Few industries remain unaffected by the mail order craze. Today, consumers can buy anything from automobiles to baby clothes, from financial services to welcome mats, through a catalog, a computer screen, or an infomercial. With gross annual sales of $252 billion in 1994, a growth of more than $40 billion since 1991, mail order represents a big business that continues to expand. The mail order industry comprises consumer products and services of $130 billion, business products and services of about $71 billion, and charitable contributions of $51 billion. According to a recent report in Direct Marketing, at $105 billion, consumer mail order product sales are equivalent to 69% of sales of the top 100 department stores and top 100 specialty stores. This total is more than catalog showrooms, direct selling, and vending machines combined, and it accounts for more sales than any single consumer selling channel except mass general merchandisers and supermarkets. Mail order has more sales for specialty merchandising with prices under $1,000. than any other type of sales method. See Figure 1 for a listing of the leading U.S. mail order businesses ranked by worldwide sales.
How do mail order companies operate? What makes them successful? What are the common elements tying these diverse firms together? This article addresses these questions from a lender's perspective. In particular, it defines how lenders can profitably help consumer mail order companies achieve their financial objectives.
The Evolution of Catalog Shopping
Mail order's history is long, dating back to at least 1498 when Aldus Manutius of Venice offered a catalog listing 15 Greek and Latin books. Domestically, in 1744 Benjamin Franklin brought catalogs to America selling scientific and academic books. Orvis, which is still published today, was founded in 1856 to market fishing gear, and in 1872, Aaron Montgomery Ward began printing a catalog that marketed general merchandise to farmers throughout the Midwest. In 1875, a fast-mail railway connected New York to Chicago, making mail delivery much more efficient and reliable. In 1887, the Sears catalog was conceived when Richard Sears, an enterprising railroad agent, learned that he could buy items from a vendor at one station to sell to customers at the next. He soon joined forces with Alvah Roebuck and, by 1893, was producing a 500-page catalog.
Perhaps the greatest proponent of growth in the mail order industry was the technological progress of the twentieth century. In 1913, the U.S. government introduced parcel post package delivery and, 15 years later, offered third-class bulk mail. In 1950, Diners Club introduced the first credit card, and soon after, television gave retailers and catalogers alike a whole new method of effectively reaching their customers. In 1963, the U.S. Postal Service instituted zip codes, which greatly improved the efficiency of parcel delivery, and four years later, AT&T introduced toll-free numbers, which lowered the barriers for customers to call and place orders. Today, retailers are using infomercials to supplement catalog and store sales, and testing is also underway to replace catalogs, which are increasingly costly to mail, with "CD-ROMalogs" and online shopping.
Standard & Poor's cites these rapid advancements in technology for not only the recent rise of mail order activity but also an apparent decline in the life cycles of new retailing concepts. In this context, life cycles refer to the length of time during which a retailing concept is born, grows, and declines. In its May 1994 analysis of the retail industry, Standard & Poor's noted that department stores grew for 80 years before reaching their peak in the 1940s. Since then, variety stores matured in 45 years, supermarkets in 35 years, and discount stores in 20 years. Warehouse clubs, now only 10 years old, are already reaching their peak.