Battle Order

The home shopping industry is poised for a breakthrough. It has shed its dowdy image, it stands to gain from the expansion of the Internet and M&S, a cautious player, is moving into mail order with gusto. And the imminent 350m sale of Freemans

Marks & Spencer’s decision to launch an assault on the home shopping market with its first clothing catalogue is for many observers final proof that mail order is now a credible alternative to the high street (MW last week).

It is ten years since the Next Directory revolutionised mail order which, since the beginning of the century, had been synonymous with outsize Crimplene dresses and the only way low-wage families could stock up for the season on credit.

The Next Directory’s founder Gillian Wilmot, recently poached by Avon, says because M&S is traditionally very cautious its decision to extend its mail order operation into clothes is significant.

“M&S will only go into a new sector after it has been tried and tested by others,” says Wilmot. “It has obviously been watching the market since the launch of the Next Directory and seen that it is possible to make a return.”

M&S refuses to reveal how far it plans to take its mail order operation but it already has a database of 5 million M&S account card holders to target. Industry analysts say it is difficult to predict how the store will fare because there is a very low return from catalogue mail outs, but it does have the potential to build the business gradually. Freemans, the third-largest player, currently has 1 million agents and 5 million regular customers.

But it does not have M&S’ high street presence or its presence in the lives of so many consumers. Tony Adams, a catalogue designer and consultant at T A Design, says the market is ripe for M&S to break into mail order in a big way.

With its trusted brand name, ten-year mail order experience in home furnishings, flowers and wine and extensive data on the buying habits of its account holders, it is likely to be a formidable player and a serious threat to the likes of Freemans, Grattans and Littlewoods.

Littlewoods has already announ-ced that it is getting out of high street stores in favour of mail order, and to that end has twice been circling Freemans whose parent Sears is desperate to sell and recoup money for its shareholders. A spokesman for Littlewoods admits that in the light of the M&S move, Freemans is an even more important takeover target and says it will provide a real boost for the company’s home shopping division now that the fight is on for the biggest share of the market.

“The M&S venture shows that there are opportunities in the market and it is becoming increasingly crucial for us to stay ahead,” says the Littlewoods spokesman. “There is still room for a lot of different players to enter the market and Freemans would allow us to exploit that.”

M&S is expanding its mail order depot in Cheshire, which already deals with its 85m wine, flowers and home furnishings business. And it has already started recruiting staff with mail order experience to join a core group of staff which has been working on the project, scheduled for trial in Spring 1998, for 18 months.

The M&S catalogue will initially be distributed to its account card holders, and the belief among industry analysts is that the whole range of M&S clothing will be available.

Richard Perks, retail analyst at Verdict Research, says: “There is a large majority of M&S customers who do not have access to the whole range of M&S goods because only one sixth of its stores carry the whole range. Mail order is one way M&S can compensate on these losses.”

M&S refuses to comment on how much it is investing in the venture, but analysts say the rolling-out process will be straightforward because its account card operation provides a ready-made database.

With the advent of such an established and reputable retailer as M&S expanding the mail order bandwagon, Wilmot says the distinctions between shopping methods will blur even more and the UK will follow the US, which already has a saturated mail order market.

Adams says: “If M&S gets it right and learns from the mistakes of others it will be good for the whole market. Other players will undoubtedly launch on the back of the trust that is synonymous with M&S.”

The M&S move adds credence to the argument that the 7.5bn mail order business, still dominated by the five big book agency catalogue companies – Great Universal Stores, Littlewoods, Freemans, Grattans and Empire – is increasingly becoming the domain of

established high street retailers. They are using direct mail order as a way of extending their existing brands, getting free advertising and reaching swathes of the population who don’t have access to their stores.

Next demonstrated that the high street and home shopping can be complementary and those following in its wake – including Benetton, Selfridges and HMV – clearly see no conflict of interest, only the potential for the successful evolution of integrated operations.

Burton’s purchase of US company Racing Green and Innovations in 1996 is a way of getting a foothold in the mail order market for the launch of Dorothy Perkins, Top Shop and Burtons menswear catalogues.

Above all, however, mail order has shed its down-market image – there has been a noticeable shift towards catalogues as a fashionable way of shopping.

Phil Randalls, director of the direct marketing agency Catalogue Development Centre says: “Mail order growth is going through the roof with existing businesses looking to reach audiences through different routes. The real growth is in the ABC markets where business is coming from working people with busy lifestyles who simply do not have the time or inclination to spend their leisure time shopping.”

The mail-order companies which traditionally sell to agents – the middle men and women – who then supply their surrounding neigbourhoods are being forced to respond to a changing market which, with the advent of store cards, can no longer rely on the attraction of its once unique credit facilities.

Littlewoods catalogues, which have been going since 1932, now include collections from top designers, Katherine Hamnett, Red or Dead and Jean Paul Gaultier. It is also branching out into niche, separately branded “specialogues” with the launch this year of a catalogue for exclusive French clothing company Jacques Vert. The Freemans catalogue this season includes a collection from trendy high street fashion retailer Warehouse for the first time.

The fate of Freemans is one of the most significant developments of the mail order business. Despite the investment made by a string of retailers to create mail order operations, Sears, with a retail portfolio that includes Selfridges, Richards and Warehouse, is getting out. Freemans suffered a seven per cent fall in profit to 38.3m in its agency sales division last year. According to analysts, profits began to suffer when it changed its image from young and fashionable to more middle-aged.

An estimated 395m deal between Littlewoods and Sears broke down in January because Sears was anxious that an Office of Fair Trading referral to the Monopolies & Mergers Commission (Littlewoods already owns 14 per cent of the total market) would delay the sale.

When the OFT began to look at the deal Sears opened talks with N Brown, only for them to collapse when Sears refused to accept a lower offer – believed to be 350m. Littlewoods is now again back in the frame and really the only candidate, although the General Election will delay any announcement of a final MMC decision.

If the deal goes through, Sears is unlikely to get the 395m it was originally seeking. It is desperate to do a deal and is therefore vulnerable. But Littlewoods cannot afford to see Freemans slip through its fingers to be picked up by a rival who could challenge its position as number two in the UK market – especially now that it has determined that mail order, rather than stores, is its future.

Interest in the home shopping phenomenon has been fuelled by the hype surrounding the Internet as Cyber commentators predict virtual shopping malls and “instant” delivery of goods.

Perks believes it will be several years before online shopping starts to make any impact but that retailers ultimately view mail order as a way of exploiting a whole range of home shopping opportunities.

However, he warns against over-estimating the importance of virtual shopping and home shopping in general. “Although the increased interest in home shopping is partly due to a shift in lifestyles and a desire for convenience, people will always want a certain amount of personal contact with what they are buying,” says Perks.

There will always be a significant core group of consumers who regard shopping as a leisure activity and, with only a 3.4 per cent share of the entire 250bn retail market, mail order still has a long way to go.

But with the greater commitment of M&S to mail order, and the involvement of others – from the Burton Group to the supermarket chains – it may become a service that customers will demand as standard.

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