Fall/Holiday 2008 Results
Like many of you, we’ve spent the past two weeks talking with our clients about the results of Fall/Holiday 2008. Here is what we are hearing, along with what our clients think the outlook for 2009 is and some things you can do immediately to further reduce expenses.
Holiday sales for retail and direct industries. After all the media flap about the weak Holiday season as it progressed, no one can be surprised that it ranks as one of the worst Holiday seasons in the last 30 years. In their September 2008 Holiday forecast, National Retail Federation (NRF) estimated sales would be up 1% to 3% over last year. At the NRF event this week, we heard estimates that many retailers will finish 5% to 8% below the previous year, which is obviously a disaster. This will lead to a record number of small and large businesses exiting the retail and direct space. In the past 6 months there have already been a record number of retail store closings from bankruptcies.
Catalog has a broken business model. We feel there are two major issues that have changed the business model for cataloging:
- Prospecting has been on a 10-year decline in response rates. Renting and exchanging lists as a prospecting practice has totally been destroyed by the co-op databases. Co-ops overall are the major game in town for prospecting, but many of the senior management we talk to are concerned that co-op response rates are not as strong as they were. Is there over-saturation of mailings by co-op users, along with the bombardment of e-mail campaigns?
- Continual increase in postage costs. As a result of the postal reform of the last few years, USPS has a mandate to make money and the ability to almost automatically increase postal rates annually. Many of our clients had postage increases of 20% to 24%. At one client we worked with last week, their postage costs are now 33% of the total cost to create and mail catalogs.
Highly promotional offers and high use of free shipping. We have just completed an in-depth study of free shipping practices during Fall/Holiday 2008. The study is featured in February’s Multichannel Merchant magazine. Clearly, this Holiday season was characterized by highly promotional pricing and free shipping. A number of clients interviewed mentioned they got poor results to e-mail promotions unless they offered a strong promotional incentive such as free shipping.
Suffice it to say that consumers were opportunistic with their purchases, looking for true bargains at the retailer’s expense.
What businesses did well? Customers pulled back on discretionary spending and reduced gift-giving this past season. There were some discounters, promotionally priced and value priced businesses that did well. Two we have all heard about in the press are Wal-Mart and Amazon. We have one large client that is off price/value priced, and had order increases over 40%. Obviously, off-priced businesses that sell overstocks will have great selection to choose from and should continue to see strong sales.
A number of our business-to-business catalog clients saw a slowing of sales for the first time starting in October, and they finished 2% to 7% off plan.
Then we have a surprise: A number of smaller e-commerce pure plays we have talked to seem to have had major sales percentage growth. My guess is that they are truly niche businesses with unique products, whose customers cannot find the same or equivalent product elsewhere. Also, in a small business it’s easy to see double-digit growth, because the “last year” number is small. But not to take anything away from them, they are not significantly off plan. And because they are not print catalog or list prospecting oriented, they aren’t suffering from the issues we discussed earlier.
However, many of our gift, fashion apparel and general merchandise clients finished 10% to 25% below plan, which meant many ended below 2007. Plans in even the most aggressive companies may have only been up 5% to 10% over 2007. Circulation plans had been cut because of the postage increases.
Outlook for 2009. The industry leaders we work with—retail and direct companies, venture capital and finance people—expect the downturn to get worse in the first half of 2009 and last 12 to 18 months longer. One retail client with over 500 stores told me at NRF that they are planning, from a financial perspective, that sales for the next two years will be down.
Given the seriousness of the downturn, our major challenge is how to plan 2009 in terms of number of products and pages circulated. We all know that if we reduce pages and products to reduce costs, we decrease revenue further and really shoot ourselves in the foot.
For many businesses, it will be a time of trying to survive.
Another big worry many companies will have is the lack of growth in the 12-month buyer files. Many companies will now have had two Holidays with the 12-month buyer count smaller than 2006.
The downturn, as we all know, is worldwide. We are hearing from clients who have been in the markets here and overseas recently that many of their smaller resources are in trouble and will probably close. And an even bigger issue is that there does not seem to be a lot of new product being offered.
Reducing Expenses. There are many resources on our website (www.fcbco.com), both in the articles and blog, that can help you to reduce expenses. Also, there is an article entitled “70+ Cost Reduction and Productivity Improvement Ideas” which is a good thought jogger for cost reduction and efficiency improvement.
Here are some current projects for which F. Curtis Barry & Company is engaged by clients looking to reduce expenses:
- Perform an assessment of how to further reduce call center and fulfillment costs
- Determine whether inbound and outbound shipping costs can be further re-negotiated
- Do an inventory assessment to determine how to improve inventory forecasting and management strategies
- Look at whether outsourcing call center and/or fulfillment can reduce costs
Feel free to call me today to talk through any or all of these ideas.
These are tough times for sure. But it’s also in this time of uncertainty that the smart and well-financed companies will pick up market share.
—Curt Barry, 804-740-8743
Curt Barry is president of F. Curtis Barry & Company, a fulfillment consulting firm for catalog, e-commerce, and retail businesses. We offer clients expertise in business process and order management systems, inventory management systems, warehouse management systems; warehousing and distribution; call center services; inventory management and forecasting solutions; and strategic, financial, and operational planning for all business channels. F. Curtis Barry & Company is a national consulting firm for catalog, e-commerce, and retail businesses offering clients expertise in order management systems, warehouse management systems; warehousing and distribution; inventory management and forecasting solutions; and operational benchmarking for all business channels.
He can be reached at 1897 Billingsgate Circle, Suite 102, Richmond, VA 23238, phone: 804-740-8743; email: email@example.com; website: http://www.fcbco.com.
Please contact Jeff Barry to discuss your upcoming projects at firstname.lastname@example.org or 804-457-4028.