Dot-com Fever Fuels Catalog Growth
To drive Web sales, e-tailers are keeping both large and small catalog printing companies very, very busy.
By Mary Reinholz, Associate Editor -- graphic arts online, 1/1/2001
When on-line shopping reached a fever pitch recently, many industry pundits seemed to sound the death knell for traditional paper-based catalogs, which have been in existence since the colonial era in America.
But the doomsday scenario didn't happen. In fact, "e-tailers" gave catalogs a new lease on life during the recent holiday season as they stuffed mail boxes across the country with printed shopping guides hawking toys, food, clothing, and gifts to be purchased on line.
Benefit for ink and paper
"The dot-com flurry is probably going to end up producing more benefit for the ink-and-paper crowd than anybody else," says New York City-based Direct Marketing Association (DMA) president and chief executive H. Robert Wientzen, remarking about the large numbers of e-tailers using traditional catalogs to increase their visibility via "snail mail."
"The on-line marketers simply don't have the techniques and skill sets that have been in place at successful [paper] catalog companies for years," he added, noting that e-tailers cannot survive in cyberspace alone.
"These companies need catalogs for people to reach their Web sites," agrees John R. Paloian, group president of the Magazine and Catalog Business unit of Montreal-based Quebecor World, Inc., which claims that it prints more than 40% of all catalogs worldwide. "We approached on-line suppliers very early on. That was about a year ago, and now we're embracing a segment that's growing by leaps and bounds. We're going to spend $300 million in new capital built around new presses and binders--that's how optimistic we are about our customers. And this is a direct result of the Web."
Quebecor's dot-com customers, Paloian notes, include Red Envelope and Amazon.com. Its catalog sales as a whole represent about 37% of the company's $5 billion annual business, he adds, stating that the industry overall is healthy, at least for the major players.
"Both our business and our customers are always in a state of flux," Paloian observes, commenting that he believes some companies will switch to lighter-weight paper to counterbalance the increase in postal rates. "How your company manages the waves determines how good you're going to be. Catalogs have been around for a long time. We're excited because we see new opportunities, so we're bullish on catalogs and expect to see them thrive."
Large growth for major players
The largest catalogers (or 7% of all catalog companies) are expected to generate 90% of the entire industry's revenues, which are projected to approach $102.4 billion in 2000 and reach an estimated $125.1 billion in 2004.
This projection comes from the recently completed "Future of Catalogs" report, prepared in October by W.A. Dean & Associates, San Francisco, for the Printing Industries of America's Graphic Arts Marketing Information Services arm.
According to the study, this continued concentration of resources among the larger players will result in these companies selling a wider array of products. This growth won't be realized through a return to the "big book" catalog, it predicts, but through the distribution of specialized titles with a narrower product focus.
"That's absolutely an issue," concurs Paloian. "Look at the demographics of the country and you will see a bubble of the modern maturity group. All kinds of printed products are geared towards this 40- to 60-year-old age bracket. Financially, it has the wherewithal to purchase. You also will see an incredible initiative with the teen market, whether it's catalogs or magazines."
No demand shortage
Other big names within the printing community say that there is no shortage in the demand for catalogs despite--or sometimes because of--Internet sales. Among these is R.R. Donnelley & Sons Company, ranked the second-largest North American printing company following Quebecor World in GAM's official 2000 ranking of the industry's top 101 firms (see November 2000 GAM).
One of Donnelley's largest specialty catalog production runs in recent years was the printing and distribution of the Toys "R" Us (see page 26).
"We began working on the catalog last spring," recalls Stephen Zuccarini, president of R.R. Donnelley's Merchandise Media Group, a division of the Chicago-based printer that specializes in catalogs, retail inserts, and direct mail pieces.
"Complete opposite" of decline
He noted that his division--which reports annual sales of $1 billion among clients such as Fingerhut, J.Crew, Lands' End, Spiegel, Staples, and Williams-Sonoma--has seen "the complete opposite" of declining sales as a result of e-commerce.
"We've actually seen the Internet driving more print," he says. "It's complementary. Successful players are distributing across multiple channels. We're seeing a lot of Internet companies using newspaper inserts, direct marketing, and catalogs in an attempt to lead consumers to their Web sites. So this isn't exactly the demise of print."
He adds, "We'll see the media mix change as the industry evolves, but right now we're likely to see more print coming out of the dot-com fever."
Zuccarini places the increase in Internet purchasing in 2000 over 1999's levels at 85%, to about $61 billion, claiming that the surge in cyberspace sales has also resulted in his company "seeing increased pages promoting Web sites and other channels. In addition, we've seen our traditional catalog players venture into brick-and-mortar retail space."
These players include top catalogers such as Coldwater Creek and J.Jill, both of which, notes Zuccarini, have opened retail stores and launched aggressive plans for expansion. Coldwater Creek, he adds, also distributed 34% more catalogs in 2000 and generated more than $18 million in on-line sales, resulting in an overall 30% increase in all channels.
Additionally, says Zuccarini, Spiegel is testing a "netalog," a catalog with a specific category focus that encourages customers to shop on line.
As for the new year, Zuccarini doesn't believe there will be a dip in catalog sales across the board. "The real question for 2001 is what to expect out of consumer confidence and the impact of the postal increase on customers," he says. "We're going to see increases of from 3% to 7% and 8%, driven by the size, weight, and the way a product can be pre-sorted."
Arandell Corporation, Meno-monee Falls, Wis., has specialized in catalogs since 1982 when the segment was beginning to develop as a marketing entity, says the company's chief executive Donald J. Treis. Arandell's customers include Bergdorf Goodman, Coach, and Saks.
Still bullish
Treis, who also is optimistic about the business, notes that the major growth realized in the catalog business spanned the mid-1980s and into the early 1990s, claiming that it still hasn't run out of steam.
"This business is still projected to grow 5% in the next five years," he contends. "Some people have gone out of business and some have cut back on catalogs, but we're still bullish on the industry."
These days, Treis observes, catalogs have become a far more sophisticated business, requiring different skill sets to succeed. "Data marketing and personalization have become very important," he says. "Technical innovations have allowed the creative side of the business to work fast and to have more time to make decisions."
Treis attributes his company's success to flexibility and the study of the marketplace along with "pre-planning, understanding the necessary turnaround time, and how to work within the system. There's a pretty dramatic change in how to be successful," he asserts, "and a factor in catalogs is how we assist on the returns if you're a true partner as a printer."
Large web, rotogravure market
Perry Judd's Inc., a division of the Milhous Group, Waterloo, Wis., regards catalogs as a very large market for both web and rotogravure printers, according to chief executive Craig A. Hutchison. "The market is growing," he says, "but not at the double-digit rates that it did in the '80s and '90s. It's probably more like 3% to 5%. It's becoming a more mature marketing vehicle in the midst of a great deal of consolidation in the industry."
Catalog specialist Spencer Press, Wells, Me., prints on average 60 million catalogs each month, according to president and owner Stephen Spenlinhauer III, who says his company's volume sales are about $100 million. Spenlinhauer's company works with major chains, such as Macy's on the East Coast.
"Companies that are run well are still making money in the mail order business," Spenlinhauer says, adding that he believes traditional "mom and pop" companies can still do well in the catalog world despite claims that only the major players will survive consolidation within the industry.
"Most of the consolidation we're going to see in this country has already occurred," he says. "There's a niche in the industry for a medium-size offset printing company like ours. Most of our larger-size competitors, whose annual sales exceed half a billion dollars, have multiple plant locations while we have only one. But what we offer is continuity and one location; we always print in the same plant and with the same staff."
Spenlinhauer notes there if there is a problem with manufacturing, his customers are afforded easier access to management than if they were dealing with a larger company. Another advantage of smaller, family-owned companies, he says, is focus.
"We're totally concentrated on either mail order catalogs or retail store catalogs," he explains. "Our competition may be larger than we are because they serve different segments, but we have the skills and understanding for moving the postal system."
North Springfield, Vt.-based Springfield Printing Corporation, a 50-employee shop with 40% of its business devoted to catalogs, didn't realize growth in this segment until the mid-1990s when the family-owned firm upgraded and increased the amount of its press equipment.
Says company president Mark Sanders, Springfield Printing sees repeat orders each year for new catalogs selling furniture and stamps from auction houses, resulting in a business of about $6 million.
"We'd like to do more," Sanders admits, "but we have to utilize the appropriate technology to reduce our costs. Technology is moving very fast, and it's a deep hole that we keep throwing money into. But we have to make a commitment," he says of his operation, which has a 90% digital workflow.
Entrepreneurial opportunities
Indeed, there is still plenty of room in the catalog printing category for today's entrepreneurs, concludes DMA's Wientzen.
"The opportunity for small companies to succeed with catalogs is as great as when Lillian Vernon produced her catalog decades ago," he says, referring to the Long Island, N.Y. native who created a gifts catalog at her kitchen table in 1951, and now has retail stores in Delaware, New York, South Carolina, and Virginia. "It's still the American kind of entrepreneurial opportunity that doesn't exist in a lot of categories today."
