Based on news reports about the airline industry and the economy, one could make the assumption that this is not a good time to be operating a catalog of travel gadgets, clothing, luggage and accessories. Robert Manning, vice president and chief operating officer of Magellan's, believes otherwise. The Santa Barbara, CA-based cataloger is mailing about 8 million catalogs this year and flourishing, much because of an increased focus on its house file. Revenue is projected ahead of last year's numbers, and after successful store openings in Santa Barbara and Santa Monica, CA, Magellan's is eyeing increased expansion into the retail space. The company is far from packing its bags and calling it a day. A longtime friend of John and Gloria McManus, Magellan's founders, Manning joined the cataloger in 1998. He admits that, unlike the McManuses, he didn't have a background in exotic travel until he began working at the catalog. While he loves European travel, his own journeys typically lean toward domestic skiing vacations with his family. But like the couple — who started the company in 1989 after careers with Pan American World Airways — Manning does have an entrepreneurial spirit. Before joining Magellan's, Manning was an owner and CEO of a New York medical data services company, R&R Medical Services. In the mid-'80s, he helped found Cobotyx Corp., which specialized in voice-processing applications. He founded Telephone Marketing Consultants Inc. in the late 1970s, which was sold to Exxon in 1980, and began his career while still in college by founding a training firm, the Foundation for Interpersonal Communications. Manning recently talked with DIRECT about how Magellan's has thrived during the past year and the company's future plans.
DIRECT: How has business been over the past year?
MANNING: We came back from 9/11 very strongly. We're on target to do slightly under $30 million for the year, based on the results of our first quarter, which ended Sept. 30. That would put us more than 40% ahead of last year's numbers. I was expecting a drop-off in the late second and early third quarters, but so far that [hasn't happened]. We're forecast to grow at about 30% for this fiscal year, which is the first time we've grown that way in two years.
I think [Sept. 11] affected us from an efficiency, productivity and profitability viewpoint. It forced us to revisit a lot of things that, when you're growing at 15%, 20% or 25% a year, you kind of let roll. You figure ‘Well, we may be a little inefficient there, but we've got to carry that extra capacity because we're going to need it down the road. We'll send out some of those extra catalogs. Maybe they don't perform quite as well as some others but we can cast our bread on the waters.’ When 9/11 hit, we reviewed our circulation plan for fiscal 2002, and cut out some of the extraneous prospecting. The result was that the performance of our catalog in general has been much better this year than last year.
Our house file — over 1 million names — has grown pretty dramatically since last January-February. We've seen a significant increase in the number of new customers.
DIRECT: So the economic downturn hasn't had a negative impact on the business?
MANNING: Prior to 9/11, during the whole post dot-com bubble burst, when everybody was shaky and companies were going out of business, we were doing very well. I think to a large degree travel is a pretty fundamental human need. People may change where they travel, they may change how long they travel for, but there's still a significant need to travel. We're seeing them travel differently — instead of going to St. Moritz to ski, this year they're going to go to Denver.
DIRECT: Of the 8 million catalogs you mail annually, what percentage is to prospects vs. the house file?
MANNING: Right now, it's about 50-50, which is a change. We were at around 70% prospecting, 30% house pre-9/11. In 2001, we actually went the other way and went to about 60% house and 40% prospect. We've really slashed the circ plan in the fall, winter and early spring of this year, which tends to be a softer period for us anyway. We went to a normal mailing for summer, and the performance of the book was much better than last year. The current projected circulation volume posts as 1.5 million over the aggregate for fiscal 2002, and approximately 250,000 over fiscal 2001.
DIRECT: What's a typical response rate for the catalog?
MANNING: It varies. For a house list, our customers will respond 5% to 7%. Prospecting will run the gamut. We try to keep our prospecting performance to a 12-month break-even.
DIRECT: Aside from the circulation changes, have you done anything else to respond to the economy, like change the paper weight or size of the book?
MANNING: No, we had already started adjusting the paper weights, but not a tremendous amount. We're very sensitive to the look and feel of the book. We found the key was more being sensitive to who we sent the book to and focusing on the response, rather than to make any major [aesthetic] changes. It's still the same size, its still the same look and feel.
Our book is really an essentials book. John [McManus] has often [said] we're more like Sears in some ways than we are Glamour. If you look at the book there's a lot of focus on the clean layout, good distribution of the categories — you don't want to fool around too much with that. You start getting into issues of the paper's opaqueness and transparency and people can't see as well and it starts to feel flimsy. You start to affect your brand and you don't want to do that.
DIRECT: What percentage of your business is online?
MANNING: Thirty percent of our volume comes from the Web. We're really a multichannel player. What we see is that different channels have success with different types of products and customers at different times. For example, retail stores do very well on the apparel side. The Web seems to do very well on some of the products that need more explanation, like air purifiers or security products, because you can put in more content than you can in the catalog.
DIRECT: Which percentage of your customers use multiple channels?
MANNING: About 25% that we know of, and there's another portion on top of that. We estimate about 70% of our Web traffic comes to us one way or another through the catalog. And 75% of our catalog requests come to us over the Web. So it's intermixed. People can find us through the affiliates and then come to the Web site, put in a request, get a catalog. Then they may go back to the Web, they may [order] over the phone.
DIRECT: Do you think you get a slightly different customer online?
MANNING: We've been online since 1998. [The customer] is pretty similar. We've seen a little improvement in the younger demographic online, but for the most part it tends to be our customer — predominantly female, educated, urban, high income, over age 50. To a very large degree, the Web is an order channel, it's not a different market.
DIRECT: How does the average sale online compare with the print catalog?
MANNING: Pretty close — about a 10% difference. Our average order size over the phone is about $90 and our average sale on the Web is around $83 to $84. It's very obviously correlated to the richness of the medium. [On the phone] you can ask questions, you can suggest more product.
DIRECT: How are you using e-mail marketing?
MANNING: We send out on average two e-mails a month to 200,000 customers and 50,000 opt-ins. The Travel Challenge newsletter is usually issue-specific, [discussing] what some of the experiences were post-9/11, staying in touch with your office from your hotel room, different telecommunications and issues and needs. It's less product-oriented and more information-oriented. We got some really positive feedback from our customers. Then we try and send out one [e-mail] a month that's more product-specific, announcements of new products or catalog specials.
DIRECT: Which percentage of Magellan's business is international?
MANNING: Probably about 5%. Our goal is to have that as 15% of the business by the end of the next fiscal year, June 30. In the fall of last year, we started a catalog in the U.K., which is running about 300% ahead of projections. What was extraordinary for us was that basically the same products sold [as in the U.S.]. We do a little more clothing here than we do over there. The product composition is a little more hardware-oriented, and we sell a lot of insect repellent, security wallets and packet folders.
[Our U.K. customers are] very comfort-oriented. They're experienced travelers. They travel internationally much more readily than we do, because in essence, a weekend away is an international trip.
DIRECT: Are you looking at expanding to other countries?
MANNING: We definitely have a plan for Germany in our next fiscal year. Germany is a big market, with tremendous travelers. German travelers are world-renowned, the economy is strong, and the direct marketing infrastructure is there.
I'm not sure where the market would take us after that. The romance countries — France, Italy — are possible. But we may actually go to the Asian Rim in the next move. There are some issues there, because obviously the infrastructure in Germany and the U.K. is very similar to our own, the methodologies are very similar. When you get into the Far East, things are different.
DIRECT: Are you partnering with companies overseas for functions like fulfillment?
MANNING: We've outsourced our call center to a U.K. firm. We've been handling the distribution from here, and are testing bulk shipping to a U.K. satellite distribution center. Our plan in the second calendar quarter of next year is to develop our own call center over there. That's been one of the biggest challenges for us. We handle all of our customer service here in Santa Barbara.
DIRECT: Your customer service reps go through quite a bit of training, don't they?
MANNING: That's one of our core competencies. We have approximately 30 reps here, who go through three different phases of training. The first phase, when they first come on board, takes two full weeks. Then they are linked with an experienced travel gear specialist, and they work with that buddy for two or three months on a gradually decreasing basis. During that period of time, all of their orders are reviewed by supervisors and quality assurance personnel. At the same time, we have a formal quality assurance review process that anybody in their first six months of training goes through weekly.
DIRECT: Post-9/11, were your reps getting different kinds of questions?
MANNING: Intriguingly enough, they weren't getting questions they hadn't gotten before, they were just getting more of them. We've always been well positioned for security and safety products. So what happened was more people were calling with those questions — we were getting less questions about travel blazers and more about smoke hoods.
DIRECT: What are you seeing as the biggest challenges today for the catalog business?
MANNING: In general, I think the classic problem is the maturity of the direct marketing business. Certainly, there are a lot more catalogers out there. There's a lot more competition for the mailbox, there's a lot more competition for the eyeball. Direct marketing has really become a more sophisticated industry. The days when you could sit at a kitchen table and crank out a catalog and become a player may be over. I think with the investment, the technology [needed], you certainly have to be multichannel to be a player today. All these things have changed the stakes. It's riskier and it's more competitive. We see it ourselves. We see the response rates change in lists that historically were very strong players for us. We've seen more competition at the product level.
DIRECT: What's the next step for Magellan's?
MANNING: Our goals in the next few years are to expand our reach, both domestically and internationally; [we'll also] continue to enhance the multichannel component. We see opening more retail stores in places that are urban, good markets for us — New York, Chicago, Miami, Dallas.
In With the Inn Crowd
Maine hotel uses grassroots DM to charm locals
When you got off the ferry on Peaks Island, ME two years ago, the first thing you saw was a rundown, closed gas station and bakery. One would think that a developer interested in turning the building into a hotel/restaurant/general store would be met with welcome arms. Not quite.
The island — 15 minutes off the coast of Portland — has a year-round population of 1,500, which swells to about 6,000 in the summer. Residents were wary of drawing more people to the island, and worried that a new hotel might help turn their island into a tourist area like Nantucket or Martha's Vineyard.
Sandy Sturrock, who decided to give up her 14-year post as Compaq's director of marketing communication services and relocate from Houston to open the Inn on Peaks Island, fell in love with the place after a visit. After building her own home there, she realized there was no place for guests to stay other than a small summer rooming house.
But first, Sturrock had to win over the locals. “One thing I learned while working with Compaq is that you've got to communicate, communicate, communicate.”
In July 2001, she held a town meeting on the site to show people plans for the inn, and distributed sweatshirts bearing the property's blueprints. Even the people who were opposed to the project were pleased they had a chance to make their feelings known, Sturrock said.
Ground was broken in December 2001 for the inn. Local support was important, because Sturrock didn't want to run into roadblocks when trying to obtain permits. She also wanted to encourage the patronage of local residents, who will be able to use the function rooms for island-related meetings.
E-mail updates were sent out to about 100 locals, updating them on construction progress, and soliciting input about what they'd like to see in the store or on the restaurant's menu. People were encouraged to pass the e-mails along to other interested parties.
About 1,200 copies of a Peak Inn newsletter were created and distributed on the island and in the ferry terminal; the first 1,000 copies disappeared within an hour during the Fourth of July weekend. The newsletter included a taste-test essay contest; 100 people responded, and winners will be invited to a tasting of the restaurant's menu before the inn opens next month.
Print ads promoting the inn have run in Portland magazine. The inn's Web site (www.theinnonpeaksisland.com) has also been used to generate pre-opening buzz, as have window ads in the island's Casco Bay Ferry landing.
The seven-room inn will be open year-round. Room rates will vary seasonally from about $169 to $199 a night, with a suite going for $400 a night in high season.
Sturrock is planning a direct mail push both in and outside of New England for next summer to promote the inn's official grand opening, with a T-shirt possibly offered as a premium. Creative is currently being handled in-house with the help of local artists and writers; an outside agency may be hired after the inn is up and running.
— Beth Negus Viveiros
