SCRATCHING for A NICHE // `Catalog glut' spells shakeout for mail-order retailers

For a sign of the times in the specialty mail-order industry,check out the new Fishing Electronics Warehouse catalog.

It doesn't offer a broad array of sporting goods, or of huntingand fishing supplies or even just fishing supplies. Instead, it'strying to hook customers solely with electronic fishing gadgets:sonar fish-finders, marine radios and the like.

"When you get down to that kind of pinpointing, that's anindication of the level of competition," said analyst Steve Ashley ofBlunt, Ellis and Loewi. "To find a new market niche, people aretargeting very narrow markets. The opportunities are becomingfinite."

Add to that the recent increases in postage and paper prices,and a hot growth business is beginning to brace for a shakeout.

Industry experts worry about a "catalog glut" in the nation'smailboxes. The number mailed has nearly doubled in the past fiveyears to 20 billion in 1987, and catalog sales have grown more than10 percent annually to $56 billion last year, Chicago consultantMaxwell Sroge estimates.

"It used to be a customer got a catalog and a couple of piecesof mail. Now a customer goes out and picks up 10 catalogs and acouple of pieces of mail," said Rob Longendyke, spokesman for SpiegelInc., the Oak Brook-based catalog retailer. "A lot of smallercompanies are going to have trouble competing."

This month's postage increase doesn't help. The third-classmail rate, which covers most mail-order catalogs, soared by 25percent. That jump, on the heels of a 1985 increase, will costmail-order companies more than $500 million in 1988, said Sroge."It's a real problem."

Because of the higher costs, catalog retailers will be moreselective about who gets their books, analysts say. The focus willbe on beefing up sales with established customers rather than rentingmailing lists to prospect for new ones.

The companies also are searching for ways to minimize thepostage impact. Some are considering lighter-weight andsmaller-sized paper, a double benefit because the cost of paper hasjumped about 10 percent in the past year.

Many are planning to experiment with new methods of delivery,such as using private carriers or inserts in newspapers andmagazines. The firm Lillian Vernon, for instance, last monthincluded an abbreviated version of its gift catalog in 1.2 millionissues of the Sunday New York Times.

Most will turn to the simplest solution and pass the costs on tothe customer. Leading that charge is the Land's End specialtyapparel catalog, which is raising its shipping rate from $3 to $3.50per order this spring.

"Postage is a very costly element," said Gander MountainPresident Ralph Freitag, who moved up a mailing of his springsporting goods catalog by a week to avoid paying the increase. "Therewill be a lot of brainstorming and soul-searching about how to getaround those added costs."

The higher costs put a premium on squeezing more business froman existing customer base, and that means improving service. Issuessuch as ordering convenience and timely delivery are becoming moreimportant.

The toll-free 800 phone line "may become a cost of doingbusiness," said Senior Vice President Fred Hochberg of LillianVernon, which has a quarter-million Chicago households on its mailinglist.

Fashion apparel catalogs and others whose customers tend tospend a lot each time they order already do much of their businessover the 800 lines, paying the toll for their customers, he said.But the average sale from more gadget-oriented catalog companies likeLillian Vernon, Brookstone Tools and Williams-Sonoma cookware hasn'tbeen considered high enough to support the free service.Nevertheless, he said, "People feel they're entitled to it."

Customers also are demanding fast, error-free delivery, and inresponse to that, Lillian Vernon is closing its antiquated New Yorkdistribution and warehouse operation and moving it to a modern plantin Virginia, he said. At the new facility, the company hopes to shipevery order within three days.

"It's coming down to holding on to the customer," said Hochberg."There's a lot of growth left in generating more sales per customer.Service helps build loyalty."

Some analysts agree that the loyalty of the existing customerbase will be paramount. "Future growth is going to be moredifficult," said Ashley. "There's a growing demand for catalogretailing, but the rate of growth in circulation is outpacing demand.In the next five years, I think you'll see more mergers andacquisitions of catalog companies . . . especially among those withseparate product lines, but a similar customer base."

That consolidation already may be starting, with Spiegel'sannouncement two weeks ago that it will pay $23 million for HoneybeeInc., which sells apparel through catalogs and specialty stores towealthy working women.

That's the same market that Spiegel targets, and a spokesmansaid the company hopes to get new customers from Honeybee's mailinglist.

Other analysts are more bullish, saying growth in the industrywill continue unabated.

"The consumer increasingly is looking at mail-order as a way tobuy," said Sroge in Chicago. "Good catalogs will continue exceptionalgrowth. They haven't tapped all the specialty segments."

Established retailers expanding their catalog operations,including Chicago's Marshall Field's and Carson Pirie Scott, shouldhelp contribute to strong catalog sales gains, he said.

Analyst Daniel Barry of Kidder, Peabody in New York said,"They'll have cycles the same as store retailers, but they'llcontinue to gain market share." Why will catalogs outpaceconventional store retailing? "Convenience is the No. 1, No. 2 andNo. 3 reasons."