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Hanover Realignment Ups Net Ante

Struggling catalog giant Hanover Direct Inc. upped its commitment to e-commerce last week, saying it will realign into two Internet focused divisions: brand marketing and Web services.

The move is designed to get Hanover's customers to do their catalog shopping online while allowing Hanover to gain market share in what it sees as a potentially huge online third-party fulfillment market and 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.

Hanover's brand marketing division will include 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 will offer 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 like telemarketing, order and credit card processing, customer database management and programming support.

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

Bill Dean, president of catalog consultant firm W.A. Dean & Associates, San Francisco, said 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 catalogs and not worrying about new ventures that will bring in new revenues,” Dean said. Hanover reported a fourth-quarter loss of $13.4 million last month.

Kaul called Dean's comments short-sighted.

“I don't believe that catalogs today who just focus on the business that they are in are going to be able to improve their profitability,” he said. “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 multiclient, multititle history.”

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

“There is nobody — from Amazon.com to Lands' End 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 it's so explosive,” he said. “If [Hanover builds] robust sites for all their catalogs, where are they going to find the bodies to build sites for the ABC catalog?”

Kaul said Hanover has taken undisclosed steps to prepare for the human-resource demands of front-end Internet marketing services. 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 will oversee both of Hanover's newly created divisions. Earnings results will be reported separately.

Hanover dropped 242 million catalogs last year. Its books make up 80,000 stock-keeping units. The company's catalog portfolio includes Austad's, Colonial Garden Kitchens, The Company Store, Domestications, Gump's By Mail, Improvements, International Male, Kitchen & Home, The Safety Zone, Silhouettes, Tweeds and Undergear.

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