catalog

Catalog Retailers

Industry Insight

Date December 2016

Synopsis

Current trends

  • More than 10.5 million catalogs were mailed in 2015, a 4.5 percent decrease that continues a downward trend that began in 2007.
  • More broadly, direct mail volume also declined, but at a slower pace. However, spending on direct mail for the 2015 was up, most likely due to postage increases. To address the problem, the U.S. Postal Service has begun structuring incentives to make these types of mailings more affordable. For example, in 2016 it offered discounts on mail that connected customers directly to a mobile shopping platform, such as through QR codes.
  • Variable data printing, a form of digital printing in which elements such as text and images can be changed without slowing production, is increasing personalization options, improving relevancy.
  • While the use of catalogs is declining, they remain an important tool for many omni-channel marketers. Continued refinement in segmentation, advancements in the integration of online and offline marketing tactics, and the evolution of brand storytelling present promising new avenues.

 

Mail Sent

 

Catalogs per Year

 

Catalogs are evolving: Catalogs are still alive but the recession, changes in shopping habits, and postage increases have contributed to a nearly 45 percent decline in volume over the past 10 years. However, the Data & Marketing Association (“DMA”) reports more marketers are adding mailings to their array of integrated marketing tactics as engagement is growing and clutter is declining. Personalization and relevance are key considerations. Variable data printing has enabled the printing of “custom” catalogs, while the integration of online and offline data has improved segmentation and timing. Despite the high costs, scale and ROI remain strong when direct mail is delivered to a well-targeted audience. Many of today’s catalogs are sophisticated marketing tools that engage customers in a more personal method of selling goods.
 

Direct mail is one of the most measurable of all marketing media. The DMA notes that an omni-channel retailer can use direct mail to activate other touch points such as email and targeted marketing. Major catalog-based retailers typically use direct mail to anchor marketing efforts and drive supporting advertising to subsequently improve the overall effectiveness of a company’s omni-channel platform. Catalogs remain a significant driver of sales both online and in stores for L.L.Bean and Lands’ End, two of the country’s top three catalog mailers in 2015. Retailers using catalogs as a vehicle to drive business through physical stores have differing needs than internet-only retailers that use catalogs as a primary marketing tool. Understanding these key differences and their impact in a liquidation scenario is critical to today’s asset-based lenders.
 

Special liquidation considerations: There are many similarities between traditional brick-and-mortar going-out-of-business (“GOB”) events and catalog/online liquidations; however, unique considerations remain for the latter. In appraisals of companies that rely heavily on catalogs to drive customer engagement and sales, Gordon Brothers assumes that some level of distribution would continue in the initial weeks of a liquidation sale term. While this ultimately drives sales, catalog-related expenses, including creative support staff, photography and graphic design costs, and paper and printing fees would continue to be incurred. These expenses can total several dollars per catalog. Postage rates also add to sale expenses. Understanding the cost of these investments versus the uptick in sales they are expected to generate are critical factors in determining the quantity of catalogs to produce during the GOB sale term. As part of the appraisal scope of catalog businesses, Gordon Brothers analyzes the cost/benefit ratio of catalog production during the liquidation to determine the ideal number of catalog drops warranted given historical and recent catalog sends, internet versus catalog sales as a percentage of total sales, cost per catalog produced, and its relationship to average order size in order to maximize return and minimize expense.
 

Factor in the potential impacts of ongoing returns during the disposition process: In a traditional brick-and-mortar GOB event, a “No Returns / All Sales Final” policy is commonplace or expected. However, this policy does not always work in the catalog/e-commerce sector. Customers may expect to have the option to return goods despite the GOB nature of the event. This is especially prevalent in the apparel, footwear, and jewelry sectors, where a customer’s need to see, touch, and try on items is crucial. The strategy for accepting returns will vary depending upon product classification. In Gordon Brothers’ experience, a certain level of discounting will ultimately outweigh the customer’s hesitation to buy, regardless of the “All Sales Final” policy. By anticipating the impact of this dynamic, and making effective use of sales and inventory data to minimize the total sale term, asset-based lenders can position themselves for better outcomes in liquidation scenarios.