Holiday Preview – What to Expect from Consumers

It’s a challenging time for catalogers and online merchants. Skyrocketing costs, i.e., paper and postage, high inflation and interest rates have combined to be the perfect storm.

If I were a betting man (and I’m not), I would plan for a “late” buying season this year. I believe consumers will still make their holiday gift purchases but they will wait as late as possible before doing so. It is more difficult to part with the all mighty dollar, especially with soaring credit card interest rates. The past couple of years, the holiday buying season occurred earlier due to concerns over the supply chain issues. I think we will see the opposite buying pattern this year.

It is important to plan early and well into next year. Mail plans can always be adjusted later. Lead times for paper have increased and allocations are still in place. We are not out of the woods yet. We certainly hope paper prices will come down and lead times will shorten but for now, we need to embrace the reality of the market.

I know many catalog companies began adjusting their mail plans for the holiday season several months ago, anticipating turbulent waters ahead. The goal has been to drive down costs. Reductions have been made in three primary areas. Catalog page counts, circulation, and format. We have seen page counts come down, especially for mailers at the postal pound rate, wanting to get to a weight of 4.0 ounces or less (postal piece rate). Circulation plans have also been tightened. Breakeven points have increased due to the increase in costs. Marginal circulation needed to be eliminated as a result. While we previously mailed at approximately 20% below breakeven, the goal is to mail at or above the incremental breakeven point today. Another change we have seen is catalog format. Several catalogers have gone from a full-size to a slim-jim format as another way to reduce costs.

Page count and circulation reductions will have a negative effect on revenue generation. As always, any savings needs to be weighed against a reduction in sales. Fewer pages will contribute to a reduction in revenue especially for catalogs below 100 pages. Circulating fewer catalogs will also reduce sales.  Changing to a slim-jim format can also reduce revenue even if the square inches of selling space remain the same. We have always advised clients to expect a 6% reduction in response from a slim-jim format because of the tabs or wafer seal requirement. There has been consumer resistance to breaking those tabs to look inside the catalog. Testing is advised before making any format changes.

Word of caution. Too many changes all at once make it difficult to know what is working and what’s not working. I have always believed in testing the effect on the business prior to any change. However, the pressure to reduce costs might not allow for testing. That’s when you need to make the difficult decision to do what you feel is right for your business. Lett Direct has years of experience dealing with these issues and we can help you sort out these decisions.

These are unprecedented times. Don’t stick your head in the sand. Be careful not to make decisions that will impact your business long term. As they say, “This too shall pass.”