Cross' second retail store furthers DTC strategy

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If you live near Natick, MA, you might recently have received your first catalog in the mail from AT Cross, the world's largest manufacturer of luxury pens. This doesn't necessarily mean the company is looking for you to place an order.

The impetus for that particular mailing was the September 7 opening of a Cross retail store in Natick, just the second outlet ever for the 160-year-old company. And its catalog - not a glossy print ad in a local magazines or a 15-second spot on regional TV - is its primary vehicle for driving traffic to the store.

For Cross, this is all fairly new territory. Just five years ago, there were no store openings to announce and no catalog to be sent. The luxury pen business had been in decline since the late 1990s, and Cross had to rethink its business model.

In the age of e-mail, the $35 pen - to say nothing of the $1,200 one - has become something of an anomaly. With consumers putting pen to paper ever less frequently, the writing instrument in general has declined as an accessory, much less as a fetishized object.

People take notes, they write down phone numbers, sometimes they send a thank you card, but they don't usually keep an 18-carat gold ballpoint pen around the house to do it. Not when you can get high-quality disposable pens for practically nothing at any office supply store.

"[Cross] faced a situation where pens were not being celebrated as an accessory any more, or even as a necessity," says Monica Smith, president and CEO of Marketsmith, which works closely with Cross. "[It] had to overcome the obstacle of Cross being an old man's pen, and the idea that a pen is something that you just get at Staples."

Selling direct-to-consumer

The company's stock price had plunged from $14.87 a share in June of 1998 to $4.77 a share in June of 2004, and Cross knew it had to take action. It had already been expanding its product line to include handbags, watches and leather carrying cases. But the next step took Cross even further outside its comfort zone: The company went direct-to-consumer. That meant launching its first catalog in 2005, shortly after opening its own retail store.

Cross pens had traditionally been sold almost exclusively at specialty shops, with some sold at department stores or office-supply chains. But as Tom Petersen, Cross' director of global marketing, points out, that was no longer doing the trick.

"When I'm working with an eight-foot environment [in a department store display case], there's only so much of our branding and seasonal messaging I can communicate," he says. "Strong brands today really control their retail environment, and you see that in a lot of examples of companies opening their own stores."

For Cross, direct marketing meant immediate cross-promotion as well. With a minimal advertising budget, Cross would need its catalogs to promote its stores and its Web site, and vice versa - which meant some careful budgeting and data tracking.

Marketsmith was brought on board less than a year before the launch of the catalog. The firm was brought in to assess its operations and customer base, and determine not only whether a DTC operation could benefit Cross, but also whether it could be done in-house - and at cost.

"They told us that, as a public company, we had to do it at a break-even," says Smith. "We were given very [few] investment dollars."

Marketsmith spent the run-up time compiling and winnowing a mailing list from multiple sources - some very old, some new - and getting Cross' order-fulfillment function up to speed.

After all, Smith pointed out, when a customer places an order, that box has got to go out in a day or two. You don't batch it the next time an order is going to Staples.

The company had launched a rudimentary Web site in 1999, so a redesign there was in order as well.

The first catalog mailing went out for the 2005 holiday season. In 2006, the company sent out three more - one for fall, one for spring and one for the holidays, a schedule it maintained in 2007 and intends to keep going forward. If you notice a similarity to the fashion calendar, with a collection for every season, that's certainly no coincidence.

Cross sees itself as a fashion brand and wants very much to be perceived that way in the marketplace, hence it is attempting to coordinate with the fashion industry, not just with its pens but with its leather carrying cases, eyeglasses and watches.

This year, the company's DTC business will grow by 30 percent, according to Petersen. It still makes up a small percentage of Cross' business, he noted, but total growth at the company is now in the single digits compared to several years of flat to no growth, making DTC a significant growth driver. The stock price is still not back to where it was - it was up to just under $13 a share in July of this year, but is now back down around $9 a share.

Petersen says the company has a third store opening in October, this time in Las Vegas. And he stressed that, although these outlets are hardly loss leaders, their primary value isn't necessarily found in their ability to sell pens.

"A store in a high-traffic area or a prestigious mall is worth as much as an ad in a magazine or a billboard in Times Square," he says. "You're creating a favorable impression of your brand. That's value that can't be forgotten about."

Of course, as a wholesale retailer that's always left the consumer relations to the department or specialty stores, Cross experienced some hesitation from its retail partners when it originally started opening its own stores. But Petersen said that most partners were quickly assuaged when they realized the benefit it would ultimately have for the brand.

"Initially there were people who had reservations and concerns, but now there's a bit more sophistication about it," he said. "People realize it [made] the brand stronger and actually helped with their business; that [our] having a strong catalog business is driving consumers into retail stores."

A lack of luxury marketing

Not everyone is so quick to praise the company's efforts, though. Milton Pedraza, CEO of The Luxury Institute in New York, suggests that Cross, Montblanc (which didn't return calls for this article) and others in the luxury pen category have more than the rise of e-mail to blame for the decline their businesses sustained earlier this decade.

"That industry has no one to blame but itself. Everyone who has a Blackberry or cell phone today knows what time it is, but watches have become jewelry, a status symbol," he said. "Handbags used to be a very profitable but simple category until Coach came along and convinced women that they needed to have a handbag for each season, that handbags were a status symbol."

"I think luxury writing instruments would make a wonderful status symbol, but that hasn't happened because of a lack of good marketing by the pen companies," he said.

Nonetheless, Smith points out that, regardless of the mistakes Cross and its competitors may have made in the past, the rebound of the stock speaks for itself.

"The best way to look at how going DTC has affected [Cross'] business is look at the health of the company," she says. "I think it has ultimately withstood some great economic and global challenges, as well as technological challenges. It has made some strategically very strong decisions, and its annual report looks great."

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