Private equity firm Apollo Global Management will take Rackspace private in the all-cash deal.
Lillian Vernon’s new CEO plans to make greater use of the web in selling and marketing. His goal: 50% of sales coming from the web site.
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.
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.