Changing Channels: Catalogers and E-Commerce
In 1994, more than 10,000 mail-order companies sent out 12.8 billion catalogs. Even then, 61 percent of the adult population bought consumer goods through the mail, some of which stemmed from dissatisfaction at retail. Consequently, aside from the male/female purchasing reversal in the early Internet years, the customer base was similar: educated, affluent and comfortable with direct buying.
It is interesting that the catalog industry, which has become a $100 billion business, pales in comparison to retail. It took the catalog industry until 1998 to reach $50 billion in consumer sales while the Internet industry reached that goal in just six years. Ironically, some Internet entries may prove to be strong catalog players as well, given their understanding of brand building and the direct-to-consumer model.
Catalogers were set to forge ahead, having both the back-end operations and fulfillment in place, plus a customer who understood direct buying. By 1994, twice as many consumers made purchases through catalogs as did the 10 years prior. Direct selling now represented 9 percent to 12 percent of total retail sales.
The catalogers followed tried and true business principles, conservatively testing interactive television or subsequent e-commerce platforms. This was consistent with their modus operandi, as they were skilled testers who early on bartered their brands to be part of the e-commerce pioneer days.
John Rodgers compared his virtual retail startup orientation at Toysmart with working for America's oldest catalog incarnation, Orvis, of which he said, "We have taken a very conservative budgetary approach to e-commerce, and this has forced the e-commerce group to stay integrated within the organization, to capitalize on resources within key disciplines and to pay very close attention to ROI on everything we do.
"Limited resources forced us to take a hard look at the real benefit of every piece of technology brought in and every feature developed. Online promotional efforts were scrutinized and watched very carefully. In the end, less money caused us to run a much tighter ship and kept us integrated into the mainstream of the organization, which has proven to be a better structure."
Catalogers' knowledge of operational and back-end issues, coupled with the ability to understand their customer by using databases to drive their business, readied them to tackle the next frontier. It is no wonder that when it came time for technology pioneers to test, they turned to catalogers who had long been the innovators in direct selling.
Bill Bass, senior vice president of e-commerce and Internet at Lands' End, summarized many a cataloger's strength when I asked why he moved from Forrester Research to Lands' End in 1999. He said the five components required for a successful strategy were in place:
o Proprietary product with strong margins.
o Distribution systems.
o Executive team committed to winning.
o Multichannel contacts in which each channel leverages the other and there are no channel conflict issues.
From a historical perspective, the Internet and electronic retailing were not a big risk for Lands' End. Over the years it often had used technology to provide best-of-breed customer service. The company was an early user of toll-free numbers. In the late 1980s and '90s, it sold via online services including AOL, CompuServe, Prodigy and Genie. Its testing mentality extended to CD-ROMs.
Lawrence Becker, direct of Internet publishing at Crutchfield, who launched its Web site in 1995, saw things in a similar vein, saying, "The Web reinforced what we already knew about business, shopping and selling direct."
As a result of such testing, direct marketing experience and vision, catalogers were the first to be profitable. By 2001, 34 percent of retail e-commerce revenue went to catalog-based online retailers, according to BCG/Shop.org. Understanding the potential of this channel, the Direct Marketing Association predicts that one-third of a cataloger's sales will come from the Web through 2006. Catalogers are cost-conscious and expect that support functions, such as real-time customer service, will be handled by Internet-enabled technology and will reduce their transaction costs. Their profitability on a channel basis speaks for itself, as 72 percent of the catalog companies that have moved online are profitable.
"It's Just Shopping" provides case studies across the catalog and direct landscape. In addition, direct marketers should consider some of the following questions as a checklist for evolving their e-commerce strategies.
o Will catalogers continue to have a clear advantage online?
o What will be the next innovation for catalogers, and how will they evolve their cross-channel initiatives?
o What tools and techniques will give catalogers an advantage over other merchants?
o How can catalogers exploit their operational efficiencies further in this new channel?
o If broadband is the next frontier, when will its penetration be enough for merchants to take notice?