The web pushes catalogers into multi-channel retailing and profoundly changes how they do business
By Kurt Peters
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.
Not only does that possibly skew the results, bolstering weak mailings or dragging down strong mailings, but it also doesn’t take into account that different lists might contain customers with different propensities to shop online. “Say we rent lists from Red Envelope and Tiffany,” Bradley says. “Red Envelope probably has a higher percentage of customers who order online than Tiffany. There will end up being a major difference between the two lists.” Without a way to match web orders to catalog orders, the lists could appear to perform at different levels when it’s possible that they performed the same, or vice versa. “I’m not sure we’re ever going to know,” Bradley adds.
But that doesn’t mitigate the importance of the issue, which will loom even larger as more sales migrate to the web. “If 4% of your sales come from the Internet, it doesn’t matter much,” Bradley says. “It does matter when 80% of your sales come from the Internet.”
Changes in stocking
Furthermore, accurately matching of sales to catalog drops includes matching of sales to customer records. With fragmented shopping options, retailers run the risk of not recognizing their customers in multiple channels and thus undervaluing their most important customers.
Moving significant sales online also affects how a merchant stocks product. For one thing, inventory planners need to understand the new order flow. With a catalog, a merchant didn’t have to have the inventory on hand at the same time the catalog mailed. Years of experience showed how soon after the catalog drop the first orders would arrive, when they would crescendo, and when they would taper off. The Internet changed all that. Catalogs now generate their first orders within days of a drop and orders could reach a peak much sooner than in pre-web days.
Further, because products are continuously available on the web, a merchant can keep something in stock much longer than before. “In the past, you might have wanted to keep red dresses, say, in stock for six weeks after you mailed a catalog at a particular time of year,” says Hess of Norm Thompson. “Today, if they sell OK, you can keep them on your web site and in stock for two years if you want.”
In addition, the web makes product testing more flexible. Many merchants by now have tested products on the web site, then added them to the catalog when they sold well. But the web’s flexibility extends to product extensions as well. “Internet-only products can act as a relatively low-risk test to see if a new category fits the brand,” Okamura says. Further, he adds, “Drop-shipping really gives you the freedom to test.”
The web also forces catalogers to re-think their staffing. “From an organizational point of view, there have been big changes,” Hess says. “And it affects every single department.” For example, many catalog production departments didn’t understand the requirements of product presentation online, she says. “They may not have digital designers that understood what it meant to have a 72 dpi image to use online,” she says. Or, she notes, copywriters may not understand how online copy differs from catalog copy. In addition, IT support is different if the staff is dealing with internal systems than if it is dealing with internal systems as well as customer-facing web-based systems.
Today, online skills are crucial yet many catalogers are still not at a level at which online knowledge pervades the business. “It’s evolutionary,” Hess says. “As departments hire people, they look to see if the candidates have Internet skills. Five years ago, we wanted people with total catalog experience. Five years from now, everyone will have to have multi-channel experience.” The biggest challenge in hiring, Hess predicts, will be for people who are skilled in research and analysis because the Internet has changed the way catalogers analyze their results. “Those people will be hard to find to find because the area is so new,” she says.
The dynamics of how the web influences catalog sales is in such flux that there is far from universal agreement on how to approach the market. Bradley of Cuddledown, for one, argues that catalogers shouldn’t fiddle with proven marketing success. Consumers expect the catalog to present a merchant’s array of products, and if a broad representation of selection is not there, consumers may turn to another catalog, Bradley says. “If you try to push people to the web instead of trying to capture the impulse at the very moment they’re looking at the catalog, you run the risk of losing sales to a competitor,” he says. “If you send a smaller catalog with less merchandise and rely on them to go to the web, they may not have enough information to make their decision.”
Some analysts point out that whether customers will move to the Internet ultimately will rest on how well the web sites do their job. “Push, don’t pull is back; catalogs will be very much something to push customers into using the Internet,” Muldoon says. “But driving people to something that is not interesting won’t work. This concept will test out if the web sites are improved.”
kurt@verticalwebmedia.com
