Catalog Printing--An Evolving Market Thrives

BY ERIK CAGLE

In an age when the Internet may seem to be slowly eroding the print-on-paper medium, evidence suggests that a complementary relationship is being forged between the pair.

This definitely appears to be the case with the catalog industry. According to a study conducted by the Direct Marketing Association (DMA), catalog retailers were expected to generate 5 percent of their sales from the Internet this year, more than double the figure for 1998. This was among the findings made by "The DMA State of the Catalog Industry Report: 1999."

"This report contains significant information about how catalogers are turning their direct marketing expertise into success on the Internet," notes H. Robert Wientzen, president and CEO of the DMA. "With their expertise in customer service and fulfillment, many catalogers are setting the standard for success in e-commerce."

That translates into good news for the catalog printers that help retailers spread the word of their new endeavors through the print medium.

Business is good for R.R. Donnelley & Sons. The Chicago-headquartered megaprinter enjoyed $1.35 billion in catalog revenues during its most recent fiscal year, joining Quebecor World ($1.17 billion) as the only companies to cross the billion dollar sales plateau. According to Joe Lawler, president of Donnelley's Merchandise Media Group, which produces both business and consumer catalogs, late third-quarter and fourth-quarter sales were providing a solid finish to a successful year.

"We are seeing somewhat more 'versioning,' which means smaller catalogs," Lawler explains. "A number of the on-line companies are also looking to put catalogs in the mail to drive traffic to their Websites—that's true in our catalog and direct mail business."

R.R. Donnelley continues to enhance its role as an on-line facilitator. Its Premedia Technologies business, created two years ago, boasts an on-line services component. The company is active in Website design and content management to aid catalogers in repurposing content. The result: Customers are creating more robust Websites and driving more business to those sites.

Lawler points out that many Internet companies, in searching for ways to attract more traffic, are turning to ink-on-paper solutions such as catalogs—now known as "Netalogs." This cross-pollination is a market that is coming into its own.

"It's something we're going to see more and more of—smaller books—just to familiarize their customers with the Websites and to get them to go there," he remarks. "It doesn't seem to be affecting the size of bigger books, where the brand name is already established and where people know who they are. We're likely to see an increase in the number of catalog, or Netalog, shoppers in the years ahead."

Life may be sweet at, or near, the top for large printers, but 1999 meant a year of mixed results for many catalogers, according to Susan McIntyre, president of McIntyre Direct, a catalog consulting firm based in Portland, OR. For the most part, she says, those who did their homework thrived.

"Many small- to mid-sized catalogers who carefully studied their marketplace, and excelled at targeting their brand and merchandise to their audience, did extremely well," she says. "But some, often larger, catalogers who didn't track changing markets, and kept offering the same old thing, saw weaker results and pulled back. I'd say 1999 wasn't a license to earn money or to lose it—results depend on merit."

McIntyre feels three factors merit a watchful eye as 2000 approaches:

• Catalogers will keep dealing with the Internet, "which will keep puzzling everybody by working differently for different products and audiences," she says.
• As more catalogers focus on the Web, "catalog glut" will be reduced, which will eventually boost response rates for all.
• The eventual backslide of the current mistake-friendly economy will thin out the weak among the catalog heard. "When the economy eventually slows—as it must, though maybe not in 2000—catalog sales will drop, hurting catalogers who aren't prepared."

On the printing end, Perry Judd's, based in Waterloo, WI, had experienced enough positive volume to justify adding more press capacity to accommodate the business, according to Craig Hutchison, president and CEO. Perry Judd's realized significant volume in the first half of the year, then enjoyed a heavy flow heading into the second half and the holiday season.

"We installed a second eight-unit, stacked, 211⁄2˝ Heidelberg M-3000 in our Baraboo plant in October 1998, so we had the capacity available to welcome many new catalog customers, as well as the ability to absorb the increases in page counts and quantities that our current customers added this year," he remarks.

"Nothing has really changed dramatically in terms of direct marketer needs, but I would say that delivery at home, and the tracking and confirmation reports to validate in-home delivery, continue to take on more and more significance," he adds. "Direct marketers are very sophisticated in terms of order patterns, and stocking and staffing based upon their projections. Because of this sophistication, the delivery process must be fine-tuned—from the original production schedule to the carriers to the postal system—to meet catalog marketers' expectations. We suspect that this aspect of what we do for our customers will continue to grow in importance, as our clients look to reduce this cycle time and still deliver on time."

Hutchison believes the economic climate and consumer tendencies that held true in 1999 will carry over into the new millennium. He doesn't foresee any significant cost increases tabbed for the production process, but notes that consolidation in the ink-and-paper industries would have a bearing on consumables pricing. With the combination of strong demand and moderate cost increases, he believes that catalog marketers will continue to grow their businesses, resulting in higher page counts and larger print orders for printers.

From Hutchison's standpoint, the Internet is also the wave of the future. Judd's OnLine division helps publishers, direct marketers and other businesses create Web capabilities and e-commerce solutions.

"This division is growing very rapidly, and it is our window to the current complementary nature of the Web to ink-on-paper catalogs," he remarks. "Direct marketers are using the Web very effectively to interact with customers. We think the trend will continue and the use of the Internet by direct marketers, in conjunction with catalogs, will increase their reach and return."

For catalogs, the year 1999 will be remembered as one of modest growth for the industry, according to John R. Paloian, group president for Montreal-based Quebecor World. A strong consumer market and the balance of postal and paper costs encouraged aggressive prospecting, he believes, particularly in the fall mailings.

Paloian also notes that 1999 marks catalogs achieving virtually all-digital prepress workflows, which speaks well for the continued introduction of more efficient, creative and productive workflow tools.

"We expect 2000 to represent a similar pattern to 1999; however, the impact of e-commerce will begin to be more clearly defined as the year progresses," he says. "The paper/postal equation will again impact the print decision—affecting formats, page counts, and both the quality and basis weight of paper."

Paloian sees catalog personalization becoming even more intensive. The concept's value proposition will be targeted to specific audiences with appropriate graphics and customized messages.