Lillian Vernon is downsizing in 2008 – both the company and the catalog – because of rising mailing costs. These moves follow other staff reductions made throughout 2007 in response to lost business and streamlined operations.
Just before Christmas, Lillian Vernon cut approximately 25% of its staff, for a total of 140 employees. The cuts “reached into every function within the company,” said Michael Muoio, president/CEO at Lillan Vernon.
In addition, the company’s catalog circulation will be reduced this year, although Muoio said that the reduction is “evolving,” declining to give specifics.
In March, Lillian Vernon said it had cut call volume by 450,000 and decreased overall staffing requirements by improving operations in its distribution center and call center as well as by decreasing shipping times. It lost another 230 employees in August when Time Life Music and Books discontinued third-party fulfillment operations with Lillian Vernon, a catalog merchant and online retailer that sells household, organizational, children’s and fashion accessory products.
A 25% rate increase from FedEx at the beginning of last year, followed by a 20% postal increase later in the year, are primary reasons for the most recent round of cost-reducing measures at the company.
“[The rate increases] had a pretty dramatic impact on the company and we had to respond to [them],” Muoio said, adding that the combined cost to Lillian Vernon of these increases was approximately $8 million.
Another factor that played into Lillian Vernon’s decision to downsize was an impending paper price increase, Muoio said. “We’re hearing that there will be anywhere from a 10% to 15% increase in paper costs this year,” he said.
Prior to these cost increases, Lillian Vernon’s business had been “improving,” Muoio said. The business reportedly suffered during the period, between 2003 and 2006, that it was owned by Zelnick Media and founder Lillian Vernon was no longer involved in daily operations. During that time, Muoio added, too many changes were made without careful testing, alienating many traditional customers.
Since Lillian Vernon was acquired by Sun Capital Partners in 2006, the company has taken several steps to improve operations.
In March 2007, it closed a satellite call center in Manila, Philippines that had been open since 2004 thanks to improved operational efficiencies at its call center in Virginia Beach, VA. Other improvements were also made, such as giving customers access to online package tracking, reorganizing the distribution center’s pick floor and reducing the number of SKUs. Lillian Vernon also built a marketing database with Catalog Vision, an InfoUSA company, to improve its data hygiene. In the latest round of streamlining, Lillian Vernon will cut names from all areas of its mailing list, including prospects, house and inactive names, in order to reduce circulation.
The company will also consider reducing the frequency of its catalog drops and will look into using different paper stock for the catalog.
As a result of these reductions, the Internet represents a bigger percentage of Lillian Vernon’s overall marketing spend, according to Muoio.
Unlike some other catalogers that have experimented with smaller catalogs as a way to cut costs, the format of the Lillian Vernon catalog will most likely remain unchanged.
“Our brand is our format,” Muoio said, adding that after looking at Slim Jims, postcards and other alternative mailers, Lillian Vernon decided to stick with its existing format.
Lillian Vernon “is not alone,” according to George Hague, senior marketing strategist at J. Schmid & Associates.
“Several catalogers did cut back on circulation, particularly on prospecting, around the holidays,” Hague said, adding that there will be even more tightening up of circulation strategies in 2008. “We’re going to see people really working to mail smarter.”
The catalogers most likely to be affected are consumer books with smaller average orders, because these companies are not able to absorb backend fuel surcharges as easily as catalogers with higher average orders.
