The Industry Will Suffer if Small Catalogers Die

My first column for DM News recapped the annual catalog study. In the intervening years, the basic principles of cataloging and remote shopping have remained fairly constant. Many of the problems have stayed as well.

As I close my career here, I wish to discuss what I view as a major problem facing the industry over the next 10 years. How can the industry survive if the small and midsize catalogers die off? I see this as a real possibility.

The large firms, those with revenue of more than $100 million, will survive. Many will flourish. However, companies that are smaller, especially ones with revenue under $25 million, will find it much harder to survive and grow because of a lack of resources.

Moreover, few catalogers or suppliers properly value or understand the critical role of the smaller companies. In my opinion, their two biggest contributions are keeping the buyer pool fresh and enriched. They increase the number of remote shoppers and provide existing remote shoppers a reason to spend more through this channel.

Without an expanding pool of shoppers, both in numbers and frequency, every company selling remotely will be affected. Smaller companies will find that to secure the resources to survive, both human and financial, will be tougher in the future. The reason is simple: The cost to succeed in selling remotely today is constantly escalating.

Take the latest channel, the Internet. Almost every investor, and many catalogers, thought the Internet would help reduce the cost of selling remotely while attracting new shoppers.

It hasn’t worked that way. To drive Internet traffic to a specific site, everyone has found they have to use traditional media, primarily a catalog. By the end of 2002, the number of pure-play dot-coms will have dwindled to a handful as almost every one of the original pure-plays mails a catalog and, likewise, all catalogers are on the Net.

The Internet became an added expense without a comparable offset in revenue. For any company, small or large, trouble looms when expenses increase faster than revenue. So success for smaller and midsize companies will depend on finding the resources to continue to compete and grow in a tougher world.

The personnel and financial resources needed are interrelated. When you have a strong management team, investors are more receptive. But without financing, it’s hard to attract strong management – so it is almost the chicken-and-egg parable.

Many things need to be done, but these three will give companies a much better chance of success:

· Strategic planning.

· Attracting new blood (and planning for succession).

· Arranging adequate financing.

Most agree that strategic planning is valuable, but few do it or do it well. It involves two major steps. The first is preparing the plan, which is where most companies stop, and the second is semiannually or more frequently matching results to the plan.

It is my experience that a company cannot prepare and review a strategic plan successfully without outside guidance. Generating the needed unbiased examination of the results is almost impossible to do internally.

Attracting new blood is much easier if you have a strategic plan, as you now know your needs. Too often, companies, in fear of upsetting the current staff, refill slots internally, even if it is beyond the skill or education of anyone on staff.

The best thing for current staff and the company is to seek outside skilled people. At lower levels, this means connecting with institutions that offer a degree in direct marketing and going to them to recruit. At a higher level, it means using a search firm.

Trying to reduce recruitment costs by doing it internally is a skill that management typically does not possess and is a waste of management’s time. For instance, everyone hears about using the Internet as a resource. It is estimated that more than 30 million resumes are available on the Net. No small to midsize firm has the staff or time to wade through all the resumes a job placement on the Net will generate.

Perhaps for specialized positions that require a technical expertise, one could use an Internet search. I think one should engage a professional recruiter, especially one knowledgeable about direct marketing and its nuances.

In a strategic plan, one goal is to ensure adequate financing. But most managements are unskilled at this or ill-equipped to do so. Raising money is a skill, and just as a company hires a printer to print and a list broker to find names, it should engage an investment firm that specializes in cataloging to help with funding.

Though it is traditional in funding to pay the firm based on a percentage of the money raised, I think a company would be wise to retain long-term an investment partner. If they understand the strategic goals and are a true partner, they will do much better at raising money.

I hope that I haven’t sounded too pessimistic. I do think that cataloging and all remote shopping will continue to grow. Through my columns over the years, I hope that I have stirred some of you to pause and think about something other than the next mailing.

Staying true to that philosophy, my final plea is for the small and midsize firms to be sure they have the resources to win. And those firms whose customers include the small to midsize cataloger – list brokers, the U.S. Postal Service, printers, delivery firms, service bureaus and all other suppliers – also should be concerned with their continued success, assisting catalogers and encouraging them to plan for and secure the resources to grow.

Finally, I want to extend my thanks to DM News and, most importantly, I want to thank all of you who have read these columns and have been kind enough to talk to me about them.

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