Agency-based mail-order catalogue companies are having to reinvent themselves in the face of stiff high street competition, which has led to falling sales.
Long dependent on the agency model – where sales agents distribute the catalogue and take orders in their local area – larger mail-order companies are taking a lead from newer entrants to the market by producing direct, targeted catalogues.
Otto Versand is hoping to boost its struggling UK operation, which includes agency-based titles Freemans and Grattan, by importing ideas from its German home market. It has already introduced the direct catalogue Together and in September will launch Pure by Together, a sub-brand aimed at women aged over 35 (MW last week).
Richard Perks, a senior retail analyst at Mintel Retail Intelligence, says: “On the continent, Otto Versand has had a lot of success with small, specialist mail-order titles.”
Although the home-shopping market is growing – by 4.6 per cent to &£10.6bn in 2000 – the mail-order and direct-response category, which accounts for three-quarters of home-shopping sales, decreased in value by two per cent to &£8.bn (Mintel). Major mail-order companies, which tend to rely heavily on agency catalogues, experienced a four per cent fall in sales, to &£4.8bn, while smaller, more specialist mail-order companies increased sales by 13 per cent to &£1.7bn.
Analysts agree that mail-order has been hit by the competitive prices offered by high street clothing outlets, particularly value stores such as Matalan. Retailers also have shorter lead-times, enabling them to keep up with changing fashions.
Agency mail-order has traditionally offered a comprehensive package of free credit, free delivery and a returns policy, and with agents’ ten per cent commission, prices have tended to be higher than the high street.
Verdict senior analyst Sally Bain says: “The direct mail-order category, where customers pay a delivery fee and sometimes get a free returns policy, is more competitive on price.”
She says one of the biggest factors affecting agency mail-order has been the availability of cheap credit through storecards, the wider availability of credit cards and low base rates.
The credit boom comes at a time when society is changing and communities are breaking down. Agent numbers have fallen, with those remaining selling to fewer shoppers.
These factors have meant that traditional mail-order companies are having to reassess their business models and customer relationships. The largest, with a 21 per cent market share (Mintel) is GUS Home Shopping – now renamed ARG Equation – part of the GUS-owned Argos Retail Group. This is followed by Littlewoods, with 15 per cent and Otto Versand’s Freemans and Grattan companies with a combined share of 12 per cent. The fourth-largest group, Redcats – formerly Empire Stores Group – is drawing on the expertise of its parent company, Pinault Printemps-Redoute, by launching a number of direct catalogues in the UK.
However, ARG Equation marketing director Clive Briscoe, who joined the company last year as part of a new management team overseeing a &£100m marketing budget, refuses to admit that the agency model is dead. He points out that 80 per cent of ARG Equation’s &£1.5bn sales come through agency networks.
He says: “That model is still relevant, particularly for people who don’t want to fill their wallets with credit cards or get into credit difficulties – or who perhaps see the agency system as a savings scheme.
“It was a tricky time when I joined, because the profits had been heading in the wrong direction for two to three years and there were major questions about what to do with the business.”
One of Briscoe’s first tasks was to find out why some consumers were not using ARG Equation’s brands, led by Kays, and why others were.
Since then, ARG Equation has launched a direct catalogue called Abound, bypassing the need to recruit a new network of agents. Briscoe expects the title, which features an exclusive range of clothing, to deliver sales of &£50m in the next year.
Briscoe is also reportedly considering relaunching agency-based title Choice as a direct book, aimed at 18to 25 year-olds. He denies that plans for the book have been finalised.
But the direct model is no magic solution. Mark Armitage, marketing and strategy director of the UK’s largest direct mail-order company N Brown, which includes the JD Williams catalogue,
says: “It doesn’t necessarily follow that if you go direct you will be successful. You need focused offers and a certain amount of critical mass to make money. N Brown has focused on women aged between 35 and 65, with 16-plus dress sizes. It is a market that is largely ignored by the high street.”
Mail-order as a sector has difficulty recruiting new shoppers, many of whom prefer a retail environment, where they can touch and feel products. To combat this, some companies have introduced merchandise from well-known brands. Others, such as Boden, are planning to open their own retail outlets.
Mark Binnington, marketing director at Boden, a specialist direct mail-order company which produces clothing aimed at AB customers aged between 35 and 50, says: “Many of our target customers are predominantly retail shoppers, with an aversion to mail-order. We think a shop would open big opportunities for us.”
The mail-order market is also actively pursuing other routes to reach consumers – it has arguably made a greater success of Internet selling than its bricks-and-mortar rivals. But TV home-shopping has so far proven to be a failure, at least for Littlewoods, which axed its joint-venture shopping channel Shop! earlier this year. That has not put off GUS, which is planning a TV home-shopping trial.
Mail-order has to move with the times and to adapt to modern shopping and lifestyle patterns if it is to continue to attract customers.