State of the Catalog Industry: How Does Your Company Rate?

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There are more than 650 data points companies can measure themselves against in the State of the Catalog Industry report, which will be released at the Direct Marketing Association's annual conference in Toronto next week.


The report is a compilation of the responses from more than 100 companies to a 19-page questionnaire that includes 138 questions. When this benchmarking study began in 1993 with only 35 questions, the companies were divided into either consumer or business-to-business. Today, they are classified as consumer, hybrid and BTB.


The majority of companies fall into the hybrid category. This is partially because of how the data is collected. Each respondent states the percent of sales derived from both consumers and business customers. If a company has less than 95 percent of its sales coming from its primary channel, we classify it as hybrid. However, when sales are totaled by either consumer or BTB, 91 percent come from consumers.


Marketing:


In this section of the survey, the questions fall into three categories: circulation, promotions and policies and procedures. In total, there are 20 questions asked, ranging from a variety of statistics based upon a company's flagship title results to segmentation techniques, to source of new customers.


The biggest change among the circulation statistics from past years is the source of sales. Both consumer and BTB catalogers hit their all-time high in percent of sales from the house file, 62 percent and 69 percent respectively. The hybrid segment dropped slightly from last year's 69 percent to 64 percent this year. The significance of this information is that companies are continuing to see erosion in prospecting for business.


When cross-correlated with what percent of a company's mailings went to house and prospects, the house mailings decreased as a percent of all mailings. Thus, while companies prospected more, their results were not as good as in the past. This is not good news for cataloging. The reason for this can not be determined in a survey of this nature, however, it agrees with the information that Simmons Market Research Bureau, New York, gathers for the DMA.


In the most recent report, it noted that the number of catalog shoppers among adults in the United States had dropped from 112 million in 1997 to 106 million in 1998. It's unknown where the missing customers went, although many will say they went to the Internet.


Interactive Marketing:


It would be impossible for any survey of cataloging to ignore the impact of and involvement in interactive marketing or e-commerce. Nothing in the past 100 years compares with the hype the topic has received, except perhaps the advent of television in the late '40s and '50s and the automobile in the '20s. Some of the quick facts are that for the third year in a row the number of catalogers offering catalog request options on their Web sites hovers at 90 percent.


The flip side is that about 10 percent still do not offer it. Among the respondents who had a Web site - 85 percent - 60 percent were able to conduct e-commerce on their site as of 1998. This is a 30 percent increase from 1997 and the highest percent ever to offer this service. Among the consumer catalogers with Web sites, 73 percent were able to take an order online.


However, no matter what the business segment, less than half used their interactive capabilities to offer special promotions, order confirmation, back-order notification or real-time customer service. The latter was available from less than 10 percent of the respondents.


The unfortunate thing is that interactive marketing not only affords a company new, faster, cheaper and better ways of communicating with its customers, companies expect it. Pure e-tailers like Amazon.com have created a level of service expectation that all others will be measured against - as did Nordstrom to the retail stores. E-tailers that do not match it leave a poor impression with customers.


Merchandising:


While everyone agrees that this is the single most critical factor of success for catalogers - ask Talbot's or Lands' End if you doubt us - this area has been labeled by many as an art rather than a science. Yet if you observe any good merchant, you will find someone who studies the statistics and market trends very carefully and does rely solely on "gut feel."


Thus, there is quite a bit of information that can be determined in a survey on this subject. This section has been traditionally subdivided into three categories: merchandise, pricing and inventory control.


One of the least glamorous duties in merchandising is liquidation. However, it's a fact of a merchant's life: There will always be some excess inventory - of either winners or losers - that must be sold off. Interestingly, there is no liquidation method used by more than 30 percent of the respondents.


This is further indication of the difficulty of trying to get rid of what, in most cases, are the "dogs" of the catalog. The biggest variation among the segments is that BTB catalogers, for whatever reason, are able to ship a substantial portion of their overstocks back to the vendor. Additionally, the respondents did not indicate that their Web site had yet become a major way to liquidate inventory. In recent months, however, several of the larger catalog companies reported success with this venue for liquidation - something all catalogers should be testing.


Operations:


The three segments covered in the questionnaire are quality control, fulfillment and customer service/telephone sales/order entry. This section, like marketing, lends itself to almost microscopic examination and evaluation.


However, this can be dangerous because a respondent can end up following the statistics blindly. For instance, if a major distinguishing characteristic between companies is level of service, then evaluating telemarketers on a time-per-call basis can be counterproductive. The most significant change has to have been the increased use of the USPS, specifically Priority Mail. It is little wonder that companies like United Parcel Service are fighting every additional service the postal system offers. Today, fully 25 percent of the consumer respondents' shipments went out by Priority Mail. This was second only to UPS ground, which was used for 34 percent of shipments.


Moreover, consumer catalogers used the postal system for 51 percent of their shipments, up from 44 percent last year, and it was the first year ever the postal system commanded a majority of the shipments. It's only because of the weight of many BTB shipments that these catalogers continue to rely upon UPS and truck freight for 73 percent of their shipments. This increase in use of the postal system by consumer catalogers came before the system's introduction of tracking service, a feature that, when perfected, should only increase their share of this segment's shipments.


Staffing:


The ability to recruit, train and retain good staff in a robust economy is difficult for all companies, especially cataloging companies, which rely on unskilled labor. This problem is now creeping into the ranks of management as well.


Catalogers are finding their marketing, operations and merchants being wooed by Internet companies making offers no cataloger can match - salaries coupled with the possibility of instant millions through stock options.


Therefore, staffing was spun out into a section all its own. Information gathered included the number of full-time employees by business type and size for both hourly and salaried employees. In addition, the sales per employee - a critical measure of a company's stewardship - also was analyzed.


Finally, an examination of how staffs grew and how difficult it was to recruit was examined. For all salaried positions, from the most junior to the top, the time it took to fill an open position was about two months, which is on par with both 1996 and 1997 results. Therefore, while there may be competition for key positions from the Internet companies, there still seems to be opportunity for catalogers to fill their needs.


Financial Information:


Probably no section of the report is more closely studied by both catalogers and investors than this section. The primary feature is an abbreviated income statement that has 33 data points of information ranging from returns and allowances to postage, to customer service/telemarketing labor expenses, to occupancy expenses and to list rental income.


These income statements are presented both by business type and by company size, and they compare the results for the respondents in both 1998 and 1997. The bottom line is that while consumer catalogs reported a median operating income improvement of 8.4 percent in both 1998 and 1997, hybrids had a 6 percent better performance - 10.7 percent in 1998 vs. 10.1 percent in 1997.


The big change was among BTB catalogers, which registered a 196 percent improvement in operating income from 2.6 percent in 1997 to 7.7 percent in 1998. The results for this year's BTB respondents are similar to last year's survey when those respondents reported operating income of 10.8 percent in 1997, down from 19.3 percent in 1996.


Strategic Issues:


This section is divided into three parts: planning and analysis, mergers and acquisitions and new business development opportunities. The first part includes a review of long-range planning. In past surveys, we asked how many companies had a three-year strategic plan and only about 35 percent said yes. This year, the question was reworded into two parts: Do you have a plan? And how long?


By doing it this way, we found that 76 percent of the companies have a plan, but not all of them are three years in length. Many are one- and two-year plans.


However, the one consistent statistic - which is also one of the most disturbing - is that less than one-third of the respondents calculate the lifetime value of their customer file. In the seven years of this survey, this statistic has hovered at this percentile level. Obviously, larger companies are more likely to calculate this information, but even here only 47 percent reported doing it


Bill Dean is president of W.A. Dean & Associates (www.dean-assoc.com), San Francisco, which publishes monthly The Dean Report.
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