Dynamic Growth of the Internet Channel
Renaissance of Cataloguing and Direct Marketing

Traditional catalogue sales of home shopping companies have been decreasing or at best stagnating for years.  This is particularly true for the big books throughout Europe, i.e. UK, France, Germany but also in Switzerland, Benelux et al.

In Germany, new customer recruitment costs are exploding.  We are facing fierce competition in the established cataloguing/home shopping channel.  Today - in August 2007 – we find 15 sizeable catalogues and brochures in our mail boxes, all on one day.   This is perfect timing... that everyone appears to have discovered for himself.  It is the result of a mixture of an intelligent optimisation of the circulation plan in combination with market and competitive research.  Many years of experience and analysis have produced excellent results.

On another note, there are enthusiastic reports about the feverish development of e-commerce.  For the UK, the Interactive Media Retail Group (IMRG) expects a 50% increase in e-commerce sales for 2Q 2007 compared with 2006.  For Germany, e-commerce sales grew by 30% in the first half of 2007 compared with the first half of 2006 according to LZ Net.

In June 2007, there were five traditional home shopping brands among the top brands in terms of website visits according to Nielsen/NetRating in Germany. These were Quelle, Otto, Neckermann, Weltbild, and Baur.

1. Ebay
2. Amazon
3. Quelle
4. Otto
...
7. Neckermann
...
9. Weltbild
...
11. Baur

Source: Nielsen/Net Rating

Pure plays such as Ebay and Amazon are still keeping on to the top 2 ranks.  However, Amazon’s lead over position 3 has been eroding for some time. 

Several European home shopping heavy weights are meeting the challenges of the future after having faced intense discussions about topics such as sales cannibalisation and margin erosion.  Most notably, formerly traditional big book operators Wehkamp in the Netherlands and Neckermann in Germany transformed their businesses to incorporate e-commerce as an integral part of their long term positioning and strategy. 

For Neckermann, this radical repositioning resulted in a dramatic loss of sales and profits, while the proportion of e-commerce sales rose to 50% of total sales volume of app. € 1bn. 

Wehkamp, the number one cataloguer in the Netherlands opted for an even more radical approach.  This approach, however, turned out to bolster sales and profits: For quite a few years, Wehkamp has heavily invested in offline media (mostly paper based emotionally positioned brochures) enticing new and existing customers to use the Internet as an ordering channel. 

By the same token, the main book underwent a thorough change:  Wehkamp replaced large formats with smaller formats resulting in catalogues of half or one third the original size while the contents remained unchanged.  Today, Wehkamp’s Internet sales share is 60% of total sales. In addition, the business is profitable and even growing slowly.

Success is calling the competition: i.e. the high street retailers – such as H&M. After an extremely successful test and roll-out of H&M’s e-commerce model in Sweden and the Netherlands, H&M is following suite with a web shop in Germany.  In order to drive traffic to its web shop, H&M generously invested in print, tv and other offline media campaigns.  Between March and June 2007, H&M incessantly campaigned to generate e-mail addresses.  Registrants received a €25 voucher to be redeemed as part of an „online account“ starting in September.

Almost on a daily basis, new high street initiatives on the Internet are being announced: C & A, Breuninger, P & C Süd.  Even luxury brand conglomerates such as LVMH via eluxury.com, Gucci, Dior, Dunhill have recently become active with their own web shops.

Depending on the product range (excluding electronics, etc.), cataloguers in Germany currently have an Internet share of app. 10-20%.  These companies must continue to learn how to drive traffic to their website.  High street retailers are already well skilled in driving store traffic.  In addition, cataloguers must learn how to better communicate a limited selection of product in comparison with the typical high street retailer.  In that respect, it is paramount to avoid price comparison traps such as Priceminister, Yatego, Bestprice, etc.  

High street retailers, on the other hand, have a strong lack of expertise in everything „back office“:  fulfilment of individual orders, returns management, payment processing, customer relationship management, circulation planning and last but not least database development and management.

It is now becoming obvious that both retailing worlds are converging.  Via e-commerce home shopping is becoming more like high street retailing and high street retailing and luxury brands are becoming more like direct marketers.  

This means that there is more room for action and positioning for both, high street retailing and home shopping.  We believe that e-commerce will take a share of up 20% to 25% (excluding computers and electronics) of the relevant retailing markets.  In traditional home shopping countries such as the UK, France and Germany, home shopping already has a 5% to 6% market share of overall retailing. 

The current situation promises a lot of upside for cataloguers – provided cataloguers are able to use their own driving forces: Further development of emotional and selling catalogues and brochures which are targeted to the relevant customer segment file at the right time.

E-commerce is more like high street retailing as it concerns its face to the customer.   This is why cataloguers also have to learn how to discover and adopt the drivers of the high street – i.e. how to drive store traffic (SEO, affiliate marketing, email marketing but also coupons in personalised and unaddressed media, further development of free “friends win friends” promotions, blogs, social commerce, etc.).  The assortment will also have to be updated in shorter cycles.  In addition, cataloguers will have to look for the right cooperation partners in order to present and exchange complementary product lines.  In this overall context, we expect cross border activities to accelerate.

The next decade will belong to cataloguers and direct marketers.  We are convinced that strategies that entail a combination of early adoption and seamless integration of multiple channels will bear fruit and enhance shareholder value.

This article was written by Gerhard Budde, Senior Partner, BBR Associates GmbH & Co. KG.  Translation: Danielle Budde