Industry Profiles: Catalog and Mail-Order Houses

Overview

Mail-order and catalog houses serve the busy lifestyles of many U.S. citizens as well as the less mobile lifestyles of the aging. Mail-order shopping allows customers to purchase the whole gamut of merchandise: home furnishings, electronics, clothing, lawn and garden supplies, books, music, videos, and even groceries—almost anything practically saleable is available through mail-order houses. The industry includes firms who sell almost exclusively via mail, as well as those who rely on additional channels (including physical retail stores) for generating revenue. By the early 2000s, e-commerce was an accepted way of doing business. "Threesellers" were an emerging category of merchants who utilized catalogs, physical stores, and the Internet to serve their customers. Although catalog retailers initially were slow to integrate the Internet into their operations, almost all of the industry players had a Web site by 2002. Beyond general economic fluctuations, increasing postage rates were a key concern for mail order business. According to the Direct Marketing Association (DMA), catalog sales grew at an annual rate of approximately 12 percent during the latter half of the 1990s, reaching an estimated $111 billion in 2000.

History of the Industry

Venician book merchant Aldus Manutius provided one of the first mail-order services in 1498, selling Greek and Latin books via a catalog, according to Ronald Vanderwey in The Journal of Lending & Credit Risk Management. In the United States, Benjamin Franklin used catalogs to sell scholarly literature in 1744. As people moved across the country and began dwelling in rural areas, catalog shopping offered a convenient alternative to traveling long distances to shop at general stores. In the 1800s, catalogs such as Orvis and Montgomery Ward sprang up and started to flourish. Since 1856 Orvis has marketed fishing gear and, since 1872 Montgomery Ward has sold general merchandise. As railway transportation improved, connecting the East Coast with the Midwest, Richard Sears and Alvah Roebuck teamed up to offer a general merchandise catalog in 1887.

Technological advances of the twentieth century propelled the industry to even greater success. In 1913 the U.S. Postal Service began offering parcel package delivery and, in 1928 it introduced third-class bulk mail, creating an inexpensive method of sending packaged goods. The Diners Club offered the first credit card in 1950, ushering in increased demand for mail-order and catalog shopping. The credit card provided users with a convenient and safe means of payment and hence facilitated catalog shopping. Later, AT&T made mail-order shopping one step easier by introducing toll-free phone numbers and the computer era of the 1990s allowed some mail-order houses to offer CD-ROM catalogs to replace the mailing and manufacturing of costly print catalogs.

The 1980s were a period of rapid growth for the industry. During that decade, catalog sales rose briskly and the industry expanded by approximately 300 percent. Mail-order houses and catalog-based retailers continued to experience growth in the mid- to late 1990s, although sales did not rise as they did during the previous decade. Driving growth during the 1990s were advances in marketing based on knowledge of consumer spending patterns and demographics.

Significant Events Affecting the Industry

In the mid- to late 1990s, the industry turned to niche marketing or segmentation, discontinuing large general merchandise catalogs, which it relied on in previous decades. Instead, catalog and mail-order houses created small, specialized catalogs based on demographic and marketing research information. Sears got rid of its "Big Book" catalog in the early 1990s, marking the end of this form of catalog marketing and replaced it with 18 specialized catalogs that catered to the different tastes of its 24 million customers, according to Vanderwey. With rising postage and catalog production costs, general catalogs no longer offered a cost-efficient way to market mail-order products. Moreover, the increase of mail-order houses brought about a glut of catalogs and promotions, which failed to excite consumers and led to sluggish sales in the early 1990s. Consequently, mail-order houses worked to make their products stand out or match the buying patterns of their catalog recipients in the mid-1990s and early 2000s. This was more challenging for catalog marketers who sold products to business clients. Catalogs of business products, such as computers and accessories, often look very much alike and therefore lose their differential among potential buyers. Because of this, the need for creativity was paramount for business-to-business catalog marketers.

With the popularity of the Internet in the mid- to late 1990s, mail-order houses and general retailers alike set up World Wide Web sites to sell their products over the Internet. With millions of Internet users throughout the world, companies saw great potential for sales via this new medium. Initially, security concerns and tax uncertainties hindered the industry. Some users remained wary of providing their credit card numbers on the Internet, fearing hackers might intercept them. This led to the creation of secure servers that scramble confidential information. By 2000, e-commerce had exploded in popularity, and e-sales to consumers were estimated to be approximately $38 billion, according to eMarketer.. Catalog companies discovered that their print catalogs could be effective means of increasing sales on their Web sites and vice versa. This was good news for an industry that can be adversely affected by rising postal rates. According to the DMA, the percentage of industry net sales attributed to the Internet increased from two percent in 1999 to 13 percent in 2000. The share of net sales attributed catalogs declined from 80 percent to 68 percent during the same time period.

The industry also faced the challenge of reducing waste because of its approximately 100-billion advertising pieces mailed annually throughout the world. With growing consumer environmental awareness U.S. consumers voiced strong concern for the environment, calling for the reduction of advertisement and packaging materials and doing business with companies that held similar views on the environment. To shed this negative image and to save money, some mail-order companies started to reduce the amount of paper used by viewing on-screen before printing, verifying addresses before mailing advertisements, using recycled paper and recycling paper, and publicizing their commitment to environmental protection.

Key Competitors

Although approximately half of its sales come via the Internet, Dell Computer Corporation has achieved enormous success using mail-order techniques, ranking number one in terms of directly marketed computer sales. Headed by founder Michael Dell, the company established itself as the world market share leader in the early 2000s. Dell caters to consumers, as well as the business and government market. In 2001 the computer system company posted revenues of $31.2 billion.

United Services Automobile Association (USAA), a worldwide insurance and financial services institution headquartered in the United States, was another leading company in the mail-order industry. The company emphasizes telephone and direct mail sales to professional, well-educated consumers paid by the U.S. military. Given its primary clientele, the company is less susceptible to economic recession than most retailers. USAA is a leader in the use of advanced database marketing and management techniques. In 2000 the company's sales reached $8.6 billion.

Leading apparel catalog and mail-order retailers include L.L. Bean, Lands' End, J. Crew, and Blair. L.L. Bean Inc. issues about 14 different catalogs per year and specializes in outdoor apparel, home furnishings, and sporting goods. In 1976 the company was assigned its own ZIP code because of its significant direct mail volume. Led by Chairman Leon A. Gorman and President and CEO Chris McCormick, the private company also operates 10 factory outlets in the United States. In 2001 L.L. Bean posted an estimated $1.2 billion in sales, up more than nine percent from 2000.

Although an increasing amount of sales were made via its Web site in the early 2000s, Lands' End Inc. provides a number of different catalogs featuring its casual and outdoor apparel for men and women. In addition, Lands' End provides specialty clothing for children as well as housewares. The company markets its products abroad and has a physical retail presence in both the United States and the United Kingdom. Supporting Land's End's position as the leader in online apparel sales in the early 2000s was its My Virtual Model technology, which allowed shoppers to enter their measurements and virtually "try on" clothing via the Web. In 2001 Land's End brought in $1.5 billion in sales. David F. Dyer is the company's president, director, and CEO.

J. Crew Inc. markets casual and professional wear for men, women, and children via catalog sales, its Web site, and at physical retails stores in the Unites States and Japan. Chairman and chief designer Emily Cinader Woods heads J. Crew, which reported about $826 million in revenues in 2001. J. Crew had 112 retail stores and 42 outlets in 2001, when it was in the process of opening more than 25 new U.S. stores.

Blair Corporation provides mail-order low- and medium-priced casual and professional clothing for men and women, as well as home furnishing and electronics. A large percentage of the company's customers are older adults. In 2001, Murray K. McComas served as the company's Chairman and John E. Zawacki was its president, CEO, and director. That year, Blair posted sales of approximately $581 million.

Williams-Sonoma Inc. was one of the leading U.S. houseware retailers in the early 2000s. As a leading "threetailer," the company sold products via catalogs, physical store locations, and the Web. In the early 2000s, it operated five different business lines: Williams-Sonoma, Chambers, Hold Everything, Pottery Barn, and Pottery Barn Kids. In 2002, W. Howard Lester was the company's chairman and Dale W. Hilpert was its director and CEO. That year, Williams-Sonoma posted revenues of $2.1 billion.

Industry Projections

Total catalog sales stood at approximately $111 billion in 2000, according to the Direct Marketing Association (DMA). The DMA expects catalog sales to reach $155 billion by 2005. Though catalog revenues grew by 11.5 percent per year between 1995 and 2000, the DMA forecasts the industry's growth rate to cool down to 7.0 percent between 2000 and 2005. Consumer catalog sales climbed to about $68 billion in 2000, while business sales rose to $43 billion. During the last half of the 1990s, the industry's advertising expenses grew at an annual rate of 9.0 percent, totaling almost $14 billion in 2000. The DMA forecast this growth rate would slow down in the first half of the 2000s to 5.6 percent annually, reaching approximately $18 billion in 2005.

Global Presence

The U.S. mail-order industry has remained one of the strongest in the world earning billions of dollars per year and penetrating international markets. Nonetheless, several European companies have not only done well in their respective countries but they also have captured part of the U.S. market. Germany's Otto Versand Gmbh & Co., for example, is the largest mail-order company in the world, selling items via the Web and through approximately 600 different catalogs. In 2001, the company posted sales of $15.6 billion and employed 75,962 people. Otto Versand owns brands popular in the United States such as Crate & Barrel and Spiegel. The company's reach extends to 20 different countries around the globe.

Britain's GUS plc (Great Universal Stores) is another one of the leading mail-order houses in Europe and the world. According to the company, 66 percent of its sales come from its Argos Retail Group, which reaches customers via a variety of channels including the Internet, digital television, in-store, and via catalog. Argos' Kay's, Choice, Great Universal, and Wehkamp catalogs sell more products than any others in Britain. GUS markets its wares throughout Europe and South Africa. In 2001 the company employed 69,708 workers and recorded sales of $8.6 billion.

Mail-order shopping increased by about 11 percent per year in Japan since it was first introduced in the 1970s, according to Nikkei Weekly. Although 10 large Japanese companies control about 50 percent of the market, they employ out-dated marketing techniques such as sending out large general catalogs. However, more efficient international companies such as Lands End and Japan KK have begun to flourish using niche-marketing tactics as practiced in the United States. In the mid-1990s, U.S. mail order companies were eager to sell products in Japan, which then had a flourishing economy and a population that was hungry for American products. However, when economic conditions worsened in Japan in 1997, many U.S. firms pulled out. As conditions began to improve in the early 2000s, some catalog retailers began to combine their catalog offerings with Web sites aimed at attracting Japanese customers. Some U.S. firms, such as Land's End, also opened physical locations in Japan to support their mail order operations.

Employment in the Industry

Although the catalog and mail-order industry generally offers fewer employment opportunities in contrast to retail businesses with similar sales volumes and although advances in automation and information systems could reduce job growth as companies eliminate labor-intensive positions, the industry's workforce nonetheless is expected to increase through the mid-2000s. The industry employed about 479,500 workers in 2000 and the DMA predicts that employment will rise to 566,300 by 2002. Even though the industry's employment growth rate is forecast to slow down to 3.4 percent a year, it will remain well ahead of the country's general employment growth rate of 1.3 percent during the same period. According to DMA predictions in the late 1990s, the greatest job opportunities in the mail-order industry will be in the areas of computer programming and information system management as companies seek to integrate and streamline customer, inventory, and financial information.

Sources for Further Study

1999 economic impact: u.s. direct marketing today executive summary. new york: the direct marketing association, 1999. available at http://www.the-dma.org.

boyle, lois. "dare to be different." target marketing, june 2001.

the dma state if the catalog industry report, 2001 executive summary. new york: the direct marketing association, 2001. available at http://www.the-dma.org.

edelson, sharon. "fashion reevaluates flickering fortunes of tv home shopping." wwd, 8 november 1995.

fishman, arnold. "mail order marketplace." direct marketing, september 1997.

foch, dirk j. "why united states cataloger should enter europe now." direct marketing, june 1997.

goldner, paul. "mail order marketing: a world wide view." direct marketing, may 1996.

hoke, henry r. "editorial." direct marketing, june 1996.

kiener, sigmund. "the future of mail-order." direct marketing, january 1995.

kutoba, coco. "japanese buyers let their fingers shop in u.s. catalogs." journal of commerce and commercial, 22 april 1997.

mussey, dagmar. "otto expands family-owned catalog empire." advertising age, 9 september 1996.

"new emarketer report reveals online shopping continues to grow, despite downturn in u.s. economy." emarketer, 20 september 2001. available at http://www.emarketer.com.

sacks, doug. "hot markets for 1998." target marketing, january 1998.

vanderwey, ronald. "lending to mail order companies." the journal of lending & credit risk management september 1996.

yamamoto, yuri. "mail-order companies home in on markets." nikkei weekly, 7 april 1997.

yorgey, lisa a. "far from over." target marketing, june 2001.