Mail Order Entrepreneurs Learn Every Aspect of DM

Entrepreneurs in mail order have mastered an exciting but very tough, detailed business. You must master merchandise selection, sales projections, and cost per response with the first mailing. You quickly learn customer relationship management as you answer inquiries and complaints, and watch unfilled orders stack up when hot items sell out in the first week.

Mail order managers learn to track all mailings for profitability, and must find predictable seasonal sales curves for ordering products. They must know the cost, margin, re-order availability, and advertising cost of every product in the catalog.

The mail order pioneers from the 1950s developed new attitudes to products and new advertising techniques. They created data management and inventory control systems that became industry standards. In managing privately owned companies, they didn’t sacrifice long-term growth to please stockholders. Profits went back into sales.

Looking at Three Great Pioneers

Walter Drake, Lillian Vernon and Talbots are three examples of pioneer companies started by individual entrepreneurs on small budgets. The companies they founded are still active and successful in 2006.

Walter Drake was my mentor in mail order catalogs. He started in 1947 with personally written letters from Santa to children. He astounded the mail order industry by buying a full-page ad in House Beautiful to sell a 50-cent ticking toy watch. He stressed always the importance of numbers. He recorded every sale, item by item, and identified and predicted their seasonal sales, catalog by catalog, in several mailings a year.

Walter Drake: Technology and Systems

An economics major from Stanford, Walter Drake insisted on financial stability and technical progress. He never sustained financial losses at any sales level. He gave technology high priority. His early manual inventory control system was so accurate that, when it was put up on the mainframe computer, it did not need to be re-designed. He kept up with technology — he quickly discarded outdated IBM punch card equipment as soon as Honeywell key-to-tape order entry terminals became available. The company never let an inquiry go unanswered for more than a day. When a package was lost in the mail, the order was replaced immediately. The company always shipped in-stock items within 24 hours and therefore the order was obviously lost.

Like other entrepreneurs, Walter risked only his own money in starting his business. He had begun with very little seed money and re-invested his profits in the business. It took several years for the Drake company to reach the first $1 million in sales. At this point, Walter made a decision to stay with his principal business and not diversify: “My friends thought I should buy another business, like a Dairy Queen,” he said. But diluting his efforts wasn’t Walter’s way. He kept the company dedicated to its core household, garden, and stationery products. When he sold the company to Foster & Gallagher in 1997, fifty years after its founding, annual sales were near $40 million. F&G is now gone; the Walter Drake catalog outlived its founder and is well known with print catalogs and e-mail sale offers as part of Blyth Inc.

Lillian Vernon’s Unexpected Start-Up

Many of us in the catalog business knew Lillian Vernon, both personally and as a company name. She called on mail order buyers when she was selling her own products, some made by her father’s company and others by the small jewelry and plating firm she and her husband owned. She was mailing small consumer catalogs, and buyers for mail order catalogs could purchase the personalized and monogrammed products that had sold well in the Vernon catalog.

Lillian Vernon had started business as a 22-year-old mother-to-be in 1951 with a single one-sixth-page ad ($495) in the back-to-school issue of Seventeen magazine. It was a teen-age girl’s handbag with matching belt, monogrammed with gold initials. It was an incredible success, with $32,000 in sales by the end of the year and 6,450 belts and bags sold, which may well be an all-time record for any ad.

Lillian Vernon’s company grew slowly, with profits going back into the business. Lillian did not reach her first $1 million in sales until 1970. She did not make a bank loan until the 1980’s. Lillian took the company public in 1987 on the American Stock Exchange, just after sales reached $100 million. Lillian Vernon was the first woman-founded company to go onto a major exchange.

Not until 2004 was the Lillian Vernon company finally sold, to Ripplewood Zelnick Media. The 2006 rental house list is 3.42 million 24-month buyers, of which 1.71 million are Internet buyers. Lillian herself is still available as a speaker and consultant.

Talbots, Now 1,049 U. S. Stores

The Talbots’ story is the saga of a retail giant rising out of a catalog operation. Rudy and Norma Talbot opened their first store in Hingham, MA. By 1973, there were five stores, and the Talbots sold their company to General Mills. Talbots grew and prospered under GM through 1998, and then was sold to Jusco USA, a Japanese company. In 2005 Talbots had 1,049 U. S. stores and 50 in Japan and elsewhere.

These mail order companies made money in all phases of buying and selling merchandise. They made money in every stage of the business, with smart inventory management and state-of-the-art operations. Every dollar saved on inventory, operations, and technology went right to bottom line profits and to the accumulation of capital.

Is their business model dead? The tea leaves are not auspicious! In last week’s Time (May 8, 2006) Business 2.0 reported that a new two-person Internet company, FlickR.com, had created an online photo exchange with their customers’ pictures as their “content.” This eliminated the need for inventory and reduced the need for capital. FlickR uses its customers’ own photos, which are stored and shared. Seed money was provided by family and friends. Yahoo found and bought the whole company for $30 million in March 2005. Only 16 months to create two millionaires!

Fred Morath is a direct mail consultant, copywriter and list specialist at Fred Morath Direct Marketing, Natick, MA.