Over the past several months, probably no topic has dominated conversation among catalogers as the impact and importance of the Internet.
For most companies this has taken the form of how much to invest in their Web sites. Do they partner? Do they buy banner ads, and if so where? Can their systems handle real-time ordering? What will be its impact on their overall business? How do they judge when and by what quantity to cut their print runs?
And if one doubts the impact of the Internet, he needs to look no further than the Feb. 5 announcement by the Commerce Department that it was going to set up, track and report on Internet sales as a new category of sales. This means the Internet is going to get its own Standard Industrial Classification code. Up until this time, the Commerce Department included Internet sales into overall catalog sales.
What are the reasons for being on the Net? Some companies believe they should have a presence on the Net simply because consumers and businesses are using the Net. But that usually leads to a site that lacks resources. Or a company can believe this is a new channel that will reduce its dependence on paper and its uncontrollable costs.
Another view is the Net may be a way to find new customers, as many catalogers that have a major presence on the Net are reporting more than 70 percent of their Net customers are new to their file.
For some catalog companies, however, it is their languishing share price that is driving them to the Net. It appears that some companies' management, witnessing the valuation given to Internet companies like Amazon.com, feel this is the panacea for their share price problems.
What is most troubling is that most of the catalog companies doing this makeover are, at best, marginally profitable. Somehow, the news media has so hyped Internet companies and their growth — up some umpteen percent from last year –that profitability is no longer a criterion for valuing an Internet company. Most people blame Wall Street for this phenomenon. But if one examines what is happening, the buyers for most of the high flying Internet stocks are the individual investors. The typical trade for IBM is more than 10,000 shares and for Amazon.com only around 400 shares. That isn't institutional money chasing the Internet high flyers but individual investors who discard the conventional wisdom about investing.
What's being criticized here is not that a company shouldn't publicize its presence on the Internet. What is being criticized is the blatant attempt by some of the public paper catalogers to boost their share price by trying to make investors view them as an Internet player. Boosting their share price is not a valid goal of management nor a sustainable concept. The long-term viability of a company has to be in building the underlying fundamentals including being profitable. Something that even Amazon.com will have to do someday.
Genesis Direct, for about the third time in three years, recast itself again recently, changing its name to ProTeam.com. Along with the name change it's in the process of divesting companies it bought as recently as a few months ago, like Carol Wright Industries: It hopes to become the category killer in licensed sports products. Its stated goal is to have 50 percent of its sales from the Net within two years. If ProTeam.com had not seen its share price drop drastically from last spring's IPO, down almost 50 percent, and by witnessing its other moves, one might give them the benefit of the doubt. But coupling this Internet company posturing alongside its recent moves gives the appearance of pandering to what is hot on the stock market. This also can be seen among such established catalogers as Sharper Image or SkyMall, although to a lesser degree. They are trying hard to get investors to see them as an Internet play rather than a catalog play.
The result, for at least the latter two companies, has been that they achieved their objective. Year over year, Sharper Image's share price is up 249 percent and SkyMall's is up 264 percent, and most of the increase has come since they announced their Internet focus. For ProTeam.com, it's trying to just climb back to last May's IPO pricing. While it is not being said that these companies are doing anything illegal, it indicates that the management is focusing on share price rather than running the business. From experience, when a company focuses on short-term share price, they usually are not a good long-term investment.
Bill Dean is president of W.A. Dean & Associates, San Francisco, a catalog, consulting, publishing and research firm.