Printed catalogs are not as profitable as they once were, but they can complement online marketing.
For four to six weeks around a major holiday like Easter or Mother's Day, a printed catalog can be an effective way for Harry & David Holdings Inc. to market its gourmet foods gift baskets.
"The catalog is a brand ambassador," while the web does double duty as a marketing and transactional avenue, says Paul Lazorisak, the retailer's vice president of customer marketing. Consumers may consider gifts a month ahead of a major holiday, and many like to flip through a paper catalog as they consider their choices, he says. "We can get a nice message out there with a catalog that will resonate with customers for an extended period of time."
For events that prompt fewer consumers to shop, for example teacher or employee recognition days, online marketing is more effective, he says. By placing display ads on web sites or sending e-mails, Harry & David can quickly get marketing messages in front of consumers. "The promotional cadence is geared to those moments," Lazorisak says.
As a result, Harry & David, No. 132 in this year's Top 500 Guide, sends fewer printed catalogs than it once did, though Lazorisak declined to offer specifics on how many it sends. Instead, the retailer relies more on online marketing and its e-commerce site to carry online sales. In 2012, Harry and David's e-commerce sales of $171.9 million accounted for 46.5% of its fiscal 2012 sales of $369.3 million. By comparison, in 2005, web sales accounted for 17% of total sales of $561.8 million.
Harry & David's evolution over the last decade is typical of many retailers that, until the Internet came along, relied on print catalogs to generate orders that they accepted over the phone and by mail. The rise of the web, combined with higher printing and mailing costs, has significantly reduced catalog mailings. Since 2003, when 17.2 billion catalogs were mailed, the number of catalogs mailed fell 27.3% to 12.5 billion in 2011, according to the Direct Marketing Association's analysis of U.S. Postal Service reports.
Fewer glossy catalogs going out has limited catalogers and direct marketers' online growth. But by no means has it doomed them to failure. While as a group they have not grown as fast online in the past decade as most web-only merchants or retail chains, the ones that have survived have learned to judiciously mix a variety of marketing tactics that keep their customers loyal—and buying online.
Those efforts have largely worked. How catalog and call center retailers have fared online in the past decade—showing steady but not spectacular growth—is clear when comparing data from the 2013 Top 500 Guide and the first iteration of the guide in 2004, when Internet Retailer ranked 300 online merchants in the Top 300 Guide.
As a group, catalog and call center retailers grew 320.6% over the 10-year period, generating 2012 sales of $24.62 billion, up from $5.85 billion in 2003. That places those merchants well behind web-only Top 500 retailers, which grew 842.1% thanks in large part to Amazon.com Inc., but ahead of most other categories.
However, the story is not quite as optimistic when looking at how 2012 sales compare with 2011. Total 2012 sales for catalog and call center merchants grew 9.9% over 2011. Meanwhile, web-only retailers, with $91.58 billion in 2012 sales, grew 24.9% from 2011's total of $73.33 billion. In fact, catalog and call center retailers suffered the largest decrease in e-commerce market share among the four types of merchants, losing 6.5% in 2012, while web-only retailers—aided by No. 1 Amazon's continued strong growth—gained 6.3%.
While Top 500 catalogers fell short of the 15.8% 2012 overall U.S. e-retail sales growth rate, they easily exceeded the 287.3% growth in e-commerce over the last decade, according to the U.S. Department of Commerce. They've managed steady growth, even as their industry has rapidly changed, by adapting to the web while retaining their catalogs as marketing tools. In essence, they are using knowledge gained from catalog sales to enhance their e-commerce efforts, and vice versa.
Meanwhile, many continue to cut back on the number of catalogs they mail. For example, Systemax Inc. (No. 25), parent of TigerDirect.com, shipped 13.0 million catalogs in the United States in 2012, a 46.3% decrease from 24.2 million in 2011, as online advertising has largely replaced catalog mailings as a marketing vehicle, the retailer says. Online advertising expenses of $11.4 million accounted for 65.1% of the additional $17.5 million Systemax spent on advertising overall in 2012, the company reports.
With fewer catalogs in the mail, retailers like pet products retailer Drs. Foster & Smith Inc. (No. 127), which generated $184.6 million in Internet Retailer-estimated online sales, have tested new ways to connect with consumers via the web. In 2011 Drs. Foster & Smith produced two four-hour, TV-type programs that consumers could watch on the retailer's web site the day after Thanksgiving, commonly referred to as Black Friday, and the following Monday, known as Cyber Monday. It promoted products and hosted giveaways.
The experiment netted Drs. Foster & Smith a 30% increase in Black Friday sales compared to a year earlier, and a 15% increase on Cyber Monday, says Gordon Magee, the retailer's Internet marketing and media manager. He would not disclose the sales figures.
Despite the emergence of newer online marketing tools, catalogs will remain a primary way to connect with consumers, he says. "It will continue to be a major driver of sales," he says. "I don't see that going away at all. A catalog puts your offer in front of consumers."
Drs. Foster & Smith catalogs also provide educational material, with 10% to 15% of the pages in a catalog devoted to education content, Magee says. That percentage has not wavered, even though consultants early on said that was too much. But the retailer understood that consumers might be inclined to reciprocate with a purchase in exchange for the helpful information, he says.
"If we took care of the customer, they would turn to us," Magee says, summarizing the retailer's philosophy from the start. It's all the more important in the Internet era. "You really do have to take care of the customer," he says, "simply because they can shop so easily with your competitors."