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A Tough Year Gets Tougher

The bulk of this column was written before the tragedy of Sept. 11. In light of this, cataloging in the immediate future is likely to suffer even more than it has recently. This event reminds me of the Desert Shield phase of the Gulf War in 1991, when consumers retreated from spending on nonessentials until they could see what would happen. After the war, relief and euphoria led them to spend again and helped kick-start the economy. As the economy now needs another kick-start, a similar resolution, where the buying public thinks that we have won this phase of the war on terrorism, could yield the same results. The issue for direct marketers is what will happen next.

Lest anyone think that I am putting a commercial value on this tragedy, let me assure them I am not. I am just saying that our fortunes as businesspeople are tied to events outside the marketplace and over which we have no control. Our first obligation is as citizens to support our government in its eradication of those who hate the United States and think that the way to win is to attack civilians as well as the military.

Like all catalog commentators, the question I have been asked for the past six months is: “What do you think is the future of cataloging today and in the future?” Simply, the next 12 months will be as tough as any the industry has faced in years. This contrasts with what we and the Direct Marketing Association heard when we conducted this year's State of the Catalog/Interactive Industry Report study last spring, when most catalogers were optimistic about 2001. Many catalogers report poor results for the past six to 12 months, cutting across all types and sizes. Nor are they optimistic about the near future.

Unlike consumer catalogers, business-to-business catalogers' fortunes reflect what is happening in their markets. If their market is strong, such as health and biotech industries, then they are doing reasonably well. If their market is soft, such as computers and telecommunications, they are announcing layoffs and lower anticipated sales and profits.

A few bright spots exist among consumer catalogers, but almost every financial release announces cutbacks and sales and profits behind last year.

I think there are six main reasons this is happening and why the solutions are almost beyond the province of an individual company.

Nature of the business. The catalog industry, especially the consumer one, is built on impulse buying. In BTB, customers typically keep a catalog and order as needs arise, the best example being office-supply catalogs. In the consumer field, the typical purchase is an impulse buy. If someone has an immediate need, they likely go to a local store. They are unlikely to sit around thinking that the Talbots catalog should be coming any day and they will wait for it.

The economy. In tough times, people restrain impulse buying. The media always have emphasized problems over good news. The investment community also bears some responsibility, first by overinvesting in Internet companies, then by abandoning these investments. The economy is not as bad as the perception, but in remote shopping, perception is critical to the industry's success.

No new catalogs. If one started a remote-shopping company in the past several years, most likely it was Internet-based. Given the money that could be raised for the average Internet firm versus what a classic catalog concept could command, one would have been foolish not to follow the dot-com trend.

The number of startups in recent years has fallen from 70-100 catalogs annually to 40-50. Moreover, any new title is more likely to be a spinoff from an established catalog company than a startup. These spinoffs tend to milk the parent's customer list rather than seek new remote shoppers. The result is fewer new names into the pool of catalog shoppers. Having fewer new names not only hurts prospecting, but it also leaves the better remote shoppers bombarded with offers.

The Internet. This channel has been a mystery to many catalogers, not in understanding its potential, but in integrating it into their business. In almost all studies, the majority of respondents claim profitability for their Web sites. Yet when you analyze their responses, many are not properly allocating marketing and overhead expenses to their Web site. Rather than creating a profit, the Internet is generating another layer of expense.

New competition. Traditional brick-and-mortar retailers and manufacturers are setting up remote-shopping divisions. This new competition is better financed than the classic cataloger and frequently has more professional management, especially compared with the traditional kitchen-table startup. They frequently have strong brand recognition among target markets and realize the power of the catalog as an advertising tool for their brand. This professional competition comes as consumers become more reluctant to buy impulsively, shopping instead with their trusted sources.

Low capital funds. This always has been a problem. The investment community generally has been unwilling to invest in classic cataloging. It has treated this industry as a subset of retailing, and even felt recently that the industry would be devoured by dot-coms. Though they realize the reverse is more likely, investors remain reluctant to fund new ventures. Thus, the classic cataloger cannot afford the cost of developing the infrastructure needed to compete for the remote-shopping dollar.

More than ever, classic catalogers and dot-coms starting to print must focus on their individual strengths and retain expert advice for the rest. Whether this means stronger alliances with vendors or retaining consultants to supplement their staffs, something has to be done or opportunities for expansion and survival likely will disappear.

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