Hanover Launches Catalog to Close Gap on Losses

Linens cataloger The Company Store's launch last month of Company Kids is the latest effort of parent company Hanover Direct, Weehawken, NJ, to turn around six years of red ink. And though Hanover is still showing eight-figure losses, its turnaround efforts are apparently beginning to close the gap.

In 1999, Hanover, whose last profitable year was 1994, lost $16.3 million on $549.9 million in revenue, compared with a $25.6 million loss on $546.1 million in 1998.

The launch of children's linens and furniture catalog Company Kids comes on the heels of Hanover's selling its Austad's golf catalog last fall to Mammoth Sports Group, Jessup, MD. The company also recently closed its Tweeds title and incorporated its Colonial Garden Kitchen catalog into its Domestications book. Hanover now has 14 consumer books and began testing a luxury linens catalog called Turiya late last year as well.

Three years ago, the company announced a plan to cut costs by $50 million annually, including the closing of excess warehouse capacity in Hanover, PA, and excess telemarketing capacity in Roanoke, VA. At the end of 1996, Hanover announced the elimination of 550 jobs and mapped a plan to reduce marketing expenditures through better targeting and by closing some of its titles.

Last March, the company split itself into two units: Hanover Brands, its business-to-consumer arm, and an Internet services branch later named erizon Inc., which operates Keystone Internet Services, Hanover's third-party fulfillment, software, distribution and telemarketing provider.

Last week, Hanover announced a two-year agreement to provide a new Oxygen Media-owned e-commerce site, Womenshands.com, which sells artwork created by women, with receipt and order processing, customer service facilities, billing services and storage and distribution of merchandise.

Despite Hanover's track record of losses, at least one industry expert said it is on track, pointing out that the transition can't happen overnight. “That really is the long-term strategy — to go from a poor-performing multi-title company. They first made the transition to a solid, fulfillment-based company; then, they made the transition in the titles to an Internet-based, catalog-based company,” said Donald R. Libey, president, Libey-Concordia Mergers & Acquisition Investment Bankers to the Catalog Industry, Haddon Heights, NJ.

“These are not 24-year-old whiz kids. These are intelligent operators of traditional catalogs who are effectively making a transition, and it should be reflected in their stock price at some point,” said Libey, adding that Hanover, “can easily take a strong marketing background and bend it to an Internet-related channel fusion.”

While Company Kids is Hanover's first separate catalog for children, the 89-year-old company is no stranger to product offerings for youths.

“We've been in the youth, infant and juvenile markets for many, many years in our core product categories with down comforters and crib accessories and bedding, and over time, we've continued to expand around that offering,” said Jeff Potts, president of The Company Store, LaCrosse, WI.

Hanover tested children's linens and furniture with just less than 100 products in The Company Store's catalog last fall, and it has tested children's merchandise in its Domestications catalog.

The test results were not immediately available, but apparently, they showed enough promise to spin off a new book.

Company Kids was mailed to a cross section of Company Store and Hanover Direct customers, as well as external lists, according to Potts, who declined to say how many catalogs were mailed. ALC of New York and List Advisor Inc., Farmingdale, NY, are the list brokers for both The Company Store and Company Kids. Quad/Graphics Inc., Pewaukee, WI, handles printing for the Kids' book.

The 64-page catalog is designed in house using freelancers.

Pottery Barn Kids catalog will be a likely competitor for Hanover's new endeavor, but “they're more hard goods [furniture] focused, and we're more soft goods [linens] focused,” said Potts, adding that more catalogers are expanding their children's apparel offerings.

An e-commerce site for Company Kids will be launched later this month, and www.companystore.com features Company Kids products; however, consumers can only request a Pottery Barn Kids catalog on Pottery Barn's site, not order products for children from it. Pottery Barn launched its Kids catalog in January 1999.

The Company Store plans to mail the Kids spring catalog once more and will begin production this month on a catalog it plans to mail toward the end of the summer. The cataloger also plans to produce a holiday book.

“You don't just change a title; you change a title based on the margin it develops, and I would assume that they're changing the mix of titles to move toward a better margin product, which they can then better support under their management structure,” said Libey. “They're changing the mix of their titles to make it more relevant to an Internet economy, and that's smart.”

Meanwhile Hanover is testing a SkyMall-like prospecting book called Encore, featuring the best-selling products across its 13 brands, including plus-size catalog Silhouettes and International Male.

While it costs 30 cents to 40 cents to reach each prospect with single-title books, Encore spreads production and mailing costs across multiple titles. As a result, Rakesh Kaul, Hanover's president/CEO, said it costs 6 cents to 8 cents to reach prospects through the Encore book, allowing the company to prospect using general lists, as opposed to paying for more targeted lists.

“We're basically violating every principle of direct marketing [with Encore],” said Kaul. The merchant has planned three or four Encore drops of an undisclosed amount in 2000.

“I think if anybody sees the reality that it is an Internet and catalog-integrated approach, it would be them [Hanover] because they have one foot in tradition and one foot in the future, and that's a wonderful straddle,” said Libey.

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