March 30, 1997 in Nation/World

Grappling With Growth Catalog Sales Business Gears Up For Next Phase Of Expansion Plan

Eric Torbenson Staff writer
 

After explosive growth in the fiercely competitive catalog sales business, Coldwater Creek Inc. faces the growing pains of mail-order puberty.

For certain, the company’s doubling of sales in the past two years brought attention to the speciality clothing and nature-oriented gift-marketer.

Projections of the company’s earnings stirred plenty of local interest in Coldwater’s first public stock sale earlier this year. Shares that sold for $15 bumped to $22, but have since retreated to less than the opening price, trading near $14.88 a share.

To continue such break-neck expansion, Coldwater has a careful strategy designed to build its retail niche among finicky high-end shoppers, many of whom don’t hesitate to charge hundreds of dollars for those special items.

Coldwater’s path has been well traveled by other catalog companies that have grown before it. While a recognized way to grow any catalog company, the strategy, industry observers say, remains risky.

Big retail step

The most visible element in Coldwater’s expansion plans sits far from the company’s Sandpoint headquarters, where it boot-strapped itself from relative obscurity in the mid-‘80s to one of the West’s most recognizable catalog brand-names.

A 10,000-square-foot space in the priciest part of downtown Jackson, Wyo., will represent Coldwater’s first store outside Sandpoint. The opening is planned in June.

A four-season tourist mecca, Jackson boasts a downtown core with a vacancy rate of zero, said Deborah Supowit, membership director for the Chamber of Commerce.

“We have bumper stickers down here that say ‘Bring back the off-season,”’ Supowit said. “Things have been real steady down here.”

While Jackson locals recognize the Coldwater Creek name, how the store will do in a crowded retail market is hard to gauge, Supowit said, until shoppers get a sense of what the store offers.

“Until I actually see what they’ve got, I can’t comment on how they’ll do,” she said. “I hear it’ll be a lot like what you see in Sundance.”

Salt Lake City-based Sundance, an offshoot of Hollywood star Robert Redford’s retail empire, just opened its first retail store in Seattle last fall, said Jodi Erhardt, spokeswoman for the catalog company.

“We’ve been surprised at how well the store has done for us,” Erhardt said. The company already has plans for a Denver store.

Sundance research showed that its catalog customers wanted access to Sundance products. Half of the Seattle store features lines from the catalog. But the store also sells one-of-a-kind items, such as hand-carved wood pieces, that couldn’t be mass-sold through mail-order.

Many catalog firms have had tremendous success with retail outlets. Redmond’s Eddie Bauer boasted more than $1 billion in sales last year from its catalog and retail store empire. Its catalog operations now primarily draw customers into the 350-plus Eddie Bauer shops.

An equal number of catalog companies, however, have been eaten alive by trying retail stores, said Barbara Todd, head of Portland-based Good Catalog Co.

“It’s tremendously risky,” Todd said of adding stores to a successful catalog line. “The retail side has to be run as a completely separate company or it just won’t work. They’re completely different businesses.”

Todd’s firm sells space in its line of 13 catalogs to other catalog companies. It also exchanges precious customer databases with Coldwater Creek and others, often the key tool to finding new customers.

Coldwater admits in its stock prospectus that it has no experience in running these kinds of stores. Plans call for up to 10 such shops located in high-profile tourist spots, which will likely raise the profile of a company that has preferred to remain out of the spotlight.

Keeping a low profile

It took founder Dennis Pence only two years to turn a profit from his company, which mailed its first catalog in 1984. Sales have risen steadily each year since 1986, as mail-order shopping has become an increasingly larger part of the national retail picture.

The Direct Marketing Association in New York, which tracks the catalog sales business, estimates the industry generates $75 billion in sales annually.

With the company’s January stock sale, the shroud of secrecy about the company’s performance and growth strategy was lifted. Pence has denied repeated requests for interviews since the company went public, and other executives have deferred interview requests to Pence.

He and wife Ann control nearly every aspect of the company. He runs the business side, Ann the creative side. Both are paid more than $200,000 each annually and the recent stock sale netted them $16.2 million, according to the company’s prospectus. Together, they control nearly three-fourths of all Coldwater stock.

While Coldwater sales have soared from $11 million in 1992 to nearly $100 million for the last fiscal year, company profits haven’t followed.

Despite a doubling of sales between 1995 and 1996, the company’s net income has risen only about 20 percent in the same period, according to another catalog company head. Coldwater hasn’t released its earnings for the 1996 holiday season, the two months where Coldwater and most catalog firms bank the bulk of profits.

Catalog industry observers believe that, while remaining profitable, the company’s margins may continue to decline. A large part of the company’s sales growth came from beefing up clothing lines in the catalogs, and introducing its own name-brand clothes. Stiff competition in that area of catalog retailing has an increasing number of catalogers chasing a limited number of dollars.

Coldwater, in its prospectus, admits that “as a result of the shift to a greater percentage of apparel merchandise, the Company anticipates that its gross profit margins will not return to historical levels.”

The company believes it may have to develop a new outlet for the clothes it does not sell or has returned by customers. The Cedar Street Bridge Retail Store in Sandpoint has been one venue to sell some of the Coldwater lines, and management has been pleasantly surprised at the Bridge’s performance. It contributed 3 percent of the company’s total net sales in 1995.

The company also wants to take over the management of its credit card program, which, while potentially lowering costs, also could pose some risk. The company has no prior experience managing that kind of enterprise.

But the primary need to continue its meteoric sales growth remains: Coldwater must find new customers.

Testing new markets

Adding new catalogs and product lines in coming years won’t produce results if there aren’t more people to shop them. Consequently, Coldwater wants to find more sales in Japan and even in nearby Canada, which currently generate less than 10 percent of the company’s sales. Coldwater has hired multi-lingual sales representatives to handle increased orders from overseas.

Along with trying to add more retail stores, Coldwater wants to sell more of its goods over the Internet, and already has a slick-looking Web site.

Todd, of Good Catalog Co., doesn’t believe the Internet will likely appeal to her high-end customers, mostly high-income women. “They’re not the kind of women who surf the net to shop,” she said. Coldwater catalogs target both women and men.

Other catalog companies such as Sundance have also joined the Internet craze. As a selling tool, the Internet costs less than catalogs, which are saddled with fluctuating and typically rising paper and postage costs.

Local face

Coldwater’s presence in North Idaho will expand outside Sandpoint as the company grows. With more than 100 telephone operators now employed at the company’s call center in Coeur d’Alene, the company expects most of its employment growth to occur there. Coldwater has more than 1,000 full and part-time employees, according to its prospectus, making it one of the region’s biggest employers.

The company expects someday to route all calls through its Coeur d’Alene center, where they are answered in one and a half rings or quicker. That’s far faster than the industry average, the company likes to trumpet.

Coeur d’Alene makes more sense for the call center because of its larger work force and better telecommunications infrastructure. Coldwater basically was running out of workers in Bonner County.

The lagging stock prices have made Coldwater and Pence more visible. Edward D. Jones analyst Tom Tillisch said the recent price drop reflects the end of the typical euphoria over a new stock release.

“It’s trading on its earnings now,” said Tillisch, in Sandpoint, where many of his clients approached him about buying the stock.

Coldwater’s earnings per share are projected to nearly double in the coming year, which would likely create more demand for the stock and push the price back up.

Pence’s growth strategies, like any business plan, do have a component of risk, Tillisch said. But with a track record like Coldwater’s, it will likely be executed well, he said. “Dennis is a very smart guy.”

, DataTimes ILLUSTRATION: 2 Photos (1 color) Graphic: Coldwater Creek company profile

MEMO: This sidebar appeared with the story: COLDWATER CATALOGS Northcountry Introduced in 1985, it is the company’s most established catalog. Sells natural fiber apparel, jewelry, art and gift items. Most items priced between $15 and $90.

Spirit of the West Introduced in fall 1993, it is the company’s fastest-growing catalog. It features upscale women’s apparel and jewelry. Most items priced between $30 and $135.

Milepost Four Introduced in spring 1996, it is the company’s men’s apparel and accessory catalog. Most items priced between $15 and $110.

Ecosong Introduced in fall 1994, it sells merchandise with environmental, natural and wildlife themes. Most items priced between $10 and $50.

This sidebar appeared with the story: COLDWATER CATALOGS Northcountry Introduced in 1985, it is the company’s most established catalog. Sells natural fiber apparel, jewelry, art and gift items. Most items priced between $15 and $90.

Spirit of the West Introduced in fall 1993, it is the company’s fastest-growing catalog. It features upscale women’s apparel and jewelry. Most items priced between $30 and $135.

Milepost Four Introduced in spring 1996, it is the company’s men’s apparel and accessory catalog. Most items priced between $15 and $110.

Ecosong Introduced in fall 1994, it sells merchandise with environmental, natural and wildlife themes. Most items priced between $10 and $50.


Thoughts and opinions on this story? Click here to comment >>

Get stories like this in a free daily email