Are Things as Bleak as Everyone Says?Last month I attended the fall New England Mail Order Association conference in New Hampshire, one of the better events in the catalog year. Anyone interested in cataloging - cataloger, vendor or investor - should attend at least once a year.
A major conversation topic in the sessions and the halls was the state of the industry. Most attendees expressed that 2002 has not been good but were cautiously optimistic about the holiday season. They said sales to date were up only a few percentage points, if at all. Few were excited about their business, its growth this year and in the near future.
There were exceptions. Stonewall Kitchens reported its business is growing at a faster percentage than its 100 percent-plus circulation rise. One might dismiss this by thinking the company is small, but it isn't, distributing more than 5 million pieces this year.
Still, the climate was caution bordering on pessimism. There have been three postal rate increases in 18 months, the economy is growing very slowly, unemployment hovers at 5.7 percent with little new job creation and there is a threat of war in the near future that could have major financial effects on the country and the world.
But it wasn't just the talk in New Hampshire where one hears of troubles in cataloging. Two major consumer catalog list brokers, Mokrynski & Associates and ALC of New York, issued pessimistic news recently. Mokrynski said that only 56 percent of its clients reported sales above last year and only 35 percent were above plan. Among apparel clients it was worse, with 43 percent having higher year-over-year sales and 25 percent exceeding plan. In ALC of New York's recent release, more than 55 percent of clients were below plan. And in DM News and other trade journals, for every recent story of a cataloger reporting higher sales, there seem to be three reporting falling sales.
The good news. In discussing this with two major co-op database firms, Prefernetwork and Abacus, we got a different story. When they look at their partners who have participated for more than a year, those firms' total transactions have risen from last year. However, they reported that the increase is coming from these clients mining their house files. Overall prospect names and transactions, which is what a list broker sees, are down from last year. Thus, the results reported by the list brokers and the collaborative databases do not conflict. That is good news - to a point.
I would be the last person to be unhappy that catalogers are getting more mileage from their house files. The April 18 DM News was the most recent time I opined that catalogers need to find the hidden nuggets in their house files as much as seeking the next big prospect list.
But though higher house response is good news, the majority of catalogers report lower response rates from prospect lists. This likely results from two factors. First, prospect lists may not be performing as well because they are tired. I realize this seems a contradiction since many firms have reduced prospect mailings. However, both major co-op databases report having more than 90 million households on their database, which is nearly all the probable remote-shopping households. Thus, it is likely that even if a name is not rented in the traditional way, it may be through a database.
The Web is the other factor affecting prospect response rates. Most catalogers we talk with still have trouble gauging and attributing Web sales. Every company reports a minimum of 15 percent sales from the Web, and many report 30 percent or higher. But many still say they can trace only 50 percent to 60 percent of Web orders, even after a matchback. Just do the math. With 30 percent of orders from the Web and 50 percent of them unknown, you have 15 percent of all orders whose source is unknown. That is as high as it was 10 years ago.
To have to arbitrarily allocate 15 percent of orders may cause serious misreading of results. For instance, if one rents a list like Red Envelope, Web orders could be more than 50 percent. If you can't track them and don't properly credit the Red Envelope list, you might never use it again though it may have been one of your best for that mailing.
What's next? Though I am pleased by the better results from house lists, I am disturbed by the poor reported performance of prospect lists. At the end of the day, everyone loses names to attrition. If they cannot replace these with new ones, they'll slide backward. It's essential that better prospecting be as major a focus as mailing the house file. This will require everyone to step back and review how they prospect.
Is it devising new promotions, or new creative to introduce the catalog? Or is the solution more referrals, aggressively expanding one's friend-get-a-friend program? What was the last catalog you saw that had a referral program, which historically has been an effective source of new names? Or is it using alternative media, print advertising in magazines or broadcast, especially radio.
It is interesting that the two catalogers that have reported success with radio are Vermont Teddy Bear, a touch-and-feel product if there ever was one, and Lighthouse Depot, a niche catalog. These are not the type of product categories one would think successful in such an "untargeted" medium.
No matter how, it's essential that every cataloger realizes and develops programs that are beyond relying on renting lists for prospecting. I am not saying you should stop renting lists or even reduce the quantity rented. If we're honest with ourselves, we have had a great 10- to 15-year run of gaining new names by just renting more names, albeit adding selects to lift response. But that no longer will suffice if individual companies and the industry wish to expand.
Finally, the companies this advice is hardest on are the smaller ones, as they have more limited resources. Yet if the small companies don't succeed, the bigger ones will find the sources for people who are remote shoppers are fewer and fewer. We all have an investment in new companies succeeding as they attract new buyers who then become part of the overall mix of remote shopping.
Is it as bleak as everyone says? I don't think so. I just think the playing field is being rearranged both in where you find buyers and how you sell, so everyone needs to learn the new rules.