November 13, 2007

Your Long-Term Profit And Loss Statement

Multichannel catalogers face unique long-term profit and loss challenges.

For some catalogers, here's how the long-term profit and loss statement might evolve:

Current And Future Profit And Loss Statement




Current/Catalog Future/Online
Demand $30,000,000 $30,000,000
Net Sales $25,500,000 $25,500,000
Gross Margin $12,750,000 $12,750,000
Catalog Marketing Cost ($3,825,000) ($750,000)
Online Marketing Cost ($1,275,000) ($2,310,000)
Pick/Pack/Ship ($5,100,000) ($5,100,000)
Shipping Revenue $2,040,000 $0
Overhead ($2,550,000) ($2,550,000)
Earnings Before Taxes $2,040,000 $2,040,000

We've been evolving toward the future/online profit and loss column for decades.

"Back in the day", catalogs were "big books", four or five hundred page monsters that cost a fortune to mail, delivering a gigantic amount of sales per catalog mailed. And I mean 'gigantic'!!!

The 1970s and 1980s were a time of transition, as specialty catalogers (i.e. L.L. Bean among hundreds of others) used computer algorithms to "target" customers with specific interests. The targeted catalogs were smaller in size, maybe between 48 and 248 pages. Instead of mailing the catalogs seasonally, the catalogs were mailed to "best customers" on a "frequent" (i.e. monthly or even weekly) basis.

Sending smaller, targeted catalogs on a frequent basis to "best" customers changed the profit and loss structure of cataloging. We saw the death of big books, with Wards, Sears and Spiegel (among others) feeling the wrath of the change in strategy.

Seasonal big books gave way to weekly/monthly targeted mailings. And then the internet showed up.

We embraced e-mail marketing, only to see the medium tainted by unscrupulous marketers. Even so, e-mail may just be a transitional marketing tool, bridging cataloging and online marketing.

We embraced the concept of "multi-channel", the concept that customers wanted to research and explore merchandise in catalogs, on websites, and in stores, before buying in the channel they preferred.

But more and more, I see trends indicating that long-term, the same audience won't shop from multiple channels. Instead, the internet channel will be the "primary" (if it isn't already) direct-to-consumer channel. The catalog/telephone channel will serve a small segment of the customer file that prefers this style of shopping. In online/retail situations, online represents the "research" channel, with retail representing the "purchase" channel.

This leads to an interesting set of dynamics. Long-term, the catalog will serve an ever-decreasing audience. Coupled with increased mailing costs and the onslaught of 'green initiatives' that will haunt catalogers in the next decade, the long-term profit of cataloging, while not doomed, is certainly "at-risk".

It seems plausible that the profit and loss statement at the start of this post represents a possible long-term future for many catalogers.

Online marketing should be (but isn't always) a more efficient marketing platform than sending paper to less-qualified prospects. Brands may use the cost savings from reduced cataloging to offer consumers free-shipping. Brands will hope that efficient online advertising and free-shipping will make up for the sales lost by not mailing catalogs.

The question for you, the catalog or retail marketer, is this ... do you think that you could replace cataloging with online marketing and free shipping, and maintain the integrity of your profit and loss statement?