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Lands' End Heads for Recovery After Two Tough Years

Lands' End's retention rate for Japanese customers in 2000 is the highest in three years, but the company still faces a tough business situation on a market where it has been active since the early '90s.

“The economy has hurt our business and put pressure on our margins,” said Keiku Hayashi, CEO of the Wisconsin apparel cataloger's Japanese operation. “Apparel sales have been declining for the last couple of years.

“All our competitors are lowering their unit price, and therefore the overall market size is shrinking in value. The dollar-yen rate stabilized this year but wasn't favorable for us last year, and that hurt.”

Japanese consumers, she added, have become increasingly price-sensitive since the mid-1990s, when they realized that foreign goods could be bought more cheaply than domestic products. This was one reason for the mid-1990s boom in US mail-order sales in that market.

With recession gnawing at the economy for most of the last decade and Japan's already high savings rate still rising, Japanese consumers “are becoming more conservative in their spending habits,” Hayashi said.

Corporate sales that were launched two years ago with great fanfare — apparel with corporate logos and other specialized clothes for small firms — have been quietly shelved.

“We have not been pushing this portion of the business aggressively, because at this moment I want to simplify our business strategy,” she said. Hayashi has been in her job for 10 months.

She is stepping up prospecting for new customers, turning more to magazine advertising and publication inserts. Campaigns in national newspapers are on the launching pads.

Rental lists are in short supply in Japan, she said. Instead, she has been working with major credit card companies such as JVC and American Express.

“They send our catalogs out under their name — `American Express introduces Lands' End to our membership.' That was very cost effective, so we skewed our mailings heavily toward card lists,” Hayashi said.

But credit card lists have begun to dry up from overuse, so “now we are testing many insert approaches and looking to other target audiences, and we think we are finding good solutions in our print efforts,” she said.

She has found postcard inserts and pop ups effective. As for newspapers, it is too early to assess their potential impact. TV is simply too expensive.

Catalogs remain an effective tool. The company drops nine books a year in Japanese and with yen pricing for a total of 9.5 million this year.

“We don't use Japanese Post,” she said, “but private courier services because they are cheaper.”

A Web site has been up since last November, but the start was marred “by a lot of bugs because of Japan's double byte environment,” Hayashi said. Japanese PC's, she explained, are on double bytes rather than single bytes.

“So in the beginning we had a lot of problems and did not push the Internet that much until we had all the bugs worked out,” she said. “Now the Web accounts for 2 percent of our Japanese business.”

At the launch, she said, expenditures were held down to make sure the site was working properly. “It is now working very well, and the number of accesses is growing. We use banners on AOL, Nifty and Infoseek and are adding Sonynet and the Microsoft Network.”

Web effectiveness has not been measured yet, she said, “so we don't know how well we are doing.” A few things, however, are clear. People spend 20 percent less on the Web than they do via catalog shopping.

She cited two reasons. First, Lands' End has the “freshest liquidation” items on the Web all the time and they account for 20 percent of all items available there. “Unit price of liquidation reduces our average value,” she said.

The second reason is phone costs. Surfing costs more in Japan than it does in the US, “so we think that consumers try to spend less time on the Web and thus don't browse as much,” she said.

Shopping the site from hand-held devices is not possible yet, although “we are working on it. We're boning up on the effect of wireless on Web access for other companies and trying to explore that opportunity also.”

The company has a call center with more than 100 workstations in Yokohama, where corporate offices are located. The warehouse is in Hisaka, between Hagoya and Tokyo, about an hour from the capital by bullet train.

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