Consolidation and You
The latest wave of consolidation in the catalog/multichannel business is quite different than consolidations past. That's always easy for us media folk to say, but if you're not among those doing the buying or selling, here's why this matters to you.
The recent flurry of acquisitions has been driven by the need to secure large economies of scale. And like most things in our lives, all signs lead to one key factor: oil.
Skyrocketing fuel costs are driving up freight costs. Many smaller and medium-sized catalogers can't — or soon won't be able to — afford rising shipping rates and surcharges. Even larger merchants don't have these kinds of costs allocated in their budgets. So, all roads lead to consolidation, and, most importantly, shared freight costs.
The modern-day multititle merchant is in a better position than ever before to gain a competitive edge. It's no longer about simply gaining synergies and pooling lists. It's the whole gamut of economies of scale. "The contracts you can do today [particularly, parcel shipping and sourcing] are more dependent on size and what you have to bargain with," points out catalog dealmaker Larry West of West Cos. "With size comes better contracts."
Once their deals go through, for instance, such catalogers as Home Decorators Collection (to Home Depot) and Oriental Trading (to private equity firm The Carlyle Group), will improve their prospecting break-even levels, because they'll be able to invest more in prospecting. This gives them a huge competitive advantage.
My first thought for smaller catalogers struggling to compete is to turn to the Web as a great equalizer of sorts. Smart, entrepreneurial operators have found ways to grab new customers online, and this may be your best bet.
For smaller mailers run by skeleton staffs that have no time to tackle broader issues, the answer may be to stay small and operate within your means.