Lillian Vernon Corp.’s recent layoff of about 25% of its full-time employees is part of the long-time direct marketer’s plan to downsize and further retreat from its roots in catalog sales. Mailing and shipping cost increases in 2007 to the tune of $8 million have hammered the company’s bottom line, president and CEO Mike Muoio tells Internet Retailer.
Lillian Vernon, No. 59 in the Internet Retailer Top 500 Guide, already conducts 65% to 75% of its business online, Muoio says. That’s about $114 million to $131 million of total 2007 sales, which he says were about $175 million. The shift to e-commerce, e-mailed catalogs in particular, will continue in 2008 as operating costs stifle growth, he says.
“We will continue with our e-catalog development and weigh print catalog remails against electronic,” Muoio says. “We’re trying to get as many customers on our e-mail file as possible. Everything we do with e-mail is more cost-effective. With the postal increase of 20%, we need to do all in our power to mail as few catalogs as possible.”
He cites other factors driving the downsizing, including 5% to 40% price increases for Asian-made products. In addition, paper prices have climbed 15% to 50% due to mill closings in the U.S. coupled with the weak dollar drying up the supply of competitively priced paper from Europe. “We could have dealt with any one of those conditions, but when added together we had no choice but to shrink,” he says.
The prospect of annual postal rate increases has created an unstable sales environment, making direct mail an “unsustainable channel,” Muoio adds. He believes Lillian Vernon’s cutbacks and business re-emphasis are a product of market forces that soon will affect other catalog-based retailers.
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