What is to Become of Single Title Catalogs? – Part 2

One of the interesting things about this blog is seeing which postings generate the highest readership, and which generate the most comments from readers. My first installment of this series on what is to become of single title catalogs (click here for Part 1) generated both.

One reader chided me for not mentioning the obvious about costs. I stated that single title catalogs and small catalog companies in general, have higher cost of goods because they cannot buy products in the volumes necessary to secure the same gross margins as the “big guys”.  What I did not mention, but which is related, are the higher costs that single title catalogs have in almost every other area – printing, paper, shipping, co-op names, even postage – simply because they lack volume discounts.

But here’s the point on that – I’ve seen many catalogs struggle because they simply could not get their cost of goods under control. However, I’ve rarely seen a company stop mailing simply because they could not get the cost of their catalog down another few cents. There are always ways to reduce printing and postage costs, and I’ve see plenty of situations where catalogs switched print formats, reduced page counts and sales and profits went up. Moreover, it’s the smaller, single title companies that can make those changes easily. Yes, overall printing and postage are big expenses, but you can control them. But there’s not much you can do quickly, in the short term, if you are stuck with lousy margins.

Where I wanted to begin with Part 2, is my closing comment from Part 1, which is that one good thing about a multi-title conglomerate taking over a single title is that the new owners tend to get rid of a lot of management waste and internal culture that was flawed.

I’ve had the privilege over my almost 30+ year career to work at and work with some very talented catalog companies. None are perfect. But most understand how to mitigate mistakes and risks.  I’m not talking about decisions that result in poor product copy or mailing too many catalog requests. I’m talking about catalog strategies that put the company in jeopardy.

Here are some of the common mistakes I see small catalogs make that have crippled so many companies:

Capital: Let’s remove the easy one first, which is that many companies are simply undercapitalized. This happens in every industry. But, it always seemed to me that the catalog industry attracted a larger percentage of “entrepreneurs” that believed they had this figured out, that “success” was easy, and those of us that had been doing it for a long time didn’t know what we were talking about. Those entrepreneurs have overly optimistic assumptions about the impact of “their branding efforts”, they under appreciate the importance of merchandise and pricing, resulting in unrealistic response rate expectations that have no bearing on reality. They fail because they run out of cash before they wake up and smell reality.

“I’ll take ‘Things That Don’t Matter to Response’ for $400, Alex”: Whether properly capitalized or not, they waste too much money on the wrong things, like “branding”. I get branding. I know it is important to develop a brand. But so many single title catalogs waste money on ineffective branding.  Case in point – Harney & Sons Tea Catalog. They are not a Datamann client and I know nothing about their company. Maybe they are doing well. But I received a 36 page perfect-bound digest-size prospect catalog from them last week. Not only was it perfect-bound (holy cow!), but the cover had to be 120 lb. stock – this thing would stop a bullet. It had to cost at least twice what it needed to, which means they reduced the quantity of additional prospect catalogs they could have circulated by half. I’d rather have the extra customers generated by circulating more catalogs.  A professionally run catalog-conglomerate would not make that mistake.

That example is obvious, because it is easy to see – you can hold the catalog in your hand. But where most of you are getting hurt are in areas not as noticeable. I see many of our clients’ fixed production costs going up because they keep doing multiple iterations of designs of each page, they are doing photography for catalog and web, they design stupid creative tests that make no difference to response, and they are trying to support multiple on-line technologies. It becomes death by a thousand self-imposed cuts.

When I first started in this industry catalogs were designed with glue and an X-acto knife, and there was one iteration of the design of each page. There was some fine tuning, but you had one opportunity to get it right. Now, with desktop publishing, everyone wants to add their input. It is not uncommon for a single page to go through 10 iterations of design – and for what?

No Talent: There is simply a lack of knowledge about how to do basic catalog things. When the DMA ended the Catalog Council and the Catalog Conference, maybe they killed off more than we realized. Those conferences and forums were the only place for young and old professionals to learn the nuances of this business. I still have people say to me “I heard you speak one time on circulation planning” or “You’re the guy that did those ‘What Were They Thinking Speeches’”. Not only did we lose those forums, but we’ve lost a whole talent pool of qualified catalog professionals, especially those under age 35. In my opinion, this lack of talent impacts the smaller companies more than the big ones, simply because the bigger companies are more successful at keeping “older talent”. The younger talent have all jumped ship to e-commerce companies. Who could blame them?

Here is an example of where the lack of common catalog basics was crippling a company. A client recently hired me to do an analysis of their merchandise, and I was puzzled by their consistently low margins across all product categories, despite the fact that some categories were generating a ton of sales. When quizzed, the merchandise director told me that they always targeted the same margin across all categories, “because our vendors have told us that our 30% discount on wholesale is the absolute best discount available, so we have to sell at MSRP. Doesn’t everyone else do that?”

Focus where it counts: Steve Millard, the founder of the old Millard Group, once told me that cataloging is a nickel and dime business, and the companies that succeed are the ones that control their costs, and control their profits. Last May I wrote about the Supreme Audio catalog (click here), a small B2B catalog that underwent a complete metamorphosis starting in 2003, and has evolved into an online only company, and is more profitable than ever. The thing that always impressed me about the owners (Bill and Peggy Heymen) was their laser focus on merchandise and customer service. By constantly monitoring the merchandise in the catalog, they fine-tuned the assortment to the point of where they cut the size of the catalog in half, and eventually did away with a printed version altogether. Granted, they did this on a smaller scale than most single title catalogs, but the lesson remains – focus on merchandise and you will be focused on profits.

The flip side to this are the companies that don’t focus on merchandise, and instead chase every new marketing channel. Or, they are constantly tweaking the creative nature of the catalog, usually with disappointing results. In my opinion, constant tinkering with creative will never lead to long term impact. Chasing new marketing channels will never increase sales – it simply spreads existing sales out over more costly avenues. The larger multi-title companies may be working in those same multiple channels, but they understand the value of each, and allocate resources accordingly. They are focused on profits.

Business by Hunch: One reader recently wrote to me stating that upper management in his company had a “ridiculous focus that they ‘must have daily emails going out, must be on eBay/ Amazon/ iTunes/ Google play, must be on Facebook’, with a constant stream of new initiatives generated on a hunch”. Yes, we all understand that we need to evolve our businesses. But, if your customer is an older consumer, they may not want to evolve with you. Or if your customer truly does have a set expectation of your brand, your expectations on where you are taking the company has to be in alignment with your customer (see JCPenney’s experience under Ron Johnson’s short tenure as CEO in 2012 regarding not aligning with your existing customer’s expectations).

The mistake I see many single title catalogs make is a common human fallacy – they think they are acting strategically, but they are not. They think they are strategic because they are good at one thing, but there are multiple things that they need to be good at. They hire consultants or appoint board members that provide them with comfort instead of challenge their business and assumptions. And when they are challenged, they ignore the messenger and the message. They make business decisions based on a hunch instead of fact.

An example of this phenomena that I see happen all the time is with companies that give lip service to growth on the web. They hire a “web-only merchandise buyer”, whose goal is to grow their sales on the web. With that hire, the CEO checks “be more ecommerce centric” off his/her to-do list. But, the web only merchant, who is usually a junior buyer, gets little support, and if they find truly great products, they are forced to share them with the catalog. Or, they are told those products will not appeal to the “core catalog” buyer, and are not allowed to put the product up on the web. The web-only products get no SEO or PPC support, and the effort fails when the web buyer quits out of frustration. If you have the “hunch” to do something, support it in such a way as to guarantee its success.

The list of mistakes that single titles companies make that put their companies in serious jeopardy could go on and on.  But, these are some of the most common. Part 3 will focus on steps that single title catalog companies can take to combat these mistakes when they occur, and what they can do to grow.

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by Bill LaPierre

VP – Business Intelligence and Analytics

Datamann – 800-451-4263 x235

blapierre@datamann.com