CATALOG Market -- Recovery Is a Custom Order

BY MARK SMITH

Technology Editor

Consumer spending was the only positive note on the economic front for some time, but that doesn't mean the numbers still couldn't stand some improvement. Now that the recovery has broadened to include business spending as it continues to gain steam, catalog printers have reason to be more upbeat about business prospects going into 2004, thanks to the trickle-down benefits of all this spending.

"Positive economic trends bode well for the catalog industry in 2004," agrees Dan Knotts, president of Magazine, Catalog and Retail Industries at RR Donnelley. "As consumer confidence builds, catalogers will see growth again—albeit at a slower rate than they experienced before the economic downturn.

"The key market forces and factors we monitor reflect a cautiously optimistic view of print demand and include strength in U.S. retail sales, e-commerce sales and ad spending, which all affect the health of catalogers," Knotts continues. "An increase in catalog production of 1 percent overall could result as early as the second quarter of next year. However, we expect major consumer retailers and business-to-business operators to grow even faster as they have more scale to leverage in an upturn."

Mark Deterding, president of the Banta Catalog Group, also uses the "cautiously optimistic" phrase to describe the outlook for 2004. "We are seeing both page counts and run quantities starting to increase with the up tick in the economy," he explains.

Deterding says it's too early to really speculate as to how quickly business will build. "However, with a strong holiday season in 2003, we would anticipate seeing a much more robust first half of 2004 (compared to the first half of 2003)," he adds.

In looking ahead to the new year, Quebecor World has found that a sense of the beginnings of an economic rebound has many of its customers cautiously optimistic, reports George Zengo, president of Catalogs and Logistics.

More Mailings Expected

"This has translated into varying levels of increased circulation being forecasted by some significant customers in our consumer catalog segment. These increases stem from an upsurge in prospect mailings as catalogers are hoping to attract new customers," Zengo continues. "At this point, business-to-business segment sales remain flat overall and continue to lag behind the consumer sector."

Given its position as a leading printer of consumer retail (e.g., Nordstrom's, Nieman Marcus, Harry and David's) as well as business-to-business (e.g., Staples/ Quill) catalogs, RR Donnelley expects to gain more than an average share of the anticipated growth, Knotts says. Over the past three years, the company has continued to make investments in new equipment, technology and employees in order to have the resources to help customers create more effective and efficient communications, he adds.

Catalogers are focusing more of their efforts on achieving higher response rates. "Technological developments, business dynamics and research into changing consumer needs have presented challenging new opportunities that demand more collaborative solutions," he says.

Knotts expects direct marketers to increase their catalog mailings as they more aggressively pursue acquisition of new customers. Page counts also should rise as merchandise selection is better targeted to key buying groups.

"A catalog must target the right audience with the right message and be delivered at the right time," Knotts says. "We must make it easier for clients to reach their customers, strengthen their brands and reduce the total delivered cost of catalogs. Bottom line, we want to help our customers sell and save more."

There will be four critical drivers of success for the printing industry in 2004 and beyond, asserts the RR Donnelley exec.

1.) Giving customers the flexibility to respond to emerging trends.

"This will allow for pricing and merchandise decisions to be made closer to market, mailing to the freshest names and timely reaction to trends. It requires the seamless integration of production to further compress cycle time," Knotts explains.

2.) Helping customers distinguish their catalogs with precision quality.

"The catalog must accurately and consistently portray the color and texture of products being sold. This requires printers to apply the rigors of science to the art of printing through Six Sigma and continuous improvement methodologies," Knotts asserts.

3.) Providing capabilities that enhance the client's ability to deliver the right message to the right potential buyer.

"In today's multi-channel world, continuity of image and message is critical to growing the customer's brand, while personalization creates a more memorable customer experience," he says.

4.) Having logistics networks that deliver catalogs on the very day a potential customer is most likely to respond.

"The industry must continue to work as postal reform advocates with a commitment to process integration so as to hit mail dates and maximize production efficiencies," the Donnelley exec concludes.

Banta's Deterding says he has seen an increase in the frequency of mailings, as well as some growth in page counts. Demographics and personalization have become the primary marketing drivers, he notes, which is leading to the production of more catalogs.

There are other factors—postage and distribution costs, in particular—that continue to undermine catalog growth. "We are positioning our services to reduce the impact of these factors through enhanced delivery services and the development of co-mailing strategies," he says.

"As major partners in the production of catalogs, printers must continue to pursue technology that improves efficiencies and enhances quality, such as closed-loop color systems, and continue to develop revenue-generating capabilities for our clients," Deterding adds. Stochastic/FM printing is another technology Banta is in the process of rolling out to customers, some 20 percent of which already use the process. "The results, to date, have been extremely well received."

Pages Stay Steady

In assessing the market outlook from Quebecor World's perspective, Zengo echoes many of the points made by his industry peers. "We've already begun to see catalogers increase their number of catalog mailings in the fourth quarter, but we don't expect page counts to increase significantly until these companies experience notable uplifts in their sales," he reports.

Across the board, catalogers seem to be focused on enhancing their prospecting by doing more mailings in an attempt to win new customers, the printing exec notes. "Also, multi-channel marketing will continue to progress as catalogers try to reach customers through their preferred media," he adds.

Zengo sees a need for enhanced bindery capabilities, in particular, as catalogers try to minimize postal costs and more specifically target their audiences. He believes greater co-mailing capabilities and more sophisticated ink-jet printing for personalization will not only become more prevalent, but are a prerequisite for printers to grow in today's market.

Ink-jet capabilities, integrated with effective binder pocket utilization, enable increased use of versioning and direct mail practices that help catalogers differentiate themselves in the marketplace and maximize their efficiencies, the industry exec explains.

"Catalogers also will continue to look for ways to streamline their internal processes and cut cost from the equation," Zengo says. "Schedule consolidation, Web-enabled communication throughout the supply chain, and increased postal penetration and tracking will help them accomplish these goals."

As a final thought, Zengo notes that any gains for printers from a rebound in marketing activity will continue to be affected by the current overcapacity in the industry. Therefore, he expects it to remain a very competitive market for the near future.