State of the Catalog Industry, Part Two
Last month I introduced the recently released The State of the Catalog/Interactive Industry Report: 2000 and a few highlights from it.
This month I will discuss a few additional highlights to give an idea of the report's scope. The report is based on a benchmarking study conducted annually by the Direct Marketing Association and W.A. Dean & Associates. The report is divided into eight sections: respondent demographics, marketing, interactive marketing, merchandising, operations, human resources, strategic issues and financial results. This study is the only one of its kind in cataloging.
Since many cost factors for a catalog company are volume-based - as volume increases, printing and mailing costs decrease as a percentage of sales - only the responses from companies with catalog sales in excess of $1 million were included. This year, as in the past eight years, there were slightly more than 100 usable responses out of the 1,400 companies solicited to participate. The data are collated and presented both by company size ($1 million to $5 million, $5 million to $20 million, $20 million to $50 million and $50 million-plus) and by market segment (consumer, business and hybrid) so a company or an industry observer can pinpoint metrics against which to measure performance.
Last month I reviewed the respondents' handling of shipping and handling charges, catalog requests by medium, order size and customer service standards. This month I will be able to touch on only a few more highlights from the operations, human resources and financial sections.
Operations. The topics covered in the operations section, in addition to customer satisfaction, are quality control, telephone and order entry, services offered, volume of calls and letters by type, upselling, fulfillment and seasonality. To be competitive today, all remote shopping companies have to provide an enriched customer experience that includes getting their orders to them in a timely fashion.
Only a few years ago, the responses ranged from one to five in nonpeak period days to ship an order if the items were in stock. Last year's results were one day during nonpeak periods and two days during peak. The slower turnaround at peak times could be more aggravating for customers, as their anxiety level is likely to be higher. Yet a company must balance its investment in resources, both human and systems, with the return on investment. Building an operation that can turn orders around in a day, no matter what the volume, is expensive, and smaller companies may not be able to afford to do so.
Human resources. With low unemployment making recruiting difficult, this section explores some of the human resource issues: staffing levels, sales performance as measured by full-time equivalents and the use of outside suppliers. One of the best ways to examine whether the company is maximizing its human resources is to measure sales per full-time equivalents. To determine the number of FTEs, a company must convert part-time hours to FTEs. Then total sales are divided by total FTEs to determine sales per FTE, or productivity. This past year there was a slight drop in productivity from the year before, with $174,000 in sales per employee at the typical company. Naturally, the larger a company, the higher the FTE productivity. Companies with sales of $1 million to $5 million had median sales of $135,000 per FTE. Those with more than $50 million had FTE sales of $252,000, an improvement of 87 percent.
Financial. The report's most frequently read section is the financial section. This section presents the respondents' overall sales, a 40-line pro forma profit and loss statement for the current and past year and an analysis by major expense categories. Median sales for the respondents in 1999 were $12.4 million, up from $9.3 million in 1998. Their mean sales were $73.9 million in 1999, compared with $68.3 million in 1998. The consumer respondents were about the same, while the hybrid and business respondents reported lower median sales. However, business mean sales were double the overall mean sales for both years.
The ratio of profitable to nonprofitable companies has been fairly consistent over the years of the study, with about one in 10 reporting a loss. Whether this is true for the whole industry is unknown, but based on the number of failures for companies with more than $1 million in sales, it appears reasonable. However, the strength of the economy during the past eight years certainly contributed to this. If the economy slows and non-pass-along expenses - such as postal increases - occur, you may see a lower ratio of profitable to nonprofitable companies in the near future.
Summary. The study's scope and size prohibit presenting anything more than a few teaser points. The real value is for a company to study it in detail and to compare its own performance on all the data points to find out where the company is doing well and where it is not in order to establish programs for improvement.
With the heightened competition from traditional retailers, dot-coms and now international firms because of the Internet, a company cannot afford not to benchmark itself.
• Bill Dean is president of W.A. Dean & Associates, San Francisco, a catalog consultancy. He can be reached at www.dean-assoc.com or 415/512-7305.