Mail order industry’s catalogue of errors

Pick up any women’s magazine from a newsstand and a handful of inserts -Âthat are probably destined for the bin – will fall out onto the floor.

For mail-order catalogues targeting new recruits it is hardly surprising that response rates are falling, forcing home shopping companies to reach customers in innovative ways.

Next is cutting back on its direct marketing and advertising spend for Next Directory due to falling response rates (MW April 1). “The direct mail market is becoming extremely cluttered,” said chief executive Simon Wolfson, speaking at the company’s results presentation for the year ending January 2004. “We only push marketing spend into an area if it is profitable to do so.”

Because of the move, Next is expecting customer growth – 13 per cent in the past year – to slow. There could also be a knock-on effect on sales for Next Directory, which were up 13 per cent last year to £533.7m, with operating profit up 18 per cent to £77m.

Next is likely to try to improve recruitment of new customers to its Directory operation through its stores. For those businesses that do not have a bricks and mortar retail channel, the challenge to recruit new customers is made harder.

Shop Direct managing director for direct brands Linda Green is to trial new cross-promotion and distribution partnerships with businesses, such as Shearing Holidays and Moto service stations, that offer access to potential customers who have a similar profile – women aged over 40 – to those that use its Marshall Ward catalogue (MW April 1).

Green has also hatched a deal with Boots to distribute Additions Direct, formerly made available through GUS-owned Argos before the retailing group sold its catalogue division to the Barclay brothers. It is part of a strategy to clearly define the target audience for each catalogue, and in doing so to market to them more effectively.

Julia Phipps, managing director of EHS Brann in Leeds, is not surprised that catalogue operators are varying their methods of recruitment: “Years ago people used press space, but now everyone has piled into press inserts, meaning there is a lot more clutter and a gradual reduction in response rates.”

She suggests that catalogue companies could make greater use of the internet through advertising and appropriate listings on search engines, as well as putting more effort into retaining existing customers.

Catalogue operators have in the past relied on recruiting legions of agents with attractive deals on commission to tout products and cheap credit to the local community. But society has changed and shoppers now have credit cards and greater choice on the high street.

Mintel retail analyst Richard Perks says: “The agency market is now in decline and is finding it more and more expensive to recruit new agents.” He believes these businesses have not kept pace with society and have been slow to invest in the internet and more targeted direct catalogues.

The agency catalogue’s share of the mail order market is declining, down from 45.3 per cent in 1997 to an estimated 28.6 per cent in 2003, while the share for direct mail order is rising, up from 42.2 per cent to 59.5 per cent over the same period, according to Verdict.

The value of agency sales has also declined from £4bn in 1997 to an estimated £2.9bn in 2003, while direct sales are expected to have gone up from £3.7bn to £6bn over the same period.

But this has not put the Barclay brothers off investing in mail-order companies that have a large share of the agency catalogue sector. Earlier this year they were given clearance from the Competition Commission for their £590m acquisition of the GUS home-shopping and delivery business, which includes agency brands such as Kays and direct catalogues such as Marshall Ward and Additions. Together with their Littlewoods mail-order outfit, acquired in 2002, the Barclay brothers control 73 per cent of the UK’s agency market and 28 per cent of the home-shopping market.

It is understood that the other main home shopping players – Otto, which owns Freemans and Grattan; N Brown, which has numerous direct titles; and Redcats UK, which operates Empire and La Redoute – are not pleased by the Competition Commission’s decision, which effectively assessed the agency business in the context of the retail market as a whole.

Verdict senior retail analyst Maureen Hinton believes that the Barclay brothers can make savings by merging backroom operations and securing better supply deals. But Hinton adds: “The agency market is definitely on the way out. The way forward is multi-channel – those companies that have a catalogue and also have a store presence.”

John Lewis, having first tested the market with small catalogues and online activity, last month took the step of launching a big book, in which 230 pages focused on homeware. John Lewis Direct head of merchandising, marketing and catalogue Alison Lancaster says: “With mail order you really need to understand the customer and put out the right offers to the right customer.” In addition to distributing catalogues in store, John Lewis monitors online activity and analyses storecard data to segment and profitably target customers with direct mail. But some retailers have not been so successful. Debenhams has recently axed its loss-making catalogue to concentrate on its online operation. With the direct market growing, Hinton believes that the potential lies in highly targeted niche catalogues.

But for the operators with agency big books that sell anything and everything, it would be virtually impossible to replace the turnover they generate with small targeted catalogues. Instead they will have to manage decline.