SIC 5961 Catalog and Mail-Order Houses

Encyclopedia of American Industries | 2005 | Copyright

SIC 5961
CATALOG AND MAIL-ORDER HOUSES

The catalog and mail-order house industry, or non-store retail industry, is comprised of establishments primarily engaged in the retail sale of products through television, catalog, and direct mail. Such organizations include companies that sell book club memberships, magazines, and retail consumer and business products. These establishments deliver products and services through the mail. This classification does not encompass direct-mail advertising firms or stores that are operated by catalog companies for the purpose of on-site retail sales.

NAICS Code(s)

454110 (Electronic Shopping and Mail-Order Houses)

Industry Snapshot

According to the U.S. Census Bureau's Statistical Abstract of the United States, there were 11,800 electronic shopping and mail order houses in the operation in 2000. The industry generated approximately $68.1 billion in revenues, up significantly from just $19.3 billion in 1990. The industry experienced great growth during the 1980s when mail-order selling activity leaped more than 300 percent. From 1990 to 1996, mail order sales grew at a rate of more than 9.9 percent per year, about 1.7 times the average growth of general merchandise, apparel, and furniture store sales.

The catalog industry saw renewed opportunity with the growth of Internet shopping in the late 1990s. While some new Internet sales companies seemed to pose a threat to established nonstore retailers, the industry soon reacted by adopting the new technology. As of 1999, an estimated 90 percent of catalog sellers who were members of the Direct Marketing Association were online in some way, and 60 percent of them were selling over the Internet. Catalog retailers' Internet sales represented a high growth area in the late 1990s, with some major companies reporting the doubling and tripling of online sales growth annually. Sales were slowed in the fourth quarter of 2001 following the September 11 terrorist attacks, when the entire U.S. economy plunged into recession. Although business rebounded during 2002, war with Iraq in 2003 kept a damper on the economy.

Catalog and direct-mail sellers also saw some blurring of the lines in the industry at the beginning of the twenty-first century, as retailers launched catalogs, catalog sellers opened stores, and many merchants explored the option of selling via the Internet. The industry also went through a period of consolidation through a host of mergers and acquisitions. And a new line of business opened as some direct marketers found they could sell management expertise to newer companies, especially Internet merchants who lacked the know-how to distribute products smoothly.

Organization and Structure

The catalog and mail-order house industry encompasses companies that sell products through all "non-store" retail channels, including radio, television, and computers. Although larger retailers, such as J.C. Penney, typically maintain an inventory warehouse, most industry participants keep little, if any, inventory on hand. When a customer orders a product, the retailer contacts a wholesale company that ships the product to the retailer or directly to the customer.

Because they refrain from traditional retail purchasing, manufacturing, and inventory management activities, many nonstore retailers are essentially marketing companies. Some catalog companies, for instance, simply assemble a group of complimentary products manufactured by other companies and try to market those items in a catalog to the customers they think would be most interested in them. Similarly, many direct mail and broadcast media retailers essentially act as middlemen, selling products that are manufactured and stored by wholesalers.

The three major categories of nonstore retailing include business, consumer, and charitable sales. Throughout the 1990s, consumer sales accounted for approximately 50 percent of industry revenues, while business and charitable sales each garnered about 25 percent of the market. About 60 percent of consumer nonstore sales were products, while the remaining 40 percent were services. Of nonstore consumer product sales, more than 80 percent were derived from specialty items that were not commonly available in stores. The remaining approximately 20 percent came from sales of general merchandise. Of nonstore sales of consumer services, about 40 percent of revenues were garnered from financial services.

One tremendous advantage that companies in this industry enjoy, however—whether they secure sales via catalogs, direct mail, the Internet, or television home shopping—is the elimination or severe curtailment of two expenses that have a tremendous impact on the bottom line of traditional retailers: rent and sales workforce. Another advantage is that even small to mid-size companies can use mail order to grow the business and/or give current business a larger presence in the market without expanding overhead costs.

The primary disadvantage of mail and broadcast retailing is high advertising costs. The cost of producing and delivering catalogs, fulfilling orders, and servicing customers often leaves retailers with slim profit margins, or losses, if the response to a promotion is poor. The cost of mailing a simple letter and brochure typically ranges from 40 to 65 cents per piece, and the retailer often expects only .5 percent to 3 percent of the recipients to actually purchase a product. In...

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