A Black September for Publicly Traded DM Firms

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The battering the stock market suffered last month was reflected in the direct marketing industry.

History was made in September across the broader markets as the Dow Jones industrial average lost about 12 percent in the month while the Standard & Poor's 500 and Nasdaq were down 11 percent. The Dow fell 11.1 percent last September in the immediate aftermath of the terrorist attacks. But the September 2002 swoon in the Dow was the worst since September 1931 when the nation was in the midst of the Great Depression.

Investors in direct marketing stocks suffered as well, as 76 of the 100 stocks in the DM News Portfolio fell or remained unchanged in September. ClearOne Communications was one of the big losers, shedding 70 percent of its value, falling from $11.39 on Sept. 3 to $3.41 on Sept. 30 -- a day in which its price reached a new 52-week low of $3.31.

But the company was not alone as 36 firms recorded double-digit percentage losses in September, including Exchange Applications (from 42 cents to 23 cents), Franklin Covey (from $2.06 to $1.18) and ClickAction (from 25 cents to 12 cents).

"Overall, direct marketers are being impacted by macroeconomic issues just like every other industry in the U.S. economy," said Michael Petsky, CEO of Petsky Prunier LLC, New York, an investment bank specializing in the DM industry. "For catalog marketers, retail is taking a hit. Wal-Mart and everyone else is reporting slower sales. Catalog marketers we've talked with, who have their books out in the mail, are seeing slower-than-expected results.

"Some are theorizing that there is a 9/11 anniversary impact with people putting things on hold for a few days or a week, but in general things are slower. On the service side of the equation, mailers are still pulling back on prospecting, which means less names for data service providers to process, which is resulting in less revenue on the service side."

Only nine of the companies recorded double-digit percentage price increases in their stocks.

"Industry analysts are pointing to the middle of 2003 for us to start to work our way out of the doldrums," Petsky said. "We believe that the catalog marketing industry is going to go through a transformation, developing new channels of marketing through other industry players. We see a convergence between catalogers and publishers. As soon as catalogers reach out for these new opportunities, the sooner they will get healthier.

"Consumer catalogs have suffered with slim margins for years, and in order for them to jump-start themselves, they should look to partner with publishing companies that have large databases. The industry is challenged with finding new customers, and some of these consumer catalog niches are tapped out and they must become innovative regarding their customer acquisition strategies. This holiday season will be indicative as to where we stand in terms of being at the bottom."

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