Annual Report Update: Overstock.com

In addition to EBT being -12% of net sales, the following quote by management clearly directs blame --- and management doesn't believe blame rests with the merchandising organization:

"Our fourth quarter revenue declined 7%, the same percentage decline we experienced in Q3, and our annual revenue was down 1%. We believe that these decreases were primarily the result of our infrastructure upgrades in the last half of 2005, which resulted in an unsatisfactory shopping experience for many of our customers and affected both repeat and new customer revenue in 2006. We believe that a key to future revenue growth is to increase our Website conversion rate-defined as the percentage of visitors to the website who make a purchase. The areas of our business that most directly affect conversion rate, including personalization of the website, customer retention, e-mail marketing, and site design and layout, are the responsibility of our internal marketing department."

Those comments may be true. Still, making money in a direct-to-consumer business that has 12-14% gross margins is VERY DIFFICULT. Repeat, VERY DIFFICULT.

Annual Report Update: PC Connection

A few tidbits from the PC Connection Annual Report:

• 89% of sales come from existing customers. This is a stunning amount, obviously helped by large business accounts.

• 54% of sales come from small businesses of 200 to 1,000 employees, down from 59% two years ago. Large accounts now comprise 30% of sales. 16% of sales come from the public sector.

• Notebook and PDA sales dropped from 21% of total two years ago to 17% today.

• EBT was just 1.4% of net sales, though this is easily the best performance of the past five years. Gross margin was just 12.2% ... this is a tough business model to make money on a consistent basis.

• Catalog circulation is just half of what it was two years ago --- and yet sales continue to increase. Catalogers --- make sure you pay close attention to this trend --- there are often serious flaws in matchback analyses that overstate catalog performance.

Annual Report Update: Coldwater Creek

A few tidbits from Coldwater Creek's Annual Report:

• Continuing recognition that retail is where the growth is, Coldwater Creek plans on nearly doubling the number of retail stores over the next five years. Wow.

• The e-mail database grew from 2.9 million addresses in 2005 to 3.1 million in 2006.

• Circulation increased from 113 million in 2005 to 119 million in 2006 to nearly 130 million in 2007. Increases are in a newer title that serves a primary purpose of driving customers into stores.

• Total net sales increased from $473 million in 2002 to almost $1.1 billion in 2006, mostly due to dramatic retail expansion. This doubling in sales resulted in a 6x increase in net income. Sounds like somebody is figuring out the right multichannel equation here.

• Total direct sales have barely grown over the past four years. What a great lab for Multichannel Forensics, huh? Telephone sales have decreased from $200 million to $127 million over four years. Online sales have increased from $145 million to $264 million over four years. Management believes a large portion of the huge increase in online sales in the past year ($264 million vs. $198 million in 2005) is due to enhancements in the e-mail program (increased frequency & bigger list helped drive increases).
  

Annual Report Update: Eddie Bauer

A few tidbits from Eddie Bauer's Annual Report:

• Management believes that recent changes in merchandising strategy are responsible for Q4 comp store sales increases of 4.6%, Q1 comp store sales increases of 9.5%, and Q1 direct sales increases of 12.9%. We learn over and over again the importance of merchandising and merchandise presentation, not marketing, in driving customer response.

• Target customer = 30-54 years old women and men, income of $75,000 per year.

• Comp store sales have decreased in 23 of 28 quarters since 2000.

• Following a "relaunch of the brand" in Fall 2005 (which came after hiring new management in merchandising, creative and marketing), with new merchandise and creative presentation, comps by quarter were -4.3%, -7.1%, -10.0%, -5.0% and -1.9%.

• In the tradition of Otto Versand (former parent company of Spiegel, which was the former parent of Eddie Bauer), Bauer leverages preview catalogs to determine sales potential of items at the start of a season, and then adjusts inventory buys as a result of what is learned in the preview catalogs. Preview catalogs are mailed nearly three months prior to the start of a season. 70% to 75% of the buy is placed, then adjusted following performance of the preview catalog.
  

• 3.1 million twelve-month buyers, 1.8 million e-mail addresses.

• 28 catalog editions with total circulation of 80.8 million.

It will be fun to see if the turnaround can continue for this beleaguered brand.

Annual Report Update: J. Crew

A few tidbits from the J. Crew annual report:

• Since 2002, catalog sales dropped from $108.5 million to $90.0 million in 2006. Since 2006, online sales increased from $139.5 million in 2002 to $218.7 million in 2006.

• Catalog circulation is making the slow descent that is common with other brands. In 2002, 66,000,000 catalogs were circulated. In 2006, 50,000,000 catalogs were circulated.
  

• Multichannel Information: "As of February 3, 2007, our customer database contained approximately 22.8 million individual customer names, of which 2.5 million were households that had placed a catalog or Internet order with us or made a store purchase from us within the previous twelve months, and 3.0 million email addresses of customers who had agreed to receive promotional emails from us."

• Targeted E-Mails are sent to Mens, Womens, Kids and Sale customers.

• 30% of online customers report receiving a catalog prior to their online purchase. To me, this seems like a reasonable rate for a business with a retail channel, though industry experts might feel that this percentage is way too low.

• There are no more liquidation catalogs --- liquidation is done online. Interesting!

• 22 in-home dates, a total circulation of 50 million, 5.4 billion pages circulated.

• 71 million website visits in 2006, verses 64 million website visits in 2005.

• 80% of merchandise is sourced in Asia.

• Comp store sales have increased by at least 13% for each of the past three seasons. Folks who think marketing drives a business need to look at these figures --- the merchandise assortment is driving this business. Customers buy merchandise they like.

Annual Report Update: Talbots

A few comments from their Annual Report:

• New Stores: "The customer database compiled through the Company's catalog operations provides important demographic information and serves as an integral part of the Company's expansion strategy by helping to identify markets with the potential to support a new store. Although the addition of stores in areas where the catalog has been successful has resulted in slightly lower catalog sales in these areas, the lower catalog sales have been more than offset by the significantly higher sales generated in these areas by the opening of new stores".

• 78% of Talbots merchandise and 88% of J. Jill merchandise is sourced via offshore vendors. 33% of Talbots merchandise is sourced in Hong Kong.

• 2006 Talbots circulation = 25 in-home dates, 48 million catalogs circulated.

• Direct-to-Consumer sales across brands represented 17% of total Company sales --- the online channel comprised 49% of Direct-to-Consumer sales, 47% at Talbots (42% LY), 54% at J. Jill since the acquisition date.
  

• Talbots comps increased just 1.3%, J. Jill comps decreased 4.4% since the date of acquisition by Talbots.
  

Annual Report Update: Williams Sonoma

A few findings from Williams Sonoma's annual report:

• Retail = 58%, Direct-to-Consumer = 42% of the business.

• New products: "... we believe that the mail order catalogs and the Internet act as a cost-efficient means of testing market acceptance of new products and new brands."
  

• Internet sales: "... we estimate that approximately 45% of our company-wide non-gift registry Internet revenues are incremental to the direct-to-customer channel and approximately 55% are driven by customers who recently received a catalog".

• Direct Channel Challenges: Sales growth (telephone + web). was just 4.5%, on a 3.2% increase in catalog pages circulated, and a 1.6% reduction catalogs mailed. Oh oh. Pay attention folks, this is a harbinger of the future for all of us.

• Online sales grew 21% to $927.6 million. In 2007, "... plan to intensify the marketing support behind our fastest growing shopping channel, e-commerce".

• Telephone sales were 58% of direct-to-consumer sales in 2004, and are 42% of direct-to-consumer sales in 2006.
  

It will be interesting to watch how Williams Sonoma evolves their catalog marketing over the next three years. They are publicly saying they plan on growing their marketing efforts online. What will happen to catalog marketing at Williams Sonoma? In addition, direct channel growth is slowing (although a title was killed). All of us need to pay close attention to this trend.