What is to Become of Single Title Catalogs? – Part 4 – Redemption

In case you missed them, I’ve written three prior postings on the future of single  title catalogs, focusing on the common traits of single titles (low margins, high costs, etc.) and common problems (lack of talent, lack of structured leadership, etc.)

What Is To Become Of Single Title Catalogs? – Part 1

What Is To Become of Single Title Catalogs? – Part 2

What Is To Become Of Single Title Catalogs? – Part 3 – Options to Consider

My closing assumption in Part 3 was that if you are the owner of single title catalog that is struggling to survive or even just grow, the options open to you for additional funding are not great. But assuming it is not too late for you to pump new life into your business (and that’s a huge assumption, and different for every mailer), there is a way out.

Fix What is Wrong: One consultant said to me recently “These small catalogs are running out of money and energy. There has been no return to pre-recession response rates. They have the same book, the same website, the same tired merchandise.”

What is it that makes the major catalog conglomerates like Cornerstone, Orchard Brands, and Potpourri Group successful? In my opinion, they have simply gotten really, really efficient at running a catalog. They are the “A+” teams of old-school catalogers, masters of practicing the craft of putting catalogs in the mail. They prove that it still can be done.

Instead of looking for answers to your survival outside your company, which will still be plagued with the general problems you started with, why not fix what is wrong with your existing business? Why not change your tired looking catalog, with the same old merchandise? Stop kicking the can down the road.

Not an easy task I grant you. But we are talking about your growth. Nay, your survival.

The list of things that single title catalogs are doing wrong is endless. I’m going to focus on three – ancillary avenue of sales that become distractions, new customer acquisition, and merchandise development.

What Do You Want To Be If You Grow Up:  I’m hoping that by now you acknowledge that the catalog industry, and single title companies specifically, are in trouble. Datamann’s clients fall into two camps – established, mature catalogs that are struggling to grow, and relatively new launches that are still ramping up to full potential, but are starting to see softness around the edges of their growth. I don’t think Datamann is unique in the composition of our client base having those struggles.

But some clients are handling these issues better that others. One common factor I see present among successful catalogs is that they focus on one business. As I mentioned in Part 1 of this series, most of the single title catalogs – at least those in New England – also have a significant retail store. I’m not talking about an outlet store attached to the warehouse, but a major, full-blown retail store. Sometimes they have two or three. These stores are far larger than would normally be supported because they usually started out in a corner of headquarters, or the warehouse, and space was cheap.

Because space is cheap, they carry a ton of products/SKUs. If they were to try and survive as stand-alone store outside the immediate trade area of headquarters, they would be half to one-quarter the size. Because of that, the company has never been able to expand to a successful retail model.

I see this as an issue because the store(s) become a major distraction. Even with only one or two locations, they may actually represent 20% to 30% of sales. But, there is no growth there, and the huge assortment of products means that margins are low. In some instances, the stores are even more profitable than the catalog, but with no growth opportunity with the store(s), and that makes them even more of a distraction. (Note: with regards to small outlet stores that are commonly attached to warehouses and help clean out excess inventory, I find those are actually very useful, but rarely account for more that 1% or 2% of total sales).

Those single title catalogs for whom the above conditions exist will deny that their retail store(s) – even if limited to only one or two locations – are a distraction. I’m not going to bother to list their arguments as to why they feel the stores are worth having, just know that they are numerous.

But here are two things to consider in that argument. First, stores chew up capital, and that is why it is so hard for the single title catalog to expand them. Second, look at some recent examples of catalog companies that expand too far and too fast into retail:

Delia’s – declared bankruptcy in December 2014

Brookstone – declared bankruptcy in February 2014

Coldwater Creek – Declared bankruptcy in March 2014.

Those three instances should serve as a warning that stores are a distraction to the catalog, not an augmented form of revenue.

This is where it gets tough. Let’s say that you have had several years of losses interspersed between several barely profitable years. Trends for 2015 are not looking good since you know that you are losing customers to online competitors. You have to do something to survive. Business school case studies would tell you not to close the store because you are writing off a ton of overhead to the store. But, have you reviewed how profitable you would be if you did close the store, and focused on the catalog and online alone?

Most single title catalogs don’t consider options like this until it is too late. I know I’m going to sound like Ebenezer Scrooge talking about decreasing the surplus population, but most mailers in the above scenario are afraid to take the scalpel to staff.  They still run the company like a country club, tolerating a lot of mediocre performance not just from staff, but from whole portions of the business. They can’t bring themselves to downsize the stores because they won’t give up sales, even if they are unprofitable sales. But, they are always quick to cut catalog circulation as a way of trimming costs.

I’m not saying that getting rid of your store (or whatever ancillary sources of income are not your main business) and focusing on catalogs and websites are the panacea that will cure all your troubles. What I’m saying is you at least need to consider the option. These are the kinds of discussions you need to have with senior management, or if you are the owner, at least have them with yourself. Once you can look at all the options objectively, the right course usually makes itself pretty evident. Just don’t wait until it is too late.

And what would you do with all your time if retail (or the other superfluous channels of sales) was no longer there as a distraction? Focus like a laser on new product develop for your website. Your survival as a company – whether you are a catalog or ecommerce pure play – is not linked to SEO, or mobile, or Facebook.  It is linked to remaining profitable, and profits are linked to repeat purchases from existing customers and repeat purchases are driven by new merchandise.

New Customer Acquisition: I’ve mentioned this before, but it is a story worth repeating. I ran into a mailer a few years ago at Internet Retailer who asked me why there were not more catalogers in attendance. I told him it was because most catalogers still saw themselves as catalogers, not ecommerce companies. He laughed and said “I’m so glad my company is not like that. We are 100% web-centric.”  I asked if he wanted to take my litmus test on that subject. I asked him what percent of his products were available on-line only, meaning they were not in his catalog. He said none of their products were, and before he could say anything more, I interrupted (which I tend to do far too often) and said “And I know why, it’s because you are going to tell me that your customers are unique, and that they need to see everything printed in the catalog.” He nodded yes.

That attitude sums up what is wrong with catalogs today. They love their catalog, and have forgotten what it means to sell. I know of a mailer who is doing millions of dollars in acquisition sales with videos on YouTube. Yes, they have a product that lends itself to that format. No, it probably would not work if you were selling Virginia peanuts. But how many of you reading this posting have generated even $100,000 in sales from YouTube videos?

You have to think beyond the co-ops. You have to think beyond changing list brokers so you can have someone else yell at the co-ops for you. You must move beyond thinking that re-targeting your online ad to everyone to whom you just mailed your catalog is resulting in incremental customers.

The Team That Plays Offense Scores Points

In 2009, Don Libey posited the question as to why more catalogs were not launching separate websites, under a totally rebranded name, to capture new customers, new demand, etc.? (I miss Don Libey. He is a regular reader of this blog, and every so often sends me a comment. He did a great deal for the VT/NH Marketing Group in our early years. Hope you are well Don!) Yet I can point to only a few companies that have done this, and most waited until just the last 18 months to do so.

Most single title catalogs will fail in these types of ventures, because they are still doing them in the context of what they know – which is easy customer acquisition using rented lists. A client contacted me just this past week about a totally new on-line venture they are launching, which will be separate from their core business. Let me repeat: Totally online. Completely different demographic. Their first question was where could they rent some email names to send an invitation to visit the site! We have to stop thinking like this!

While writing this posting, I checked something on the Wayfair.com site, now one of the largest conglomerates of ecommerce companies. I’d been to their site many times before, but this time, I had to enter an email in the pop-up window before it would allow me to move on – there was no little X in the upper corner to close the pop-up.  When are we as an industry going to get as serious as the ecommerce companies about collecting email addresses? Heck, most of you still don’t make collecting an email address mandatory as part of collecting a catalog request name and address.

Collecting email addresses is not going to save your company, but the above example is indicative of the way catalogers think (can’t offend anyone by asking for an email) and the way online companies think (I’m not going to even let you onto my website if you don’t give me your email).

I’m not going to tell you that Pinterest will be your salvation over Facebook ads. The co-ops, flawed as they are, may still be your best option for another couple of years, maybe even up to ten years for some of you. The combination of what is going save you varies by mailer. But assuming you are one of the single title companies that is struggling, you have to recognize that you can’t keep going in the manner you have been.

In my opinion, new customer acquisition is inexorably linked with merchandise development. And that is where we will start Part 5.

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by Bill LaPierre

VP – Business Intelligence and Analytics

Datamann – 800-451-4263 x235