The past ten years have been a period of transition among the top 100 direct mail catalogers, as compiled by The Catalog Age in 1997.  The industry has faced three significant problems of how to effectively grow, how to keep up with the ecommerce boom, and how to deal with rising postage costs. Companies were forced to respond to the changing times, with those neglecting the shift towards technology being left in the dust. Of these top 100 catalogers, 42 were acquired, 29 went public or remained public and the remaining decided to stay as private entities. Each of these paths was met with a varying degree of success.

The strong economic environment of the late 1990s proved to be an ideal time for companies to expand through acquisitions or go public. Both of these paths proved for the most part to be an effective strategy. Let’s first examine some of companies that were acquired and their subsequent performance.

Several giants in the catalog industry of 1997 proved to be profitable investments for hungry companies that saw a strategic advantage in acquiring direct marketers.  Notably, the acquisition of Brylane, a direct marketer and distributor of home décor products, was acquired by Paris based company, Pinault-Printemps-Redoute SA in 1999. PPR saw Brylane as a perfect complement to its current business as a distributor and retailer of luxury goods and household equipment.  Prior to being acquired, Brylane had sales of about $736 million.  Since being acquired, Brylane has increased its sales to $1.35 billion.  Being strategically aligned with a larger parent company that is established on an international level has allowed Brylane to increase it distribution capacity and attract a larger customer base. The growth that occurred was also attributed to the use of direct online sales, allowing the company to reach a much broader market more effectively. This acquisition is a prime example of a buyer making a strategic move which directly complements its existing product line. Since the acquisition, Brylane has grown to make two acquisitions of its own, purchasing both The Sportsman’s Guide and United Retail Group. PPR was able to purchase Brylane at a reasonable price and provide the resources necessary for it to grow and nearly double sales over the past decade.

Private equity firms were also targeting acquisitions in the catalog industry during this time. A prime example was the 2002 acquisition of the Fingerhut Companies led by Minnesota businessmen Tom Deikel and Tom Petters.  The deal, in which Deikel and Petters acquired all of Fingerhut’s assets, has helped restore the struggling catalog retailer to its previous profitability.  This turnaround was accomplished largely by Tom Petters’ previous investments in wholesale businesses Red Tag and Boom Buy.  Petters was able to fulfill Red Tag and Boom Buy sales through Fingerhut’s facilities after the buyout.  By integrating these companies, Fingerhut was able to improve its decreasing sales.  Along with this integration, one of Diekel’s initiatives was to boost Fingerhut’s e-commerce business, causing an effective shift in the companies focus with internet sales now contributing largely to the company’s sales. Petter’s and Diekel’s acquisition of Fingerhut was clearly a beneficial move for the cataloger, which was able to reestablish itself as one of the nation’s largest catalog retailers.

While these acquisitions have proven to be profitable ventures, many companies decided to pursue initial public offering of their company. With the markets soaring to all time highs, the late 90’s were an ideal time for a company to go public. With stock prices and valuations through the roof, companies were able to raise top dollar when entering into the market place. Some examples of choice public offering transactions include:
Coldwater Creek is an example of company that has benefited greatly from going public.  The women’s apparel retailer blossomed from $116 million in sales in 1996 to $1.1 billion in 2006.  Interestingly enough, much of Coldwater Creek’s growth can be attributed to the capital it raised through its IPO and its decision to move to become a multichannel merchant. Coldwater was able to transform itself from the once solely catalog based merchant into a much more quickly growing multichannel merchant with storefront locations and a successful online store. The company experienced a 33% increase in internet net sales in fiscal 2006.  With internet sales steadily increasing and catalog sales decreasing over the past five years, Coldwater Creek has launched several successful marketing campaigns to bolster internet sales.  Coldwater’s user friendly, attractive, and constantly updated website has allowed for the company to continue its growth via the internet.  Coldwater Creek’s transformation demonstrates one company’s successful IPO and willingness to adjust to an evolving market, moving beyond a traditional direct mail cataloger to embrace the power of e-commerce.
 
Other catalogers have found similar success in taking their companies public.  Cabela’s Inc. increased its sales by nearly eight times where they stood in 1996.  Similar to Coldwater, Cabela’s also focused on its e-commerce businesses.  Cabela’s internet visits have increased by 32.1% since fiscal 2005, and the company’s website was deemed the most visited sports and fitness website in fiscal 2006.  Through market research, Cabela has learned that while customers enjoy reading and browsing magazines, the majority of them will then order products online.  As a result, Cabela’s management will continue to distribute catalogs, even if they don’t anticipate generating sales through mail or phone as a result of the printings.  These observations are quite instrumental to Cabela’s success and demonstrate how important insight into consumer preference is for those catalog companies willing to adjust to the changing marketplace.
 
Though both of these paths of acquisition and going public have proven to be profitable in these examples, it still seems to be clear that a company’s ability to change effectively with the times is one of the biggest factors attributing to successful growth. Companies that chose to remain private and rejected change were the companies that had the hardest time staying profitable over the past ten years.

While only a minority of the top 100 catalog companies have taken no action and remained private, the majority of these private companies have shown little growth, declining sales, and a failure to adjust to the changing consumer preference.  Most notably of this category is the story of Foster & Gallagher.  Once a profitable horticulture direct marketer, with sales of $410 million in 1996, the company filed for bankruptcy on July 2, 2001.  In filing for Chapter 11, Foster & Gallagher also terminated the operations of all eighteen of its subsidiaries.  Sources cite that the company’s significant financial and operational difficulties eventually led to its demise.  The uncertain and evolving marketplace of the late 1990’s and early 2000’s also contributed to F&G’s downfall.  In short, the cataloger was unable to quickly satisfy the demands of web commerce and despite a slew of acquisitions, was unable to stay afloat in this changing industry.

All of these example companies mark a recent trend in the catalog industry occurring over the past decade.  Many companies continue to struggle to adapt to the booming technology era and react to its changing demands.  In an industry accustomed to print catalogs accounting for the majority of sales, companies have been forced to adjust their operations by focusing more heavily on the e-commerce business.  This rise of the technology boom has forced many traditional catalogers to find a way to become stronger players in the internet retail market.  While the 2000-2001 dot com collapse eliminated many purely e-commerce businesses, brick-and-mortar businesses quickly recognized the importance of developing a presence online.  Acquisitions and the option to go public have enabled companies such as Fingerhut and Coldwater Creek to execute this transformation by providing the necessary capital and expertise to react to the boom in web commerce over the past ten years.
 

Stuart Rose is a Managing Director at Tully & Holland, Inc. and a regular contributor to Multichannel Merchant.  Tully & Holland are specialists in corporate finance serving retailers, direct marketers, and consumer product manufacturers, and is a member of FINRA, DMA and NEMOA.