Catalog Marketing: The View From 35,000 Feet

continued --- Page 2

The Technical Elements

To balance the fundamental outlook on the national and international economies and, further, to extrapolate the fundamental influences on the direct marketing and catalog industry, it is necessary to examine a variety of long term measures to attempt to achieve relevance and balance. Some of the regular measures we look at include:

• Real Gross Domestic Product: annual rate of change;
• Unemployment Rate: seasonally adjusted;
• Industrial Production: percent change in capacity utilization from previous month;
• Purchasing Managers’ Index: expansion and contraction in manufacturing activity;
• Retail Sales: seasonally adjusted total, month-to-month;
• Consumer Spending: change in monthly personal consumption expenditures;
• Consumer Confidence: Conference Board’s measure of confidence in the economy;
• Consumer Prices: percent change from previous year, month-to-month;
• Producer Prices: percent change from previous year, month-to-month;
• Housing Starts: annual rate of new home starts;
• Existing Home Sales: annual rate of sales of existing homes;
• Trade Deficit: amount of import dollars spent over export dollars invoiced;
• Leading Indicators: year-on-year and month-on-month percent change in aggregate economic indicators;
• Payrolls: increase or decrease in non-farm payroll activity, month-to-month.

From these individual technical elements of the overall economy, a further “positive-neutral-negative” determination is made in each case and an aggregate picture is formed for comparison with the overarching fundamental elements influencing the economy and, by extension, our industry. In order as above, these would be:

The technical elements show 6 positive or neutral directions and 8 negative directions, overall a negative outlook and a reinforcement or validation of the more steroidal fundamentals. It is logical and balanced to state that the economic elements of the national, and actually, global economy are negative at present. If we examine the directional momentum and velocity of each of these elements, the majority of them have gained in negative momentum and likely will not reverse in the immediate future.

Strategic Influences

Moving from the broad-based economic analysis and focusing on the direct marketing and catalog industry, a number of strategic influences can be isolated and commented on. The first of these is the growing influence of retail sales in the catalog industry. Many catalog companies in recent years have moved closer to the retail world. Similarly, many retail companies have moved closer to cataloging. The end result is a much more hybrid industry than we had 10 or 20 years ago. This evolution is seen in both consumer and business-to-business catalog companies; both seem to have found opportunities for expansion and, perhaps, profitable growth in the retail channel.

And, while some catalog companies have moved laterally to a larger presence in the retail channel, there are non-catalog companies in both the consumer and business-to-business realms who have, at the same time, also moved laterally and have entered the catalog channel for the first time. The net effect is homogenization of the channels, a fact I first began to see and write about in 1988. Whether in the U.S. or in the U.K., the Main Street and High Street retailers and the catalogers have blended together to a greater degree, in both retail and business-to-business. The middle has expanded, and perhaps that is positive.

A second strategic influence is the growth in commonality of products. Simply put, there are way too many “stores” selling the same stuff. In a time of negative economic conditions, a lot of those undifferentiated merchants---retail and catalog--have to go away in order to restore equilibrium in the economy. It’s just a fact: the weak die; the strong survive.

A third strategic influence is the reality of economies of scale. A five million dollar business is hard pressed to compete against a three-hundred million dollar business in the same space. Critical mass and buying power have reached levels unseen before in the catalog and direct marketing channel. At a time when price is being driven down globally, the economies of scale favor the large player and the mass merchandiser. It is no longer sufficient to say, “But, we dominate our niche and differentiate ourselves through customer service.” Increasingly, price is what matters. The billion dollar plus, omni-channel, price leaders have exquisite power over the niche player in today’s economy. If you don’t believe it, remember that Sam’s Club and Wal-Mart are the largest pharmacy in the U.S. and sell more flowers than almost all independent flower shops combined.

And, fourth, all three of these strategic influences discussed are enhanced, elevated or expanded in influence through the Internet. Yes, the Internet favors channel homogenization, product homogenization, economy of scale and lowest price migration. The Internet favors the Bigs, and when the Bigs figure this out, it will be a whole new deal.

If then, we list the strategic influences on the direct marketing and catalog industry, we see:

Overall, then, these few strategic influences can be seen as exerting negative pressure on the catalog industry, especially on the small catalog company.

The Aggregate Condition

The aggregate fundamental, technical and strategic influences on the economy are clearly tipped to the negative side. “But, aren’t these influences usually negative?”

The answer might just be, “Yes.” There have been few times when all of the technical indicators of the economy were pointing in the right direction or the fundamental influences were all perfect. In fact, some of our best catalog companies were begun during the difficult economy from 1973-1983. What the aggregate condition doesn’t show are the record low interest rates we currently have, the immensity of the U.S. economy, the strength of foreign investment and other underpinnings that allow us to weather the downturns. Without resorting to jingoism, it is fair to say that this is the most powerful and stable economy in the world and it would take a great deal more disruption to lessen that inherent strength.

However, There IS a Message

If one looks at each of the elements discussed here under the fundamental, technical, strategic and aggregate influences, one must conclude that there are, indeed, operational, financial and strategic priorities that require attention now.

For some catalog companies, the focus will be on strengthening the position relative to the fundamental potentials. For others, honing operations and expenses relative to the technical elements. And for others, enhancing the strategic influences will be the first priority.

Unfortunately, there are also those catalog companies who must focus on all three. They are likely the weak companies and the catalog houses that will be absorbed into the ongoing consolidation that feeds the insatiable drive for economy of scale, critical mass, growth and incremental profitability, and enhanced EBITDA.

As always, the message is that here, at 35,000 feet, is another perspective, another sense of relevance, another synthesis of thought that might not have been conceived had we not had this moment together. Perhaps it will lead you to a new and beneficial course of thought and action. If so, I have accomplished my purpose.

Previous | Next

Page 1 | Page 2

Back to Top