Taking Stock

THE RECENT ROCKINESS in the catalog business-the near-fatality of J. Peterman Co., the dumping of books by Genesis Direct, soft holiday and early-spring sales-has combined with the file glut in the market to force catalog list brokers to take a good, hard look at their future.

As with most things, some see rain clouds, some rainbows, but either way uncovering new names and delivering consumers who respond is becoming an ever-increasing challenge. And one important way for these companies to survive, experts say, is to diversify. Weehawken, NJ-based The SpeciaLists Ltd., for example, realizes revenue from outside the catalog arena by marketing a list for an upscale housewares book to a fundraising client.

If list professionals are concerned that the list business will have to absorb the blow should many more catalogers go belly-up or are eaten up by bigger entities, they’re not letting on. But clearly there’s a connection between the two endeavors.

“I think that a lot of times, people cry the blues, but we have to mail,” says Kayle Plotkin, vice president of list management at D-J Associates, Ridgefield, CT. “Customers and the public are very comfortable with purchasing by mail. There have always been catalogers that grew too fast or took the wrong direction.” But, she adds, if these difficulties continue “for six more months, I might have a different feeling.”

Brokers are quick to mention successful books like Williams- Sonoma and Lands’ End, while at the same time characterizing the business overall as “tight” or “in a consolidation mode.” To be sure, the state of the catalog list business is difficult to describe. “It runs the spectrum,” observes Lonnie Mandel, president/CEO of The SpeciaLists. “It’s strong for some catalogers, but weak for others. The branded catalogs that are out there are doing fine. The smaller catalogs that don’t have a household name are struggling.”

Merchandise counts for a great deal. “Brand has a lot to do with [what makes a catalog strong], but you still need the product. You can’t sell bad product to a good list,” notes Howard Kupfer, senior vice president in charge of brokerage at Mokrynski & Associates Inc., Hackensack, NJ.

Good lists, though, are part of the trouble. The biggest-and the ones routinely relied on to deliver top-rate multibuyers-are the cooperative databases, such as Abacus, Z-24 and Smartbase. Mailers participate in the co-ops by contributing their firms’ names to the giant file and gleaning the best records for their campaigns in return.

Considering the databases’ sizes-Abacus has more than 80 million names, Smartbase and Z-24 about 50 million each-and their ability to select and stratify endlessly, many catalogers find it difficult to avoid using them. “We have mailers who say that anywhere from 30% to 50% of their total circulation is comprised of database names,” says Chuck Orlowski, business unit leader for Smartbase at Acxiom/Direct Media, Greenwich, CT.

But some brokers blame the cooperative databases for overwhelming the market. “My hope was when the co-op system first came out, it would identify new names for us to use,” offers Michael Hayden, senior vice president, catalog brokerage at Millard Group Inc., Peterborough, NH. “It’s actually gone the other way, and identified a select cell of names within the whole universe of mail order buyers that is constantly getting pounded. Particularly [during the holiday] season, there was a catalog glut out there.”

Other brokers say the databases dilute list rentals. Catalogers that participate in one or more co-ops have difficulty renting their lists because the companies that would have rented from them can gather the names from the shared file. In addition, the list-seeking cataloger is tossing its own file into the co-op pool. “The result is it shrinks on both ends,” says D-J Associates’ Plotkin.

Co-ops are here to stay, of course, and those who work for them defend their necessity, arguing that prospecting is getting tougher for catalogers. “There’s really an absence of any exciting new lists of any significant size on the market,” says Orlowski. There are heavy duplication rates, he adds, because “mailers exchange heavily with each other, have a tendency to use the same lists and-if these lists are very popular-just get absolutely creamed.”

Finally, part of the co-op debate that can’t be ignored is that what’s good for the catalog client is good for the list business. While acknowledging that Abacus has cut into The SpeciaLists’ business by 10% to 25%, Mandel says, “If it helps our clients, it helps us.”

Mandel’s company is seeking to branch out. It is investing in alternative media projects to bolster revenue for itself and its catalog clients. It has begun testing card packs it is publishing and managing. One idea is to include cards from catalog clients offering a sample issue or deals on excess inventory. Another is to use a catalog client’s mailing list for the card pack drop, then attract advertisers who sell similar products by touting the quality and size of the list. An upscale home decor cataloger may, for example, provide an attractive list for a home improvement pack.

While low- to medium-end catalogers are showing interest in the project, upscale catalogers are dragging their feet, Mandel admits. But another alternative media endeavor-binding in credit card or insurance offers in catalogs-is providing additional revenue for clients.

“If there’s a list company that feels all it has to do is manage a list or find good lists, it’ll be left far behind in 12 or 24 months,” Mandel predicts. “If you can’t provide value-added service for the clients, it’s going to be hard doing business with you.”

E-mail files hold the promise of additional value and more names. Many companies are investigating the medium. New York-based ALC Interactive Media, founded in 1996, collects and handles e-mail files. The company is growing; it will earn “eight figures in sales” this year by providing a variety of e-commerce services, according to Eric Zilling, managing partner and executive vice president.

“The e-mail industry is like the list business was 20 years ago, when the simple fact that you knew a list existed gave you a competitive advantage,” Zilling says.

Catalog clients comprise 10% of ALC Interactive’s business. Interest is growing, but caution is the word in this arena, Zilling remarks. His company prospects for names throughout the Web, though fewer than 100 companies are currently providing quality names. ALC Interactive also oversees limited testing of online list exchanges. Due to Internet users’ concerns about unsolicited commercial e-mail (or spam), all the names on the seven lists the company manages are opt-in.

“All the lists on the market today [contain the names of] people who have gone to a Web site and registered to receive e-mail,” Zilling adds. It’s time-consuming research, but the data is like stock in the future. Ben Perez, president of Millard Group, which is brokering but not managing e-mail lists, says: “The e-mail list side is growing. But I think it’s going to be some time, particularly in the consumer sector, before it plays a main part in the revenue-making part of a list company. I don’t think it’s a fad, but my crystal ball is still hazy about what we actually have.”