Hanover Looks to the Net for Turnaround

Hanover Direct Inc.’s recent split into two Internet-focused divisions – brand marketing and Web services – showed how committed the struggling cataloger is to leveraging the Web for a turnaround.

But Bill Dean, president of catalog consultant firm W. A. Dean & Associates, San Francisco, believes Hanover, whose last profitable year was 1994, may not be focused on key issues.

“The real thing they should be focusing on is getting their act together in their paper catalog and not worrying about new ventures that will bring in new revenues,” said Dean. Hanover last month reported a fourth-quarter loss of $13.4 million.

Still, Hanover – whose 12-catalog portfolio includes Domestications, Tweeds, International Male and Austad’s – is committed to getting as many customers as possible shopping online while working to gain market share in what it sees as a potentially huge online third-party fulfillment market and smaller front-end services market.

“We are going from one integrated catalog company to two Internet companies, one of which is focused on brands and the other which is focused on back-end fulfillment,” said Rakesh Kaul, president/CEO of Hanover, Weehawken, NJ.

Dean’s comments were unwarranted and shortsighted, Kaul said. “I don’t believe that catalogs today that just focus on the business that they are in are going to be able to improve their profitability.”

Hanover’s brand marketing division includes its catalogs, customer lists and databases, credit marketing arrangements, trademarks and intellectual property, marketing and merchandising management, digital catalog content, and strategic partnerships with Internet companies Excite, ArtSelect and Xoom.

The Web services division offers third-party back-end fulfillment through Keystone Fulfillment (whose clients include L.L. Knickerbocker Co., United Retail Group Inc. and The National Geographic Society) and third-party front-end services such as telemarketing, order and credit-card processing, customer database management and programming support.

“Keystone Fulfillment is a way to create revenues and help us amortize the fixed costs that we have in our business. … [It] is an enormous opportunity that is perfectly suited for Hanover given its multi-client, multi-title history,” Kaul said.

The Web services division also includes a marketing services group that will offer clients marketing, Web site creation, hosting and management.

Separately, Hanover last week announced an agreement of undisclosed terms with Indian Software firm RS Software India Limited to jointly develop software, systems and programming for e-commerce applications. Under terms of the agreement, Software India will supply technical support for Hanover’s Web services division.

Despite the agreement, Dean said Hanover may not appreciate the complexity of offering front-end services to other Internet merchants.

“There is nobody from Amazon.com to the Lands’ Ends on down who isn’t finding out that just keeping up your own site as dynamically as you should on a day-to-day basis means that you’re constantly throwing more and more people [into it] and they’re working 16-hour days to get the damn thing done because its so explosive,” he said.

Kaul added that Web hosting will be an ancillary service Hanover will offer Keystone Fulfillment clients. “We are not going into the Web hosting business,” he said.

Kaul oversees both of Hanover’s newly created divisions. Earnings results will be reported separately for each.

Hanover dropped approximately 242 million catalogs in 1998. Its books comprise some 80,000 stock-keeping units.

The company’s catalog portfolio also includes The Company Store, Kitchen & Home, Improvements, The Safety Zone, Colonial Garden Kitchens, Silhouettes, Undergear and Gump’s By Mail.

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