Internet and Catalog Retailers
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Industry Overview
The Internet and catalog retailing industry in the US includes 16,000 companies with combined annual revenue of over $160 billion. Major companies include Lands’ End, LL Bean, Amazon, Overstock, and Hanover Direct. The industry is concentrated: the top 50 companies account for about 60 percent of industry revenue. Over the past five years, the industry has shifted from catalog to Internet sales.
Competitive Landscape
Demand is driven by consumers’ personal income. Profitability of individual companies depends on effective marketing to build a customer base. Larger firms enjoy central purchasing efficiencies and economies of scale in inventory management, customer service, and telecommunications. Smaller firms compete on outstanding customer service and providing niche products. Average annual revenue per worker for a typical company is about $400,000.
While most brick-and-mortar retailers have an online presence and many also offer catalog sales, this profile focuses on retailers who use the Internet or catalogs as their sole or primary sales channel.
Products, Operations & Technology
Although catalog and Internet retailers sell a variety of products and services, some of the largest product categories are drugs, health, and beauty aids; computer hardware and software; and clothing. While many Internet and catalog companies specialize in a single product category, larger companies are expanding offerings to maintain growth and leverage brand awareness. Amazon has expanded from being an online bookstore to offering items in more than 30 categories, including loose diamonds.
Catalog retailers specialize in target marketing, which identifies specific customers and customer groups most likely to buy their products. Catalogers mail about 300 million catalogs a year to existing customer base and targeted prospects. Catalog firms maintain a proprietary customer list of those who have bought in the past. This list is supplemented by purchased and rented lists of consumers with desired buying behavior, and names from print advertising and promotional inserts.
Consumers buy merchandise by calling a toll-free number and placing their order at the firm’s call center. The order is entered into an online order entry and inventory control system. Customers provide shipping and payment information, generally a credit card number.
In-stock items are usually shipped the next day from the company’s warehouse(s) or distribution center(s) or from a third party through a sponsoring agreement. Company warehouses can be as large as 600,000 square feet and contain thousands of different products. Shipments are made via the US Postal Service (USPS) or a commercial shipping firm, and fulfillment may be enhanced by providing the customer a delivery date and delivery shipment notification.
Most catalogers have unconditional return policies. Disputes regarding purchases and deliveries are resolved by the credit card issuing bank. Credit card association procedures require the retailer to prove the sale and delivery of the disputed merchandise.
The Internet retailer’s process is similar to catalog retailers' except that the merchandise is ordered online. The customer puts items for purchase in an online shopping cart and then provides shipping and payment information before checking out. Internet retailers typically have call centers for customer service calls. Customers order online by going directly to a firm’s website, through third party websites by “click thrus” where the retailer pays a commission, and from online advertising. Catalogs are one of the largest factors in generating online orders. Consumers who receive catalogs are twice as likely to buy online as those who don’t get catalogs, according to the USPS.
Catalog and Internet retailers have invested heavily in management information systems that allow easy access to data, including customer purchase history, product availability, product specifications, and shipment dates. Information systems are used to automate warehouse operations, inventory management, and call center operations. The customer database is the source for marketing and promotional campaigns. Due to customer privacy and security issues, Internet retailers have invested in encryption technology to protect sensitive customer information transmitted over the Web.