Gross margin 50.0% 51.1% 52.4% 53.6% 54.8% 55.8%
Expenses
Publicity $796 $1,410 $3,023 $3,711 $5,012 $6,241
Fulfillment $111 $436 $1,000 $1,445 $2,020 $2,755
General operations $364 $572 $842 $1,039 $1,377 $1,709
Operating Income (Loss) ($826) ($857) ($537) $502 $1,306 $2,848
Net Income ($837) ($884) ($559) $484 $1,318 $2,082
Net margin (94.1%) (28.9%) (6.8%) 3.9% 7.4% 8.6%
Total catalog circulation (in thousands) 789 2,262 5,498 7,124 9,064 11,459
Growth versus previous year 213.6% 186.7% 143.1% 29.6% 27.2% 26.4%
Previous buyers as percentage of total circulation 3.6% 4.1% 6.4% 12.0% 16.2% 20.1%
Average order (in dollars) 86 94 94 95 96 96
WHAT THE EXPERTS SAY
CONSULTANT
BILL NICOLAI
President of Nicolai and Associates Inc., a catalog consulting firm in Seattle
I don't question Kathleen Mahoney's original assertion that there is a market for a wedding catalog. Problem is -- and Mahoney seems to be finding this out -- there's no easy way to reach that market. I don't know which database you could use to isolate professional, upscale women who are about to get married.
And since all the profits in this business come from selling to repeat buyers, the point is to build a customer base and maintain it. But if you theoretically get married only once, here by definition is a catalog that you can shop from only once. In effect, you have to turn over your entire customer base every year. That's another serious problem.
The Christmas Fantastic catalog seems like a marginal success, but I don't think Mahoney will be able to repeat it with The Celebration Fantastic. The gift business falls off drastically at all times of the year other than Christmas.
COMPETITOR
BARBARA A. TODD
Founder of Orchids Only, which she built to a seven-figure mail-order house before selling it, in 1989. Currently president of the Good Catalog Co., a new venture based in Portland, Oreg.
In 1992 Mahoney and Ayscue are predicting an increase in circulation of 187% as well as an increase in sales per circulation of 22¢. There's no way both can happen. In the catalog business, as your circulation increases, your response rate falls because the quality of your rented names deteriorates. And as the names on Mahoney's list get older, they'll be generating less revenue.
But even assuming Mahoney and Ayscue just maintain their sales per circulation at their current $1.13, and they decrease expenses as much as they can, I calculate they'd make $308,000 by 1994 -- well below what they project. Those aren't numbers that make venture capitalists jump for joy. To get the $1.25 million the founders need this year and the $1 million they need next year, they'll have to give up a good deal of equity. They'd be lucky to wind up with 10% of the company.
Looking to 1996, they see repeat buyers as being 20% of overall circulation and are predicting net income of 8.6% of sales. That doesn't jibe, either. For an established catalog to get that kind of return, it would need a buyer file closer to 80% of circulation.
Finally, their cost of goods looks high for a mail-order company. Right now they are at 48.9% of sales, but you really need costs well below 40% to make it.
FINANCIER
HOWARD WOLFE
Partner in New Enterprise Associates, a large venture-capital firm based in Baltimore. Member of the board of J. Peterman Co., a three-year-old, $30-million catalog company based in Lexington, Ky.
I quibble with Mahoney's early premise. I'm not sure brides consider shopping for all their accessories such a nuisance. I think that's part of the overall wedding experience. Maybe the items are hard to find, but she targeted a yuppie audience. Yuppies already know where the best stores are.
Be that as it may, the company now seems to be more in the general gift sector, where there is a great deal of competition. In the catalog business you don't have geographic barriers to entry, as you do in regular retailing. Every catalog in your niche has equal access to every prospect's mailbox. And with the incredible proliferation of catalogs, consumers' mailboxes are overwhelmed. By definition, the size of the targeted markets shrinks considerably. Every one of the 630 or so gift catalogs will claim to be distinctive, but because of the clutter in this arena it's hard to set yourself apart. I question whether Mahoney's catalogs have been able to do that so far.
OBSERVER
KATIE MULDOON
President and CEO of the Muldoon Agency, an ad agency and catalog-production firm in New York City
They expect an average order this year of $94. That's very high, and in the beginning that's not a great sign. Generally speaking, a high average order indicates less overall response. Less response means proportionately fewer existing customers on your list, which you don't want, because existing customers always outperform prospects.
Again and again focus groups show that most customers will test out a new catalog by making small purchases to gauge quality and service. But if you offer mostly high-ticket items, as Mahoney's catalogs do, there are few trial purchases that can be made. And this is the wrong time to be offering expensive items, anyway. The catalogs that are doing well are the high-value, low-price ones -- J. Crew is still doing phenomenally well. High-ticket catalogs, even some that were stars several years ago, are doing poorly.
What's more, I think Mahoney is trying to grow too fast. According to Catalog Age, most catalogers start more slowly -- 43% have sales under $1 million, 19% have sales between $1 million and $2.9 million, and 22% have sales between $3 million and $9.9 million. It really is a good business for an entrepreneur, if it's run tightly and grown slowly. Mahoney seems to have done neither. If she had been a little less ambitious, perhaps she could have first taken out ads in magazines, then printed catalogs in proportion to the response. It would have taken longer to build her list, but she probably would have made money instead of losing so much so fast.
