SIC 5961 Catalog and Mail-Order Houses

 
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SIC 5961

The catalog and mail-order house industry, or nonstore retail industry, is comprised of establishments primarily engaged in the retail sale of products through television, catalog, and direct mail. Such organizations include companies that sell book club memberships, magazines, and retail consumer and business products. These establishments deliver products and services through the mail. This classification does not encompass direct-mail advertising firms or stores that are operated by catalog companies for the purpose of on-site retail sales.

NAICS CODE(S)

454110

Electronic Shopping and Mail-Order Houses

INDUSTRY SNAPSHOT

The catalog and mail-order house industry encompasses companies that sell products through all "nonstore" retail channels, including radio, television, and computers. Although larger retailers typically maintain an inventory warehouse, most industry participants keep little, if any, inventory on hand. When a customer orders a product, the retailer contacts a wholesale company that ships the product to the retailer or directly to the customer. In the mid-2000s, the most successful product categories in this industry were computers, consumer electronics, and office supplies.

Catalog and direct-mail sellers also saw some blurring of the lines in the industry in the 2000s, as retailers launched catalogs, catalog sellers opened stores, and many merchants sold via the Internet. The industry also went through a period of consolidation through a host of mergers and acquisitions, which was still going strong well into 2005. More than $27 billion in direct sales consolidation took place in 2004 alone. A new line of business opened as some direct marketers found they could sell management expertise to newer companies, especially Internet merchants who lacked the know-how to distribute products smoothly.

Because they refrain from traditional retail purchasing, manufacturing, and inventory management activities, many nonstore retailers are essentially marketing companies. Some catalog companies, for instance, simply assemble a group of complimentary products manufactured by other companies and try to market those items in a catalog to the customers they think would be most interested in them. Similarly, many direct mail and broadcast media retailers essentially act as middlemen, selling products that are manufactured and stored by wholesalers.

ORGANIZATION AND STRUCTURE

The three major categories of nonstore retailing include business, consumer, and charitable sales. Throughout the 1990s, consumer sales accounted for approximately 50 percent of industry revenues, while business and charitable sales each garnered about 25 percent of the market. About 60 percent of consumer nonstore sales were products, while the remaining 40 percent were services. Of nonstore consumer product sales, more than 80 percent were derived from specialty items that were not commonly available in stores. The remaining approximately 20 percent came from sales of general merchandise. Of nonstore sales of consumer services, about 40 percent of revenues were garnered from financial services.

One tremendous advantage that companies in this industry enjoy, however, regardless of whether they secure sales via catalogs, direct mail, the Internet, or television home shopping, is the elimination or severe curtailment of two expenses that have a tremendous impact on the bottom line of traditional retailers: rent and sales workforce. Another advantage is that even small to mid-size companies can use mail order to increase their business and/or give current business a larger presence in the market without expanding overhead costs.

The primary disadvantage of mail and broadcast retailing is high advertising costs. The cost of producing and delivering catalogs, fulfilling orders, and servicing customers often leaves retailers with slim profit margins, or losses, if the response to a promotion is poor. The cost of mailing a simple letter and brochure typically ranges from 40 to 65 cents per piece, and the retailer often expects only 0.5 percent to 3 percent of the recipients to actually purchase a product. In fact, a 2 percent response rate is considered highly successful in the mail-order business. Although response to a catalog is often higher, usually between 3 percent and 6 percent, production costs often exceed $3 per catalog. Mean response rates from catalogs peaked at 8 percent in 1996, and the drop to 5 percent by 1998 was seen as a possible portent of slowing in the industry.

Nonstore Consumers

Nonstore retail industry consumers differ from store customers in several ways, which affects the method companies employ to reach the target market. Catalog shoppers, for instance, are better educated, are more likely to work in professional and managerial capacities, earn more money, are more conservative and traditional, and are more comfortable with modern technology and financial instruments. Catalog shoppers are also more likely to be women—58 percent to 42 percent—versus an even percentage of store shoppers. A greater percentage of nonstore customers are also divorced and middle-aged. For example, 25 percent of catalog shoppers are 35 to 44 years old, compared to only 17 percent of store customers.

Many demographic differences bode well for nonstore merchandisers. Dual-income households, for example, are more likely to shop through catalogs. As a result, more than 50 percent of households that regularly shopped through mail-order earned $30,000 to $99,000, as opposed to 38 percent in that range that never shopped by mail. Catalog shoppers are also more likely to listen to media advertisements and typically expose themselves to more news and financial media. Catalog patrons also spend more money on grocery items ($65 per week rather than$55 per week for non-catalog patrons), and are more likely to develop brand loyalty.

BACKGROUND AND DEVELOPMENT

The history of mail-order is said to go back to the 1490s, just after Gutenberg's invention of movable type. The first known catalog dates from 1498 when Aldus Manutius of Venice offered 15 books by Greek and Latin authors for sale. Mail-order operations have existed in the United States since colonial days. In fact, Benjamin Franklin is believed to have initiated the industry with the first direct-mail offer ever presented to the public. Not until the latter part of the nineteenth century, however, did mail order assume a significant role in the economy. The main impetus for merchandisers to offer products through the mail was the inaccessibility of the massive rural consumer market. Companies knew that they could benefit by getting product information to farmers, who represented the majority of the population.

Although a few firms successfully promoted products to the rural population through catalogs and mail, Richard Sears achieved the most notable success. In 1886 Sears began selling watches in the mail. Eventually, the Sears Roebuck, & Co. catalog became a staple of American life, delivering access for millions of Americans to general merchandise that was locally unavailable.

During the late 1800s and early 1900s, several developments contributed to the emergence of a nonstore retail industry. Most importantly, the construction of a continental rail network provided a vital distribution channel for East Coast mail-order houses. In addition, the U.S. postal service began offering special rate structures for mail-order businesses that encouraged the dissemination of advertising papers and catalogs. Furthermore, in 1913 the postal service developed the parcel post system. These factors provided a relatively inexpensive alternative to products sold by controversial middlemen, who often garnered huge profit margins from the sale and delivery of goods to rural customers.

Three of the largest mail-order houses that gained prominence in the early 1900s were Sears; Montgomery Ward and Company, founded in 1872; and Spiegel, Inc., which mailed its first catalog to women in 1905. These companies, like others of that era...

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