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A Direct-Mail Pioneer Fights Back As His Catalog Business Struggles
 

Will a move to the web save the day?
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Jack Miller should be at the point of his life at which he's kicking back and enjoying his success. The 79-year-old direct-mail pioneer built his Quill Corporation into a giant office products catalog business that he sold to Staples for $700 million in 1998. Not bad for a company Miller started, back in 1956, in a corner of his father's north Chicago poultry shop.

But Miller isn't a kicking-back sort of guy. Soon after selling his company, he invested in Successories, a catalog business that sells motivational signs, awards, and bric-a-brac from its Aurora, Illinois, headquarters. Its customers include the Internal Revenue Service, Citicorp, and Ryder, the truck-rental company. Long a fan of Successories, Miller joined the board, figuring that it would help keep his hand in the business world. Boy, did it ever.

Almost immediately, he recognized that the company had veered seriously off track and was losing money in ventures like retail stores and golf products. He upped his investment to keep the company afloat. Then, in 2003, Miller bought control of the company, which, at the time, was publicly traded.

Instead of enjoying a cushy semiretirement, Miller threw himself into the rescue of Successories. For a while, the business was improving. But in recent months, as sales have sagged and the cost of printing and mailing catalogs has soared, Successories has found itself struggling to stem losses. After years of traditional cost-cutting, Miller started weighing the pros and cons of radically restructuring the company by transforming it from a catalog- to a Web-based business. Would moving to the Web save Successories? Or would it just mean more trouble for Miller's golden years? "I bought that company for some obscure reason," says Miller. "I should have had my head examined."

Despite its financial headaches, Successories remains a presence in white-collar, cubicle culture. Founded in 1990 by Arnold "Mac" Anderson, the company makes posters with uplifting messages and photography, such as one with an eagle soaring that urges employees to work together and strive for excellence. Other popular items include a happy-face stress ball and a stuffed frog wearing a T-shirt that reads: "Leap to Success!" Successories' posters have shown up in television shows like The Office and have been parodied by Dilbert. The company's sometimes overly earnest maxims also inspired the creation of Despair Inc., a company that mocks Successories' products with its own snarky, de-motivational sayings.

As Miller struggled through five tough years of restructuring, he might have taken comfort in his favorite Successories aphorism: "A ship is safe in a harbor. But that's not where it's meant to be." To keep this particular leaky ship from going down, Miller's first move was to plug the holes. He saved $5 million a year with steps such as scaling back on some color printing and discontinuing unprofitable brand extensions. Taking the company private saved $500,000 annually in regulatory expenses. Miller's efforts to make Successories leaner started paying off in 2007: The company posted its first profit in seven years, on sales of $20 million. He also put the finishing touches on Simply Success: How to Start, Build, and Grow a Multimillion-Dollar Business the Old-Fashioned Way, a book about his career.

Then the economy went south. At the start of 2008, sales began to slip. By mid-March the business was going downhill fast, with no sign of a turnaround in sight. Annual sales fell 15 percent as the number and size of orders declined. In eight weeks, Successories had moved from the peak of a long, slow climb back to profitability to the prospect of eventual failure. "Ours is not a need-to-have product," laments Miller. "It's just something that's nice to have."

Miller was suddenly in a new kind of bind, all the more so because it seemed there was no more fat to trim after years of cost reductions. The company's expensive office space was locked up in a long-term lease. The staff of 100 was bare-bones enough that Miller felt he couldn't make cuts without hurting customer service. Aside from rent, Successories' biggest expenses were paper and postage. The cost of producing and mailing catalogs has risen 55 percent over five years. For a company that sends 24 to 30 fat catalogs a year to tens of thousands of prospective customers, that represents a huge outlay. Yet cutting back on mailings seemed out of the question. As Miller had long ago learned in the direct-mail business, the more frequent the mailings, the bigger the sales. Yet the old rules no longer seemed to apply.

On a blustery Monday morning in March, Miller sat with his eight executives and asked each of them for ideas on how to save Successories. Some of the suggestions Miller had heard before: tweaking the catalog mailing schedule or sprinkling in new promotions. But this time around, Miller had a sense something more would be needed. Then Successories' president, John Carroll, urged Miller to dramatically scale back on the catalog mailings and make a full-on push to the Web.

It was not as if Successories hadn't already given a lot of thought to the Internet. A year earlier, Carroll had hired a small consulting firm, Shay Digital, to analyze Successories' website, which was a simple online version of its print catalogs. Shay provided the company with a plan for updating the site, which Miller and Carroll had intended to gradually implement over several years. Now, Carroll was urging quick action: Slash catalog mailings by two-thirds and put the savings toward installing a new state-of-the-art website as quickly as possible.

As a print man, Miller was skeptical of shifting the business focus from direct mail to the Internet, especially in a rush decision. He also wasn't comfortable about the investment required to make such a radical shift. The new Web system was going to cost $400,000, money Successories could ill afford.

But Carroll was insistent. He had commissioned a survey of customers that showed they tended to spend roughly the same amount whether catalogs were mailed out frequently or infrequently. At the same time, Shay estimated that a revamped website with full e-commerce bells and whistles, such as showing customized products or suggesting products based on customers' previous purchases, could generate 20 percent more sales while reducing production costs from 25 percent of sales to 15 percent or lower.

To assuage Miller's concerns over costs, Successories' chief financial officer, Saritha Arellano, argued along with Carroll that the company could heavily discount overstocked inventory to quickly raise cash. Others suggested allocating nearly all of the annual marketing budget toward raising the rest of the money.

The Decision Once Miller was convinced the company could swing the expense, Carroll's argument won. Successories would immediately scale back catalog printings and move full speed ahead on the Web initiative. "I sure as hell didn't want to die a death of a thousand cuts," says Miller. If the gambit failed, though, he knew the company would be in even deeper trouble. Still, he admits he violated one of his own cardinal business rules: Never depend too heavily on one single investment. "This is a bet-the-ranch kind of gamble," Miller says. "You come to that sometimes."

The new website will be up and running in September. After years of frustration with trying to fix Successories through traditional means, Miller and his team are filled with renewed optimism about the move online. But it's still early going. "It's a balancing act for companies where traditional methods of marketing aren't working," says Steve Shadrick, a partner at Shay Digital. "Everyone is looking for the silver-bullet answer, but there isn't one."

Miller knows from experience that big changes often take a lot longer to pay off than expected. He's not hoping to see any real sales boost or cost savings from the new site before 2009. Until then, Miller is resigned to soldier on. "This is a new position for me to be in," says Miller. "There is no Plan B. We just need to make sure we get through this."

The Experts Weigh In

The Web will help

Successories is making the right move for a good reason: cost savings. But there are other compelling reasons to transition from a print to an online catalog. An online catalog system will provide real-time flexibility to change inventory or pricing at any time and enable short-term promotions that are targeted and timely. This will make the company nimble and more profitable. Also, with the green movement in full throttle, the environmental benefits of reducing the number of print catalogs should be emphasized.

Rick Blabolil
President
Marketing Innovators
Rosemont, Illinois

It's not about the Web

This is an example of short-term thinking that can kill a company. How does changing the sales channel offset the problem? The economy is still awful. Corporate buyers don't care where you sell; they're just not buying. Selling the inventory at deep discounts could prove unwise. If the new sales are realized, Miller will have to replace that inventory with high-cost-to-produce items. He refuses to hear the smoke detectors blaring away. It's like staying in a burning building and spending another $400,000 before having to run out.

John L. Herman Jr.
Founder
Equity Partners
Lutherville, Maryland

Focus on the customer

An all-or-nothing gamble isn't usually the smartest business decision, but sometimes it's necessary. We'll see a number of direct businesses, like catalogs, migrating toward the Web, and the smart ones will move quicker rather than slower. A lot of the challenge becomes helping customers through this change. No doubt there will be some customers who are not comfortable on the Web. Focus on the benefits -- why this is better for them. This is a tough but very doable transition.

Jim Okamura
Senior Partner
J.C. Williams Group
Chicago

Last updated: Jul 1, 2008




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