Developing a Turnaround Plan
The holiday season is over. Those record orders and sales days have finally come to an end. You are feeling optimistic about the season ending but then—reality sets in! You now find your company very short on cash. What do you do? Where do you turn? How can your company continue to operate?
Welcome to the dilemmas of the mail order catalog business! Post-holiday rush is the time of year that many catalogers find they need to implement a turnaround plan to ease under-capitalization.
Under-capitalization is a common problem among small- to medium-sized catalog companies, especially in times of low activity when bottom-line losses are rampant. It can even plague larger businesses, such as J. Peterman & Co. A large percentage of mail order catalog companies simply do not have enough working capital to operate all year round. Considering the profitability of a typical consumer catalog company is between 5 percent and 6 percent before interest and taxes, one bad year can be devastating.
Without a strong personal financial statement, financing a catalog company can be very difficult. An entrepreneur’s personal financial situation can be used to guarantee any and all loans to the company. Financing is especially difficult to obtain because catalog companies have few “hard” or tangible assets to use as collateral, such as machines or equipment of any value. Of course, your company’s inventory is its single largest asset. But your company can’t buy the merchandise without cash. And, unfortunately, most lending institutions do not consider your most valuable asset, the house file, when making loans. At best, banks might extend a token amount of credit toward the list, but it would not begin to approach the true value of your company’s customer file.
From the banks’ perspective, a house file is a “soft” asset and is of very little value to them. Although it is critical to the continued operation of your business, it has little liquidation value if your company were to fail.
Steve Lett graduated from Indiana University in 1970 and immediately began his 50-year career in Direct Marketing; mainly catalogs.
Steve spent the first 25 years of his career in executive level positions at both consumer and business-to-business companies. The next 25 years have been with Lett Direct, Inc., the company Steve founded in early 1995. Lett Direct, Inc., is a catalog and internet consulting firm specializing in circulation planning, plan execution, analysis and digital marketing (Google Premier Partner).
Steve has served on the Ethics Committee of the Direct Marketing Association (DMA) and on a number of company boards, both public and private. He served on the Board of the ACMA. He has been the subject of two Harvard Business School case studies. He is the author of a book, Strategic Catalog Marketing. Steve is a past Chairman of both the Catalog Council and Business Mail Council of the DMA. He spent a few years teaching Direct Marketing at Indiana University in Bloomington, Indiana.
You can contact Steve at firstname.lastname@example.org.