Old Meets New

A new president brings an Internet background to a 50-year-old catalog

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It was in the graduate business school at Stanford University in the early 1990s that Jonathan Shapiro came to the realization that, as he puts it today, “The worlds of the media and technology were colliding and I wanted to be in the middle of it.”

At the time, Shapiro thought his destiny was a career in the high-definition broadband cable industry. Instead, his interest in technology and the media have, a dozen years later, put him in the middle of an effort to use the Internet to boost the fortunes of an old-line, somewhat conservative catalog business. In January, Shapiro was named president of cataloger and online merchant Lillian Vernon Corp.

While the merchant of decorated cookware, party items and other home decor merchandise doesn’t seem like it’s at the epicenter of the collision that Shapiro envisioned, the company’s new owner, private equity company Zelnick Media Corp., is a partnership of media executives with experience in the television, recording, print media and direct marketing industries. And they see the old cataloger and the new media coming together.

Bridging two worlds

For Shapiro, this position offers the opportunity to apply some Internet marketing savvy he’s picked up over the last decade to a more traditional medium—that of the catalogue industry. “Jonathan understands the catalog marketing world as well as the Internet world,” says Kevin Ryan, CEO of DoubleClick Inc., where Shapiro was in charge of strategic planning and mergers and acquisitions. His duties included oversight of Abacus, a DoubleClick acquisition that pioneered in the development of databases related to consumer buying habits. “Everyone thinks of DoubleClick as an Internet company,” Ryan says. “But we do a tremendous amount of business offline. Abacus is not an online business, but it provides very valuable marketing information used by the catalog industry.”

Before he got to this point, Shapiro spent a decade working in other high-tech media capacities, such as setting up the Dilbert comic strip web page—complete with a $1-million sales operation—advising client firms on how to develop their Internet sales operations, running strategic planning for DoubleClick and managing a catalog customer database operation. All of which, colleagues say, put him in  a unique position to spark new life in the Lillian Vernon brand.

“He has a combination of the two qualities that Zelnick wanted in a manager for Lillian Vernon—an extraordinary knowledge of direct marketing in general and Internet sales in specific,” says John Friedlich, partner in ZelnickMedia.

Shooting for 50%

Shapiro may have his work cut out for him, however. Although the 53-year-old Lillian Vernon brand is known for a loyal, almost devoted, customer base, it has not been able to attract a broader clientele than the largely female, middle-America base it has served from the start. In addition, this is a company that has seen better times as 2002 sales of $256 million dropped 10% from the previous year and reflected a net loss of $9 million. Since ZelnickMedia acquired it last April, Lillian Vernon has stopped releasing financial data.

But ZelnickMedia saw something in Lillian Vernon that it wanted, since it paid $7.25 a share for a company that was selling at $4.20 a share—a 73% premium. Shapiro thinks the price was justified and that he can turn Lillian Vernon around—with the Internet playing a big role.

Shapiro sees big stuff for the Lillian Vernon web site, but this is not the start of Lillian Vernon’s web strategy. In fact, far from it—the company had a web site as far back as 1995. Today about 33% of sales come from the Internet. Shapiro thinks he can get that number up to 50% within two years and not all the gain will come from siphoning off catalog orders.

That’s a tall order in this market, some analysts say. “A lot of catalog companies have seen their Internet sales growing substantially as a percentage of their total sales,” says Herb Krug, president of Evanston, Ill.-based Catalog Marketing Group, an affiliate of Chicago-based retail consultants McMillan/Doolittle. “But a majority of the Internet sales can be traced back to the catalog.” While that has some benefit to catalog companies because the Internet is a lower-cost channel to process orders than the telephone, moving such orders to the Internet does not achieve the ultimate goal in driving incremental new business.

But Shapiro has some ideas on how the Internet can be used to attract new customers, get existing customers to order more and broaden the firm’s product offerings without going so far as to alienate existing loyal customers.

At the heart of these Internet strategies are plans for the adoption of customer e-mails, web tests of new product ideas before they are committed to the more expensive catalog format, offering customized products that lend themselves better to Internet ordering and better utilization of search engines.

With e-mails, Shapiro is looking to build upon the loyalty of existing customers to get them to buy more. Rather than have to wait for new catalogs to arrive before they place orders, customers will get regular e-mails that are expected to trigger impulse spending. These e-mails won’t be the hard-sell marketing pieces that emphasize products and price. Rather, they’ll be more like informational newsletters that provide household and party-planning tips that are related to the Lillian Vernon product line.

Celebrating life

For example, Shapiro plans to play on Lillian Vernon’s strength in selling party items by sending e-mails with seasonal party-planning guides. “We constantly use the phrase that ‘Lillian Vernon is about celebrating life for less’ so we want to build on that theme by giving tips on how to do just that,” Shapiro says. In January, e-mails told customers how to host a Super Bowl party and that was followed a month later with online tips for hosting an Oscar party. While the results of the latest two ventures are not yet in and Shapiro won’t reveal specific numbers he says the open and conversion-to-sales rates from Lillian Vernon’s e-mails are “higher than industry averages” for similar e-mail.

Shapiro also plans to use the company’s web site to test new product lines. Already, he has tried that with adult Halloween costumes. “We’re known for our kids’ costumes and we wanted to see if we could successfully expand into the adult costume business,” Shapiro says. By offering costumes on the Internet first, which is a lot less costly than spending valuable catalog space on an unknown commodity, Lillian Vernon was able to gauge interest. Once the firm saw that adult costume sales did indeed meet expectations, the firm committed to listing them in the catalog. “If a product does not resonate on the Internet, it is a good bet it won’t work in our books either,” Shapiro says.

That said, he admits there are some products that just lend themselves better to the Internet and will be sold only there. For example, the company had been contemplating a product that allows customers to create signs that reflect their favorite quotations. Offering such a product in a catalog would require customers to call in their favorite quotes and that process runs the risk that a service rep will write down the quote wrong or misspell some words. Having customers mail in the orders creates another problem of having the staff be able to read the handwriting accurately. But with the web, customers type in their own quotes and verify them themselves for accuracy.

Photo finish

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Similarly, Lillian Vernon plans to begin offering consumers the ability to have photos printed on items, such as mouse pads and coffee mugs. By using the Internet to offer this service, customers can e-mail digital images to Lillian Vernon. Not only are digital downloads more expedient to process than mailed photos, but the quality of reprint is better, Shapiro explains.

One final component of Shapiro’s strategy relates to improved use of search engines. “We need to look closer at finding what terms customers are using in their searches that best fit our products so that when customers ask for a particular item, we show up near the top of the list,” he says.

And while a lot of companies are making large investments to make sure they’re listed first on search engines, Shapiro believes that it’s important to be near the top, but being first is not always essential. “We may not need to be on the first line, but we want to try to figure out what is the most economical placement for us,” he says.

Shapiro brings search engine experience to his new position. “During his time with DoubleClick, he worked with such search companies as Google to develop more highly focused online marketing campaigns,” Ryan notes.

As part of these search engine efforts, Lillian Vernon also is forging portal deals with such companies as MSN.com and paying other search engines for advertisement placement.

For the future, Shapiro is looking at more advanced Internet applications that might help the catalog business, such as a commercial application of live chat. Such technology could detect if a customer is looking at a specific page on the Lillian Vernon web site for more than 30 seconds. If so, a banner would pop up to ask if the customer has questions and would like to chat with a customer service representative about any offering.

Customized pages

He is also looking at how to better mine customer databases to customize what individuals see when they go to the Lillian Vernon web site. “Page one might look different to various customers depending on their profile,” he says.

All these ideas for revitalizing Lillian Vernon come from a decade of looking at Internet applications and database management.

After finishing graduate school in 1994, Shapiro worked as a consultant with McKinsey & Co. where part of his responsibility was to develop Internet strategies for clients, including Time Inc. It was during such work that Shapiro concluded, “This Internet thing was going to be pretty big.”

To get in on the action, he accepted a position in 1996 with United Media to set up that firm’s Dilbertzone web site, based on the popular comic strip character. He quickly moved Dilbertzone into the top 50 news and information sites. And even more important to his current efforts, he  turned Dilbertzone into a top commerce site. “In our first year, we sold more than $1 million worth of Dilbert memorabilia,” he says, including books, calendars, coffee cups, ties and t-shirts. “That experience got me excited about the potential of the Internet as a sales channel.”

In 1998, he wanted a different Internet experience and so joined DoubleClick.  From Abacus, Shapiro learned how direct mailings could be targeted better and he also looked at how Internet data could be combined with the conventional consumer databases retained by Abacus to gain even greater insights into consumer behavior. “The notion was to pool information about customers to make direct mailing more targeted,” Shapiro says. “A lot of what I learned at Abacus can be put into practice elsewhere.”

In addition to the Abacus experience, Shapiro provided “instrumental site analysis and marketing services,” to other units within DoubleClick, according to Ryan. “During the five years he was a senior member of our management team, he worked with a number of our business units and showed a lot of versatility,” Ryan says.

From DoubleClick, Shapiro went to ZelnickMedia, a private equity firm that previously had been known for its involvement in the entertainment industry. “I believed in the multi-channel sales aspect of e-commerce and I wanted an opportunity to build a great multi-channel marketing company,” Shapiro says in explaining his decision to go with ZelnickMedia.

Meanwhile, having just purchased Lillian Vernon and taken it private in April 2003, ZelnickMedia was looking for someone who could turn the operation around. At first, ZelnickMedia assigned Shapiro to consult with Lillian Vernon, both the company and its namesake founder, who was and still is involved in its operation. She and her family still owned 40% of the stock at the time of the sale and they received $24 million. Six months later, impressed with early results, ZelnickMedia appointed him president.

Great history, loyal customers

Friedlich, who knew Shapiro from past projects, including working with DoubleClick to develop the Wall Street Journal’s WSJ.com, says that Shapiro brings more than just insight into marketing and technology to his new job. “He has tremendous personal leadership qualities,” he says. “He seems to have taken on his new role seamlessly and his track record during the six months that he was a consultant to Lillian Vernon has been very encouraging.”

And while Zelnick was impressed with Shapiro’s credentials, Shapiro was excited by the opportunity that Lillian Vernon presented. “Here is a company that provides a real opportunity. It has a great history and a strong, loyal customer base,” he says. “It just needs to broaden that customer base by marketing more effectively.”

To do that, however, Lillian Vernon will need management that understands the intricate details of Internet-based marketing but won’t abandon the needs of the catalog side as well. The people who know him think that person might just be Jonathan Shapiro.