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If you're a cataloger there's nowhere to run and nowhere to hide. Paper costs are up. Postal rate hikes come one after another. Fuel costs are through the roof.

Of course, not everything is going up. Consumer confidence? Waaaaay down, thanks to a plummeting stock market and numerous other factors. The economic environment, to put it mildly, is extremely challenging.

In recent months the catalog business has felt the sting. BlueSky Brands, stable of such properties as Winterthur, Bits and Pieces, and Paragon Gifts, went belly-up in March. Both Sharper Image and Lillian Vernon filed for chapter 11 bankruptcy protection this winter. At press time, Sharper Image's chairman had resigned to pursue a reported interest in buying the company, while Taylor Corp. had won an auction to buy Vernon.

Direct talked with a number of folks in and around the business to get their take on how catalogers can survive — and maybe even thrive — in these “interesting times,” to borrow from the old Chinese proverb.

“It's not a good time to be a cataloger,” says Curt Barry, president of operations and fulfillment consulting firm F. Curtis Barry & Co. “For many businesses there's going to be a sea change. At a recent executive forum we held, some felt that the postage increases have made prospecting economically [infeasible].”

“My sense is that people are just overwhelmed,” says Tom Kothman, principal of Thomas Associates and former CEO of the Motherwear catalog. “They're trying to figure out which way to go and how to understand the environment.”

Catalogers have to act fast to survive, he adds. “Is it a good time to be an L.L. Bean? Probably, because you've got a lot of margin to absorb things. They can cut back a couple of million catalogs a year from their circulation and that's probably not going to hurt them. But if you mail a million catalogs annually and cut 200,000, that hurts.”

“Right now, what concerns us is that consumer confidence in January hit a 30-year low,” says Jack Schmid, founder of catalog consultancy J. Schmid & Assoc. Inc. “Couple that with people getting hit on their investments and mortgage problems and we'll see a very conservative year.”

Jack Rosenfeld, CEO/president of the Potpourri Group of catalogs, feels there'll probably be more closings and bankruptcies as the year goes on. Signs of trouble are in the news, he says, pointing to Talbots writing down the value of 2006 acquisition J. Jill in its most recent quarterly report, and Charming Shoppes taking similar measures for Crosstown Traders as two examples. And it's not just apparel or any one particular niche that's hurting; as he notes, those books are completely different in tone and audience from Lillian Vernon or Sharper Image.

But for companies that grow by acquisition — like Potpourri — then the current environment presents opportunity, according to Rosenfeld, who believes you have to look at the big picture. “I've been in the business since 1970, indirectly since 1963. That's a long time. I can tell you there have been equally challenging or worse times. In each case, the catalog industry has come out of it and been stronger.”

Still, we're not there quite yet.

Catalogers are responding to this challenging environment in a variety of ways. Schmid says he's seeing companies acting conservatively on prospecting, sticking with tried-and-true lists, as well as working hard to reach existing customers on a regular basis and experimenting with formats like slim jims to cut costs.

“The biggest issue,” Barry says, “is that you need to bring in new customers at the same rate they drop off. Most catalogs have less than a 50% customer retention rate from year to year, so unless you're bringing in those new customers you're shrinking your buyer count.”

“The price increases in postage, paper and product are very onerous,” says John Baumann, president/CEO of The Swiss Colony, which still uses paper catalogs as the main prospecting tool for its food and gift brands. “Online avenues are still small. We're looking at dropping paper weight and, in some cases, page counts where appropriate.”

Rosenfeld says Potpourri is cutting circulation for the first time since he joined the company 10 years ago. The catalog is continually looking at trim sizes, paper weights and paper grades, as well as doing an enormous amount of co-mailing.

“And you've got to invest more in the Internet, which is kind of sad for me as an old-time cataloger,” he adds. “But the postal service is chasing away business.”

KooKoo Bear Kids changed its paper weight and may alter its trim size. “I don't know if we have a choice any more,” laments CEO Joe Mediate. “Catalogs are going to have to trim down and maybe not be as picture-perfect as we'd like.”

The children's bedding and furniture company hasn't cut circulation yet — it went up to 2.5 million books in 2007 and plans a 10% increase this year, possibly even 15% if the economy picks up.

To really have an impact, catalogers need to get creative and courageous about making changes, says Kothman, citing Smith+Noble as an example of a book that radically overhauled its design. “You need to goose printers and creatives to find new solutions. For a small catalog, making a modest trim-size change may gain it a few pennies. But in the end it won't make a huge difference.”

When he was with Motherwear the company changed printers, switching to a vendor that handled more direct mail than catalogs. This gave Motherwear the option to create alternative mailings to help drive people online. “When the postage rates went up, we felt like we were ahead of the curve,” he says.

A lack of inspired merchandising hurt many catalogers in the fourth quarter of 2007, and that trend is continuing into this spring, says Andrea Syverson, president of merchandising and brand consultancy IER Partners. “Catalogs that have products that are ho-hum and haven't kept up with customers' needs or created any kind of customer experience are failing. Those are the brands that are getting paid back for not paying attention to their customers.”

Some are offering their target audience “the right stuff,” she says. J. Crew has done well by giving its audience what it wants, and is rolling out a catalog of accessories, shoes and handbags, while Pottery Barn is staying on trend by offering customers the bright colors in vogue this season.

For its part, Mediate says KooKoo Bear Kids is sourcing more of its own unique products to stand out from the pack.

Syverson sees room in the gift market for a really dynamic brand to emerge. Likewise, there's opportunity in offering products that are eco-friendly.

“Those that are doing well are the ones where merchandising is unique and priced right,” according to Barry. “If your book looks like every other one in your niche, that's not good.”

Are catalogers moving their marketing spending online? What do you think?

“Yes,” says Kothman, who saw Motherwear's catalog go from the company's primary sales vehicle to a Web traffic driver during his tenure with the firm. “There's no question that catalogers need to recognize how shoppers are buying these days. Look at the cost of gas, paper and postage — if you're not shifting dollars into marketing with electrons rather than ink, you're not leveraging spending the best way you could.”

Stuart Rose, managing director of investment firm Tully & Holland, notes that one consultant he knows is telling his catalog clients they should plan to get out of paper in the next five years. He's not sure that would work for everyone. “Transforming to a completely Web-based company is tough, because the driving force of a paper catalog is so [valuable].”

Barry says that more than a third of most catalogers' expenditures go toward creating and mailing print catalogs. “Internet pure-plays don't have those costs. The catalog industry may need to shift its business model.”

Sixty percent of Koo Koo Bear Kids' revenue comes from the Internet, says Mediate, adding that the company is using social-networking ventures such as a blog and allowing customers to post product reviews to drive traffic. The site also is about to launch a forum for customers to talk to each other.

Eastwood is another cataloger getting social. At the New England Mail Order Association's spring conference, CMO Peter Kosciewicz said the automotive restoration supply marketer has had great success using blogs, forums, and company- and consumer-generated video to connect with its audience.

Baumann says The Swiss Colony is still evaluating how social media could fit into its strategy. Likewise, Rosenfeld admits Potpourri isn't there yet: “What every cataloger has to do depends on its investment cycle. We've done an enormous amount of catalog analysis, but we've used the Web primarily as an ordering channel. This year, for the first time, we're investing in pure Internet. We're still working on the basics like affiliates and paid and organic search rather than the frills like the social stuff.”

No one is quite sure if Santa will be good to catalogers this year.

Baumann says that at the moment half of The Swiss Colony's titles are on budget and the others are below. He's projecting a flat sales year.

Likewise, Kothman says we can expect smaller circulations for the holiday season, with catalogers trying different types of pieces and media to entice buyers. “Marketers need to realize they have to come up with some alternative prospecting methods,” he notes.

The end of the year would seem a bit more promising were it not for the upcoming presidential election, which Rose believes is distracting many consumers.

Potpourri's Rosenfeld is hoping things will pick up after Nov. 4. “Some think there might be a huge crush of business after the election, when people realize, ‘Hey, it's almost Christmas! I have to shop.’?” But, as he said earlier, it helps to have perspective.

“I ask people how they felt on 9/12/01,” Barry says. “Did you feel like it was the end of the world? Some people thought it would put us out of business, but it didn't happen. A lot us have gone through this before and it all works out.”

He says the thing to remember is there's no charted route. “Every company has to do what's best for it, be it laying off people or asking vendors for price cuts. It's a time when you have to make the tough decisions.”

“Betty” is in her early 60s and has a low to moderate annual income. She's typically a plus size, possibly retired and maybe a widow. She volunteers at her church, likes to garden and family is the center of her life. Indeed, she is far from an “Ugly Betty.” She is beautiful, and she's the target audience for Blair LLC, acquired last year by Orchard Brands.

Direct spoke with Beth W. English, vice president and general manager of the women's wear division at the Warren, PA-based catalog — which had more than 2.3 million customers over the last 12 months — about how Blair is marketing to mature women in these tough times, and why lengthy phone calls aren't always a bad thing.

DIRECT: How is the economy affecting your business?

ENGLISH: We're a little above plan in some areas. Some people have it worse, so we'll take it. Here's the thing: Historically, because of Blair's customer profile, it seems in recessionary times our customers have actually responded well to our brand because we stand for value and good quality for the money. We've been able to hold up when times are tough. However, there's a limit and we understand a lot of our customers are on a budget. She doesn't have to have a new top. It's taking more promotions and more noise in order to get her attention. We have to stand on our head to get the same response.

DIRECT: Has the current environment led you to look at things like cutting back circulation or changing paper weights?

ENGLISH: Oh, yeah. We started that last year. We changed our paper grade last year. And this spring we're rolling out a new trim size. Our catalog and mailing piece circ in 2008 is down from 2007 by about 8 million.

DIRECT: Does that mean more of your efforts are now on the Web? Given your older demographic, is it difficult motivating them to buy online?

ENGLISH: It's interesting. When you listen to our phone calls, and our reps ask for an e-mail address the customer often says “Oh, I don't have that, no, no.” Nine times out of 10 they'll say they don't have a computer. But 24% of our women's wear business is online, so somehow our customer is shopping online, maybe with the help of a relative or friend.

DIRECT: Do you track this type of behavior? And can you account for it in your Web design?

ENGLISH: We have an item-number search that takes customers directly to the item they're looking for, so we can track if they're doing that. We also have an interactive online catalog. If she's not that comfortable with the computer yet, she can go online and turn the pages of the catalog. We're sensitive to the fact that she's not a full-scale ‘Webber,’ but she's dabbling and she'll learn. Of course, that's going to evolve constantly, so we have to keep giving her tools to hold her hand. For a while we didn't [display] the 800 number [prominently] on the Web site because we wanted to push her to order there, since Web orders are cheaper. But we've done a 180 on that in the last few months. We decided no, we don't care how she orders. Most of our orders are placed by phone.

DIRECT: Do your customer service reps receive special training?

ENGLISH: All our call centers are here in Pennsylvania, including one in our headquarters building. Training goes on constantly. Of course, a lot of it has to do with systems, toggling back and forth between screens and upselling, cross selling, etc. But reps also get training because of our customer profile. Sure, time is money on the phone, and they're well-trained to keep it at a minimum. But it needs to be done without sacrificing the relationship. All the time we have women who call and they talk…they want to know the weather in Pennsylvania; they're going to their son's wedding next month and want help picking out a dress. It's not like, ‘Here’s my Visa card number, I want the dress on page 24 in pink.' We're like personal shoppers for these ladies. It's a tough balance to make it easy for her to shop, upsell her, build a relationship and keep the minutes down.

DIRECT: Is finding fresh prospects tough?

ENGLISH: The majority of our prospecting is still done by catalog, and of course we do space ads, mostly in FSIs and Sunday newspapers. We know the lists that prospect well for us. Our problem right now is earning the right to prospect [in our corporation]. We've come off a year or two where we've been declining as far as year over year. You don't just keep prospecting and throwing circ out there if your sales are declining. You have to get your act together before you've earned the right to increase your circ. So we're looking at the first six months of '08 and so far our response and performance looks like it's on plan. If that holds up, we'll have earned the right to add some prospecting books in the second half of the year. — BNV

Regardless of the economic climate, catalogers still have to prospect. But it ain't easy.

“Lists just generally aren't as responsive as they've been in the past,” says Donna Belardi, president of New York list firm Belardi/Ostroy ALC. “Between rising costs and declining response, you have many catalogers planning to cut back and look at other options, like online marketing or reactivating their internal files. They don't have much choice.”

“Results for the vast majority of our clients are soft right now, and continue to be since a soft holiday season,” says Bill LaPierre, senior vice president for list brokerage at Millard Group in Peterborough, NH. “I would say most clients are off plan from 8% to 12%. Some are on plan or a bit ahead; when things were going well, they took the time to focus on having a strong Web site, having a strong merchandise mix and being aggressive on circ. Now their house files are kicking along and their prospecting is doing well. Those doing poorly now were soft before and didn't do what they needed then to get things on course.”

For the remainder of 2008 LaPierre feels most catalogs' mail plans will be conservative. Counts were down last fall, and they continue to decline this spring because performance is off. “So even if mailers want to be aggressive it would be difficult, because most of the lists they want to use are going to have lower counts and they'll have to go to more marginal files.”

On the positive side, says Belardi, there's been a lot of emphasis on vertical files. Catalogers are looking at opportunities they may not have considered in the past, such as regression modeling with publishing lists.

Many of LaPierre's clients are looking at compiled files. Mailers with a strong retail presence are finding they don't necessarily need strong mail order activity as an attribute on lists if they want to drive people into stores. As long as the demographics are good, the list will perform well. And if they happen topick up a good mail order buyer along the way, all the better.

Firms are looking more closely at their core prospects, according to Belardi. “I think companies are focusing on fewer, larger, more scalable relationships and getting the best out of those that present the least amount of risk and have proven successful.”

LaPierre says most of his catalog clients had maybe 25% to 30% of their circ with the co-ops as recently as three to four years ago. Now most have 50% to 60% with co-ops. “Clients are saying their mantra is ‘Everything on exchange.’ They don't want to be doing much rental activity, and when they do, they're relying on co-ops.”

Belardi agrees that exchanges remain very important for catalogers, but she's found that co-ops are struggling every bit as much as vertical lists. “Companies are taking a good look at their co-op relationships to determine if they're getting value out of each one. They no longer have the patience for being in a co-op database and getting marginal results, continuing to test and retest models. Co-ops have to perform and provide significant universe opportunity, or catalogers are getting out. Instead of being in three or four co-op relationships, they're starting to narrow it down to maybe two.”

As for holiday '08, don't stuff those stockings yet.

“I don't think anything we're experiencing right now is going to turn around by the holidays,” Belardi says.

“In the past, most clients would have wondered if holiday 2007 was an aberration,” LaPierre says. “If so, they would have averaged the results of the last three holidays and then gone forward. No one is talking about doing that this year. They see 2007 as the benchmark for 2008. And because results were soft last year, that knocks out additional circ for this year.”

Even so, there's hope, says Belardi.

“While there'll certainly continue to be challenges, usually what will emerge at the end of a cycle — and this is a cycle — are stronger, more well-positioned brands, both on the catalog and vendor sides of the business.” — BNV