Operations BENCHMARK’99

Welcome to the 1999 Catalog Age Benchmark Report on Operations, the third in a series of exclusive surveys produced this year by the staff of Catalog Age. As often as possible, we’ve broken out the survey responses by target market (consumer, business-to-business, and “hybrid” catalogers, which sell to both consumers and businesses). The next Benchmark Report, focusing on lists, will appear in our July 1999 issue. Research and text prepared by Writer Mark Del Franco; chart content prepared by Special Projects Manager Peter Girard; chart design by Lisa Santo.

It’s the service, stupid. In this age of ever-accelerating technology, catalog customers expect their orders to be fulfilled, their returns processed, and their complaints addressed instantly. Catalogers have to step up to the plate to provide instant gratification to customers who will settle for no less. n Warehouse and call center technology, such as radio frequency (RF) technology, electronic data interchange (EDI), and computer telephony integration (CTI), are just some examples of the emerging technology designed to speed up order turnaround and improve customer service. But according to Catalog Age’s 1999 Benchmark Report on Operations, many catalog mailers have been slow to invest in such systems. And without investing in new technology, catalogers could fall behind in delivering what sets them apart from retailers-superior customer service.

Clearly, catalogers are beginning to recognize the value of adding distribution channels-namely, the Internet-to their marketing mix. More than half of all survey respondents (58%) offer online ordering, compared to just athird of respondents last year. Hybrid respondents (those that sell to both businesses and consumers) are most likely to offer online ordering: 67% do so, compared to 59% of consumer catalog respondents, and 42% of business-to-business respondents. Another 24% of overall respondents are considering adding online ordering.

Virtually the same percentage of respondents as last year, 59%, offer an e-mail ordering option, with another 19% saying they are considering adding the feature. Of those respondents that accept orders via e-mail, 50% say that they have a separate staff to handle e-mail and online ordering and customer service.

Getting to the telephones quickly should be a top priority for catalogers, and indeed, 53% of overall respondents claim to answer their incoming calls within two rings, while 36% answer within three rings, and 5% answer in four rings.

Still, most catalogers can’t get to every single call immediately, and they lose a certain amount of business to call abandonment (when callers on hold hang up before a rep answers). Overall, 79% of total respondents claim to have a call abandonment rate of 5% or less, including 72% of consumer respondents, 71% of business-to-business respondents, and 92% of hybrids.

CTI, which transfers calls and customer information data instantly to telephone reps, has still not caught on in catalog call centers. Only 30% of consumer catalog respondents, 13% of hybrids, and 8% of b-to-bers use it. “Implementing CTI requires a major system change by linking your telephone system to your database,” says Liz Kislik, president of Valley Stream, NY-based telemarketing consultancy Liz Kislik Associates. Catalogers, then, need to be convinced of the significant benefits derived from CTI before they sign on.

These days, catalog phone representatives do more than just answer incoming calls. Aside from taking orders, many phone reps also input mail orders (68%), verify name and address information (67%), make outbound calls (38%), and perform customer surveys (27%).

Overall, respondents say they aim for a mean initial inventory fill rate of 92%, and they achieve an initial fill rate of 89%. For the final fill rate, total respondents aim for a mean rate of 96% and achieve a mean final fill rate of 95%. Among consumer, business-to-business, and hybrid catalog segments, the initial and final inventory fill rates don’t vary much.

About half of all respondents use barcodes in the distribution center, compared to 53% last year. Of those that do, 84% use it for shipment processing, 54% for inventory tracking, and 33% for order processing and for tracking the productivity of pick/pack workers.

Like CTI in the call center, EDI-the electronic sharing of information among computers through the Internet or a computer network-has not caught on in inventory management. According to the survey, 19% of total respondents use EDI, up just 3 percentage points from 1998. Not surprisingly, only 8% of respondents with annual sales of less than $10 million use EDI, compared to 36% of those with sales of at least $10 million.

Overall, just 13% of catalogers have implemented RF technology, which uses radio signals to transmit barcoded inventory information in real time, with 17% saying they are considering adding RF. Cost could be the reason that more mailers haven’t converted to RF, says Framingham, MA-based operations consultant Wayne Teres, who estimates that RF costs $40,000-$60,000 to implement. “Catalogers are under the impression they have to rework their entire operation,” Teres says. “But you can get the benefits of RF without installing a full-blown system.” For instance, catalogers could apply RF only in the stock-keeping areas in the warehouse, rather than in order processing. “On the surface, RF might seem expensive, but the cost is justified if you consider the amount of backorders and inventory inaccuracies RF could reduce,” Teres says.

Overstocks remain a constant concern for catalogers. Among survey respondents, package inserts are the most popular way to reduce excess merchandise; 43% of all respondents use them. Other devices include order-taker upselling (42%), catalog inserts (34%), company outlet store (32%), warehouse sales (26%), company retail stores (26%), and special sale catalogs (25%).

Looking deeper into the numbers, the survey reveals that apparel catalogers rely most heavily on order-taker upselling (63%) to reduce inventory. Conversely, more than three-quarters of gifts mailers and sporting goods catalog respondents use package inserts to promote overstocked items.

Despite complaints by some consumer catalogers about United Parcel Service (UPS), it remains the most popular carrier for standard delivery among survey respondents. Seventy-four percent of respondents list UPS as their primary standard delivery carrier. The U.S. Postal Service is the second most popular (26%), followed by Federal Express (5%). Nearly 78% of b-to-b mailers and 83% of the hybrids-compared with 64% of consumer mailers-use UPS as their main carrier, which is not surprising, given that UPS charges less for delivery of packages to business addresses than to residences.

“Right now, most of our packages are shipped UPS,” says Craig Winer, systems and operations manager for b-to-b wood tools cataloger Garrett Wade Co. UPS, he says, is better equipped to handle heavier packages; most of Garrett Wade’s packages weigh 15-20 lbs.

For expedited parcel delivery, 64% of respondents use UPS the majority of the time-virtually unchanged over the last two years-while 22% use Federal Express, 14% use USPS, and 8% use Airborne Express. (Another 8% of respondents use an alternative carrier). Breaking it down by segment, 52% of b-to-b respondents favor UPS for expedited delivery, compared with 64% of consumer respondents and 69% of hybrids.

As for charging customers for shipping and handling, 78% of consumer respondents and 76% of hybrids, but only 29% of b-to-bers, base their fee on the total value of the order. Among b-to-b participants, charging S&H based on order weight and delivery distance is the most popular option: 54% charge based on these criteria, compared to 7% of hybrids and 4% of consumer respondents.

While 71% of respondents say their return rates are about the same as last year’s, 20% claim that return rates are decreasing, and only 9% say they are increasing. The mean return rate for total respondents this year is 5%, which is unchanged over the past two years; consumer respondents are getting a mean return rate of 6%, compared to 3% for b-to-b and 4% for hybrids. The mean return rate for consumer apparel respondents is 10%-down slightly from last year’s 12% (although return rates of 20%-30% are often seen in the clothing category).

Nearly 44% of the overall survey respondents-a slight increase from last year’s 42%-have increased their warehouse space in the past 12 months. Of those that have added space, 60% have bought or leased additional space, 26% have moved to a larger facility, and 12% say that they have added on to an existing facility.

Most of the catalogers surveyed handle their own fulfillment, with only about 5% of the overall respondents using an outside service for fulfillment-but that includes nearly 12% of respondents with annual sales of less than $1 million, and not one of the respondents with annual sales of at least $50 million. Overall, 70% of the survey respondents report that they drop-ship some of their product from the merchandise vendor directly to the customer.

In January 1999, the Catalog Age subscriber file was sorted on an nth-name basis to extract a representative sample of 1,000 catalog presidents and owners. These subscribers received a letter of explanation, a 104-question survey, and a postage-paid envelope in which to return the survey to an independent marketing/research firm. Of the 978 deliverable questionnaires, 116 were completed and returned, resulting in a response rate of approximately 12%.