July 29, 2004, 12:00 AM

In the catalog world, there are no more pure plays

The web pushes catalogers into multi-channel retailing and profoundly changes how they do business.

A lot of breath has been expended by retailers and analysts pointing out that there is no such thing as a dot-com pure-play retailer any more. They’re all going multi-channel, mostly into catalogs, with even the grand-daddy, Amazon.com Inc., advertising in Sunday inserts and hugely successful web-only merchants like eBags Inc. issuing catalogs.

But what has been overlooked as dot-com retailers became more like their paper brethren is that catalogers are becoming more like their dot-com counterparts. Increasingly there is no such thing as a catalog pure-play. “Any catalogers who are still looking at the catalog as the full-price, full-margin vehicle are not facing the reality of today’s multi-channel shoppers who are getting calls to action in other channels,” says Jim Okamura, Chicago-based senior partner with retail consultants J.C. Williams Group. “Catalogers today have to be in sync with customers who will browse the catalog, then go online to order.”

Changing self image

The evidence of that shift is everywhere. Some retailers with long-established catalogs have moved significant share to the web. For instance, L.L. Bean Inc. conducts 27% of its sales at LLBean.com, according to Internet Retailer’s Top 300 Guide to online retailers, where Bean ranks No. 29. Bear Creek Corp., operators of the venerable brands David & Harry and Jackson & Perkins and No. 37 on the Top 300, conducts 45% of its sales on the web.

Even middle-America catalog brands are shifting significant sales to the Internet. Lillian Vernon Corp., for one, has moved a third of sales to the web and is shooting for 50%. Pet supply cataloger Drs. Foster & Smith Inc., for another, generates 45% of sales-about $85 million-from the Internet. It expects the web to account for as much as 60% within two years. “We originally viewed the Internet as just another way people could order from the catalog, but it didn’t take us long to change our minds,” says co-founder and veterinarian Dr. Race Foster (see accompanying story).

Today, Drs. Foster & Smith considers itself as much an online retailer as a catalog retailer. That mindset is spreading and it’s changing the way catalogers operate. “Catalogs will be very much something to push customers into using the Internet,” says Katie Muldoon, president of Tequesta, FL-based consultants Muldoon & Baer. “Catalogs and web sites are working much more hand-in-hand today.”

As that evolution takes place, long-held assumptions and ingrained practices of the catalog industry will undergo change, analysts say. Size, frequency and content of catalogs will be different; circulation will change, becoming more targeted based on the retailer’s experience with the customer or expectations of how prospects will shop; merchants will measure catalog success differently; and cross-channel customer data integration will become a reality.

Still evolving formula

Companies will make decisions in those areas based on a still-evolving formula of which vehicle affects sales in which channel. “We’re still trying to understand the impact of the two channels on each other,” says Debbie Hess, director of Internet marketing for Norm Thompson Outfitters Inc., which owns the Norm Thompson, Solutions and Sahalie (formerly Early Winters) catalog and online retail brands. “We can’t look at just the response rate of catalogs in a silo.”

Catalogers are only now starting to test different formats and frequencies of catalog mailings. Some early web enthusiasts believed that online retailing would mean the end of the catalog. When they cut back their circulation, though, they experienced an immediate drop in online sales.

Today’s retailers are taking a more sophisticated approach. They are considering such options as creating smaller catalogs with samples of products that will drive customers online for more information, targeting catalog and content distribution based on customer shopping behavior and even sending catalogs followed by postcard or e-mail reminders. “We’re asking a number of questions about the role of the catalog,” Hess says. She notes, however, that Norm Thompson is taking a conservative approach to changing its catalog mailing and that the catalog will continue to exist. “We will be looking at how to mail differently and more effectively,” Hess says, “but we will continue to mail a catalog.”

While catalogers are smart at testing different catalog covers and content, they will also have to get smart at testing different mailing vehicles, Okamura says. “Merchants will have to create a test grid so they can work with different combinations of direct marketing vehicles-e-mail, postcards, full catalogs-to see which works best,” he says. “Each has its own cost implications and they’ll need to figure out which consumers respond well to which media.”

In addition, some catalogers will have to shed the mindset that expects the Internet to be a cheaper way of doing business, since the entire transaction is customer self-service. The transaction portion may be cheaper, but catalogers are likely to incur higher expenses because they’ll need more creative staff who understands and can create the various marketing vehicles and then determine which customers should get which mailings, analysts say. “It’s going to be more expensive,” Muldoon says. “That’s why you’ll really need to understand who you’re marketing to.”

Crediting the catalog

That the catalog drives sales is old news. What’s new is trying to figure out how to credit the catalog for web sales. In the catalog world, tracking the source of sales is relatively easy; call center reps can be trained to ask customers for source codes. It’s not so easy on the web, where the customer might not even have the catalog handy at the time of order. “The customer might have ripped the page out of the catalog and taken it to work so she can order over a broadband connection,” says Chris Bradley, president of Portland, Maine-based home furnishings merchant Cuddledown.

Thus, the issue of matchbacks has received a great deal of attention recently. That’s the process by which a merchant tries to match an untracked web order to a catalog mailing. Knowing that relationship is important because it affects merchants’ decisions about which lists to rent for future mailings. The problem becomes complex because of consumers’ delayed reaction time to mailings. Someone who receives a catalog in March may not get around to ordering the product until May. In the meantime, the customer may have received two or three other mailings. So the retailer must address the issue of which mailing gets credit for the order. “We could allocate the order to the latest mailing, or we could weight the response (of untracked orders) to various response rates of the three mailings,” Bradley says.

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