Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, October 15, 1995 TAG: 9510130018
SECTION: BUSINESS PAGE: F1 EDITION: METRO
SOURCE: MEGAN SCHNABEL STAFF WRITER
DATELINE: LENGTH: Long
As the Christmas shopping season nears, it has been a tough year for catalog merchants, who have been hit with a double expense: a postal-rate boost and increased paper prices.
Companies with area mail-order operations, such as Hanover Direct Inc., the Orvis Co. and J. Crew International Inc., are being forced both to please their customers by providing consistent service and new products and to rethink circulation strategies to cut expenses.
"It's our number one sole biggest challenge," said Mike Lutz, vice president of operations at Hanover Direct's Apparel Center in Botetourt County. The Weehawken, N.J.-based company, which produces 15 specialty catalogs and operates two distribution centers in the Roanoke area, this year saw paper and postage expenses increase by $30 million over 1994 figures, he said. If Hanover repeats last year's profits - $17 million - the expense increase will leave the company $13 million in the hole. This seems a likely scenario, Lutz said.
A postal-rate increase that took effect in January was painful - it raised the cost of sending third-class mail by an average of 14 percent - but it wasn't a complete surprise to catalog merchants. "You expect an increase every three years or so," Lutz said.
Even more damaging has been the steady series of increases in paper prices over the last year or so. Hanover has had to weather a 60 percent increase in paper costs over the past year, Lutz said. "We guessed all kinds of numbers, but we never guessed that high," he said.
David Bray, a sales manager for Quad Graphics, a catalog printer in Wisconsin, said paper companies have been raising their prices by 5 percent to 7 percent every few months.
The increased expenses have begun showing up on bottom lines at catalog companies nationwide. During the first six months of 1995, many of these mail-order retailers had strong sales but saw profits eaten by high overall costs, said Maxwell Sroge, a catalog industry analyst in Evanston, Ill. Hanover, for example, reported a first-half net loss of $12.4 million, compared with net income of $6 million for the first six months of 1994. Part of the loss was a result of shifting several operations to the company's new warehouse and distribution center that was completed in January in Roanoke County, but Lutz said the effects of the move were "minuscule" when compared to paper and postage costs.
But catalog companies haven't been passive bystanders to these impacts on their business, Sroge said. Primarily, merchants are culling their mailing lists - using market research and demographic studies to target their mailings to households that are the most likely to buy their products and cut back on prospecting, the practice of mailing catalogs to people who have never ordered before. Industrywide, catalog mailings are down about 15 percent over last year, Sroge said.
Outdoor and casual clothing retailer Orvis will send out 40 million catalogs this year, roughly the same number as last year, said Pat Theodoros, director of communications at the company's Manchester, Vt., headquarters. Orvis had been increasing its circulation by some 10 percent each year over the last few years. "We are prospecting more cautiously," she said.
Hanover has cut its total circulation, from 376 million catalogs in 1994 to a planned 361 million this year, Lutz said. The company also shut down four catalogs this year - Essence, Mature Wisdom, Simply Tops and One 212 - that weren't performing up to expectations, and has laid off part of its Pennsylvania work force.
New York-based J. Crew, a national retailer specializing in casual clothing, has not reduced the circulation of its catalogs, said John Keith Jr., human resources director at the company's distribution and telemarketing center in Lynchburg. He would not release the privately owned company's circulation figures other than to say that J. Crew sends out "many millions" of catalogs for both J. Crew and its women's-wear offshoot, Clifford & Wills.
Other catalog companies may be trimming page sizes, cutting the number of pages or using a lighter paper stock, Sroge said.
Of course, there remains the risk of cutting catalog prospecting too much - of trimming mailing lists to the point that no new customers are coming to the companies.
But Sroge said it would be much more dangerous for these merchants to waste money on reckless mailings. Most catalog merchants did a lot of prospecting last year, before postage rates increased, and so they can afford to hold back until next year, he said. Thanks to the circulation cuts, the paper market seems to be stabilizing, he said. He is "moderately optimistic" that paper prices will begin to fall in 1996, which will allow merchants to resume cautious prospecting.
\ But price increases notwithstanding, catalog merchants say they're ready for a strong Christmas selling season. Industrywide, Sroge said, the holiday period - which begins for most companies in October - accounts for about 40 percent of yearly sales.
"There's no question that fewer catalogs will be sent out this Christmas than last Christmas," Sroge said. "But I think business is going to be pretty good." He projects that sales for publicly owned companies will be up 12 percent over last year, and says that these companies should maintain solid sales momentum through the fourth quarter.
Accordingly, distribution and telemarketing centers are beefing up their work forces to handle the anticipated rush. Jackie Sarver, telemarketing and customer service director at Hanover's Apparel Center, said her operators took 75,000 calls during the second week in December last year. When the company's other telemarketing centers are factored in, the number rises to 300,000 calls that same week.
To cope with the deluge of orders, an additional 300 to 400 part-time telemarketers and warehouse workers will be hired for Hanover's two Roanoke-area distribution centers, where the work force is 800 the rest of the year.
J. Crew's Lynchburg facility, which handles distribution and telemarketing for J. Crew and its Clifford & Wills women's clothing catalog, employs about 1,000 people during most of the year, Keith said. The number nearly doubles during the Christmas rush. For the second year, the company also will set up a satellite telemarketing center in Charlottesville, where 500 to 600 additional employees will handle overflow calls.
At Orvis' Roanoke County telemarketing and warehouse - the company's sole fulfillment center - about 250 additional telephone sales representatives and 50 extra warehouse workers are hired for the October to January season, said John Moticha, vice president of operations. During the rest of the year, the telemarketing center employs 175 and the warehouse 250.
People hired for the Christmas rush usually work part time on an on-call basis, and they're usually released when the holiday season ends. Christmas employees at J. Crew, for example, work an average of 25 to 30 hours a week in flexible shifts, Keith said. They start at $6.05 an hour once their week of training is finished; during training, they earn $5.45 an hour.
With so much competition from traditional retailers, catalog merchants must be willing to hire extra help to make sure that customers get quick, accurate service, Sarver said.
"We'll go to a lot of extremes to get that merchandise there," Sarver said. "As we get into the Christmas season, delivery times become more important to people," she said. Generally, she said, if a customer places an order three to four days before Christmas, Hanover will guarantee that the package will arrive by Dec. 25, even if the company has to pay for express shipping.
But there's still no substitute for ordering as early as possible, the merchants said. All their computers and sophisticated tracking systems and market research aren't enough to keep the most popular items from disappearing from warehouses early in the season, leaving last-minute shoppers scrambling for alternate colors and telephone reps dealing with irate customers.
The problem remains: There's just no scientific way to predict what customers will want, Lutz said. Companies send out catalogs early in the season to see what people are buying. They set up customer focus groups. They poll employees. And, invariably, everybody's list of the top 10 products is different.
"The hardest thing is to try to anticipate, what does a consumer want," Lutz said. "When you're in this kind of business, you will have backorders."
by CNB