Coldwater Creek Cuts DM Focus, Budget And Circ

Posted on by Chief Marketer Staff

Fiscal 2008 was not kind to Coldwater Creek’s direct marketing operations. The company dropped one of its catalogs and slashed its direct marketing expenditures. Small wonder overall direct marketing revenue fell as well.

So what happened? First, the company focused on catalogs designed to drive traffic to its retail outlets, as opposed to generating mail, telephone or online orders. It reduced mailings of its Northcountry book, and eliminated its Spirit catalog.

As a result, total catalog circulation dropped from 128.6 million books a year ago to just under 86 million for the most recent fiscal year, which ended Jan. 31. For 2009, circulation will fall even further, to 66.4 million catalogs.

Direct response advertising expenditures, which include catalogs and trackable national magazine advertisements, fell to $57.3 million during 2008, down from $107.8 million in 2007.

Unsurprisingly, direct sales revenue, which in fiscal 2007 stood at $376.4 million, or 32.7% of total sales, dropped to $272.9 million, or 26.6% of sales. Total sales, which amounted to $1.15 billion in 2007, slipped to $1.02 billion in 2008.

The company’s cost of sales, which had been 60.9% of its sales in 2007, rose to 65.8% of its sales in 20008. The company’s net loss increased from $2.5 million a year ago to just under $26 million during fiscal 2008.

Within its direct operations, Internet sales fell $59.7 million from $271 million a year ago to $211.3 million. Phone and mail sales dropped $43.7 million, from $105.3 million to $61.6 million. Average order value fell by 7.4%, as a result of higher online markdowns, according to the company’s Securities and Exchange Commission filings.

Not all the news for Coldwater Creek’s DM operations is negative. The company’s loyalty program, which was launched in September 2007 with 250,000 of its best customers, expanded to 600,000 customers during fiscal 2008.

It also added 533,000 net new names to its e-mail database, and is conducting more targeted e-mail campaigns. The company boosted the number of e-mails it sent during the year by 19.9%, to a total of 130 million messages. And it added 46,000 enrollees to its co-branded credit card program in 2008, bringing total enrollment during the last three years to 370,000.

The Analyst’s Take: No bad deed goes unpunished. Despite the flagship catalog being used as a retail traffic-builder, it’s hard to believe there wasn’t a spillover effect that involved recipients going online and viewing a wider variety of merchandise than could be seen in a single store, or calling up and ordering. Coldwater Creek’s financials didn’t indicate whether the $100-million-plus drop in direct sales were in line with its expectations. And consider this: Direct segment operating income was 15.4% of direct net sales. Retail operating income was 4% of retail sales. Granted, part of this is due to an aggressive retail expansion campaign on Coldwater’s part…

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