gift catalogers and one of the industry’s creative darlings. So the news last week the merchant’s parent company, Harry & David Holdings, was struggling to maintain long-term viability, was a shock to some.

Then again, many others saw it coming. Harry & David, which also owns citrus cataloger Cushman’s and muffins mailer Wolferman’s, has been neglecting two key basics: merchandising and creative.

Harry & David’s products have been increasingly perceived by the consumer as “ordinary,” says Chris Kampe, managing director with investment firm Tully & Holland. And that’s hurt the brand’s value proposition, he says.

The catalog’s creative direction has suffered of late, says Tony Cox, president of multichannel consultancy 5th Food Group, especially after president/CEO Bill Williams was let go last February and replaced by former Coca-Cola head Steven J. Heyer. Its downfall was “predictable,” especially after Harry & David unveiled its redesigned catalogs for the holiday season, Cox says.

“It looks like management there was looking at the numbers, and no one was plugged into the merchandising,” Cox says. “The new books didn’t look anything like a Harry & David catalog. They threw the baby out with bathwater, and I’ll bet its core customers didn’t respond.”

Harry & David’s sales were already slipping before the changes. Its direct sales fell from about $385 million in 2007 to $348 million in 2008 to $297 million for 2009.

Neil Stern, a retail analyst and senior partner for retail consultancy McMillan Doolittle, says Harry & David’s issues needs to keep up with changing consumer and retail demands.

“While they have been changing, it hasn’t been quick enough to reverse their performance issues,” Stern says. “Hopefully, they will be able to restructure efficiently and quickly, because the brand itself remains strong and unique.”

Not that Harry & David is the only food cataloger struggling. The Wisconsin Cheeseman will reportedly close down within the next two months if it doesn’t find a buyer.

While Wisconsin Cheeseman, which according to Cox does about $25 million or less in annual sales, is nowhere near the size of Harry & David, one thing they both have in common though is seasonality. Food-gifts merchants “are so incredibly seasonal that you could be up 25% in the fourth quarter and lose it all with one bad week in December,” Cox says.

While it’s not clear what happened to Wisconsin Cheeseman, “it looks like they got beat down by the recession,” Cox says. But he also thinks Wisconsin Cheeseman may have had a hard time differentiating itself from other merchants in that sector.

“If you look at its catalog and website, it’s very easy to buy from,” Cox says. “But if four or five merchants are going after the same customer with the same company, what’s your tipping point? You need to expand your product line or change your packaging or do something different.”

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