With tight inventory management a key to keeping costs in line, her company, Lillian Vernon Corp., had a couple of choices. It could order scooters in quantity on the belief that its 24 million catalog and web customers would snap them up, but it would face the headache of major overstock liquidation if it turned out the toy had already peaked. Or it could cut its risk by ordering a smaller quantity, but lose a big opportunity if scooters held steady as a hot item on Christmas wish lists.

Either way, it was a gamble, but thanks to the company’s web site, Lillian Vernon didn’t have to bet. “The web gives you a wonderful opportunity to test merchandise,” says Vernon, CEO of the $287 million company she started in 1951. “You don’t have to roll something out in 16 million catalogs before you even know if it will sell, which can be very expensive. You can put it on the web and know in a week if it’s going to sell.”

To anyone who knows catalog retailing, or has received one of her catalogs in the mail, Lillian Vernon may not seem like the kind of cataloger whose market would be shopping on the web. Yet the company has had a web presence through AOL since 1995 and its own web site since 1996. Today, LillianVernon.com accounts for nearly 10% of Lillian Vernon’s sales and it’s bringing younger customers to the company. That’s one reason the company has spent $4.5 million on a year-long upgrade of its web site, which re-launched in October.

Lillian Vernon’s core customers are homemakers, middle-aged and middle income, and in most cases, married with children living at home. The web has helped add to that group younger homemakers who also work outside the home. “Everyone uses computers at work, and most seem to have one at home, too. It’s always good to try to make your customer base younger, and I think the web can easily achieve that,” Vernon says.

Since Lillian Vernon’s foray onto the web in the mid 1990s, the Internet’s real utility to the company has emerged on several fronts. Besides being a merchandise testing tool that aids inventory management, it’s proved to be a growing sales channel in its own right. Web sales rose 40% over the same period last year in the company’s first two quarters ended Aug. 25, while companywide sales decreased 13%. They’re projected to contribute some $30 million to the company’s sales in fiscal 2002.

In addition to providing a way to take orders at less cost, the web also has shown it can move overstock more quickly while its value remains higher. “Right now, for example, we’re starting to liquidate Halloween items,” Vernon told Internet Retailer in late September. “With a few weeks still until Halloween, the web will give us a chance to clear maybe $1 million in Halloween merchandise immediately. If we didn’t have the web, we’d have to leave it in inventory until next August.”

The company’s newly re-launched site aims to give its growing base of web shoppers a richer, speedier shopping experience and an updated look. The new site uses Open Market’s content server enterprise software, running on IBM’s WebSphere e-commerce suite platform, to automate more of the order filling process on the back end. The platform and software solution will speed up the turn-around time on customer orders by as much as 40%, the company says.

Streamlining the back end also will allow the company to load its entire inventory of 6,000 SKUs on the site—previously, it listed only its top-selling 1,500 items—and synchronize web site promotions with catalog mailings for a more cohesive offering across channels, the company says.

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That leading-edge web technology will take on a critical role as an increasing share of the company’s performance depends on Internet sales. The company’s web sales are on an upswing even as its traditional mainstay, catalog sales, have decreased.

In fact, in response to lower-than-expected catalog sales in fiscal 2001, which the company attributes to a weaker economy, Lillian Vernon Corp. this spring implemented a 12% staff reduction across the board and consolidated its Las Vegas call center operation into its Virginia Beach, Va., distribution facility, among other cost-cutting measures. For its fiscal year ended Feb. 24, the company posted a net loss of $1.4 million on revenues that rose to $287.1 million from $281 million the previous year. Revenues for the year rose partly because of the company’s acquisition in April 2000 of Rue de France, an upscale home furnishing catalog which also operates its own web site, but the company still reported a loss due in part to restructuring and severance charges.

It’s also reduced catalog mailings by about 5% from last year. Though that’s largely due to reduced customer response in the recent economy, the company is hoping that a positive online shopping experience will convert some catalog shoppers to the web, for savings on postage and paper. While the catalogs rule as a means of acquiring customers, filling the resulting phone and mail orders is expensive. Vernon says it’s cheaper for the company to make a sale on the web.

And in many cases, she adds, it’s simply a more effective way to take an order. Take the issue of personalized merchandise. Free initials on everything from towels to backpacks has been a standard offer at Lillian Vernon throughout its 50-year history, but there can be slip-ups on spelling at fulfillment time. “The name Hillary is the perfect example. A lot of times people don’t know how it should be spelled,” Vernon says. “And when the order gets there spelled with one L, someone decides there should be two. The web makes it much easier to check the initial order.”

The company logged in 4.6 million orders across channels last year, some 289,000 in its pre-Christmas peak week alone. It publishes eight paper catalog titles including the Rue de France catalog, operates LillianVernon.com and RuedeFrance.com, serves more than 2,000 corporate and b2b customers, and has 15 outlet stores in addition to one Rue de France store. There’s the 1-million-square-foot national distribution center and warehouse facility, big enough to cover 21 football fields. And over the past five years alone, the company has slapped its logo on 878 million individual catalogs, 28 million shipping boxes and 93 million products.

That puts Lillian Vernon’s current multi-channel empire a long way from its 1951 mail-order roots. Having fled her native Germany before World War II, a young Lillian, who later changed her own last name to match that of her growing company, settled in New York. She started out by placing a $495 ad for a personalized handbag and belt in Seventeen magazine and with the receipt of $32,000 in orders, her business was launched.

Part of that success is built on a willingness to be open to change, even while staying firmly fixed on the wants of her long-time customer base. The web wasn’t even on the horizon in the company’s early days. But she was savvy enough to recognize the Internet for the opportunity it is—influenced in part by the enthusiasm of her husband, a New York businessman, for eBay. “I knew right away that the web would be a new channel for distribution, another way we could sell,” she says. “And that’s how we’ll treat it; as another business that has its own needs to make it grow.”

And as they grow, Lillian Vernon’s web sales are taking on increasing importance in the company’s overall strategy. “I’m telling everyone here that the web has got to be a big profit center,” she says. “A lot of people in direct marketing have spent as much on the web as we have now, and they’ve made it into a $100 million division.”

And does she see that in her company’s own future? “I can’t tell you the time frame,” she says, “but I absolutely hope that will happen.”

mary@verticalwebmedia.com