Spiegel, Inc.

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Spiegel, Inc.

3500 Lacey Road
Downers Grove, Illinois 60515-5432
U.S.A.
(708) 986-8800
Fax: (708) 769-2823

Public Subsidiary of Spiegel Holdings Ltd.
Incorporated: 1893 as Spiegel House Furnishings Company
Employees: 14,000
Sales: $2.6 billion
Stock Exchanges: NASDAQ
SICs: 5961 Mail Order Houses; 5621 Women’s Clothing Stores; 5651 Family Clothing Stores; 5399 Miscellaneous General Merchandise Stores; 6141 Personal Credit Institutions; 5611 Men’s and Boys Clothing Stores; 5941 Sporting Goods Stores

Billing itself as “the nation’s dominant multi-channel specialty retailer,” Spiegel, Inc. is perhaps best known for its distribution of over 80 different catalogs with a total circulation of over 313 million. The target market for the apparel and home furnishings featured in Spiegel’s catalogs consists primarily of working women, ranging in age from 21 to 59 with an average household income of $51,000. The company also operates several specialty retail stores, including Eddie Bauer, Inc., which sells men’s and women’s casual and sports apparel through catalogs and retail outlets. Nearly 300 Eddie Bauer stores were in operation in 1993, and that year the subsidiary’s revenues topped $1 billion for the first time. Another subsidiary is New Hampton, Inc., a specialty catalog company that markets moderately priced women’s apparel. Although a portion of Spiegel’s stock is traded publicly in the United States, the company is controlled by members of Germany’s Otto family, whose Otto-Versand GmbH is the largest catalog retailer in the world. Spiegel was purchased by Otto-Versand in 1982, and those shares were transferred to various family members two years later.

For the first 100 years of its history, Spiegel was largely a family business. The company was founded in 1865 by Joseph Spiegel, the son of a German rabbi. After spending the last several months of the Civil War in a Confederate prison camp, Spiegel settled in Chicago, where his brother-in-law, Henry Liebenstein, ran a successful furniture business. With Liebenstein’s assistance, Spiegel opened J. Spiegel and Company, a small home furnishings retail operation located on Wabash Avenue in Chicago’s loop. The business was quite successful in its early years. In 1871, however, the Great Chicago Fire destroyed most of the area’s business district, including the Spiegel store.

After the fire, Spiegel and partner Jacob Cahn rebuilt the business, and by 1874, the company was prospering again, this time under the name Spiegel and Cahn. When Cahn retired from the business in 1879, the name reverted to J. Spiegel and Company. The company grew impressively through the 1880s. In 1885, Spiegel began running regular advertisements in several Chicago newspapers, and the following year the company moved to a larger building on State Street. Spiegel’s two oldest sons, Modie and Sidney, were also brought into the business during this time.

Spiegel issued its first catalogs in 1888. The catalogs were made available to potential customers who lived outside the city. While a mail order system did not yet exist, the catalogs served to lure people into the downtown store from further away. By 1892, however, business had taken a turn for the worse, as many customers were slow to pay for their purchases. With debts mounting, the company went bankrupt. At Modie Spiegel’s urging, the company reinvented itself as Spiegel House Furnishings Company of Chicago in 1893. The principal difference was that the new company, like many others in the furniture business, sold on credit. The decision to offer installment plans, and the timing of the decision, made possible Spiegel’s remarkable expansion over the next several decades.

The new Spiegel was an instant hit, and the first branch store was opened on Chicago’s South Side in 1898. Another South Side branch went into operation three years later. The company’s slogan—“We Trust the People!”—reflected its emphasis on credit merchandising. In 1903, Joseph Spiegel’s third son, Arthur, entered the business with a plan to develop mail-order operations for Spiegel. After a couple years of lobbying, Arthur convinced the company hierarchy to open a mail-order department, and in 1905 Spiegel became the first company to offer credit through the mail. The new service was reflected by the addition of a word to the company motto, which now read: “We Trust the People—Everywhere!” The response was phenomenal, and soon a huge, previously untapped base of customers was ordering from Spiegel’s mail-order catalog.

In 1906, Spiegel’s mail-order sales were nearly $1 million, far beyond anyone’s expectations. To handle the overwhelming success of the mail-order operation, a new company—Spiegel, May, Stern and Company—was formed, allowing the Spiegel House Furnishings Company to devote its limited resources to conventional retailing, rather than assume the debts associated with building up the mail-order segment. Arthur was named president of the new company. Spiegel then began to diversify its line of products, offering apparel for the first time in 1912. After a couple of unsuccessful partnerships with independent clothing manufacturers, Spiegel, May, Stern began offering its own line of women’s apparel. The “Martha Lane Adams” line, named after its fictional designer, was so successful that it quickly became a wholly owned subsidiary of Spiegel, May, Stern, with its own catalog. Martha Lane Adams’ sales had grown to nearly $2 million by 1916, when Arthur Spiegel died of pneumonia at age 32.

Spiegel’s next marketing breakthrough came in 1926, when company executive Ed Swikard introduced a promotional idea involving Congoleum floor covering. Swikard engineered a mailing to over nine million residences, offering a pre-cut Congoleum package at a low cost. The response was again overwhelming, and company sales reached a record $ 16 million for the year, with a net profit of $4 million. In 1928, Spiegel, May, Stern went public for the first time, although the Spiegel family retained its controlling interest. The following year, just as the Great Depression was setting in, the Spiegels began gradually liquidating their retail furniture business, and by 1932, the last Spiegel furniture store in Chicago had closed.

After experiencing considerable economic losses in the early years of the Depression, Spiegel entered a period of terrific growth and profits beginning in 1933. During this time, M. J. Spiegel, son of Modie, took over the leadership of the company. Spurred by a remarkably liberal credit policy (“No Charge for Credit”), the company’s sales rose from $7.1 million in 1932 to over $56 million in 1937. Furthermore, a $300,000 net loss was transformed into $2.5 million in profits. The strategy behind this growth involved the aggressive marketing of easy credit as the company’s most important commodity. When sales began to level off in 1938, Spiegel reacted by shifting its attention to consumers in a higher income bracket. The company began adding dozens of brand names with national reputations to its catalog. The new approach was referred to as the “quality concept.”

The onset of World War II was disastrous for Spiegel. Because so much manufacturing had been shifted to wartime production, many of the products that were popular catalog items were no longer available in large quantities. Moreover, a shortage of labor affected the company’s operations, and when buying on credit was officially discouraged by the U.S. government, Spiegel management had to discard its “No Charge for Credit” policy. For 1942 and 1943 combined, the company lost $3.8 million. In order to reverse this trend, Spiegel began to open retail outlets once again in 1944, hoping to mimic the success of its larger competitors Sears, Roebuck & Co. and Montgomery Ward. That year, Spiegel acquired 46 Sally dress shops in Illinois. Several other chains were purchased over the next few years, and by 1948, Spiegel was operating 168 retail stores featuring a wide range of merchandise, including clothing, furniture, and auto supplies.

After initial success, the costs of retail operations began to outweigh the benefits, and by the mid-1950s, Spiegel was again concentrating on its former mainstay, mail-order sales on credit. While nearly all of the company’s retail outlets were sold off by 1954, several catalog shopping centers were retained so that customers could ask questions and place orders with company representatives. The following year, Spiegel unveiled its Budget Power Plan, a liberal policy under which customers were offered a line of credit sometimes as high as $ 1,000, with very low monthly payments. The idea was to add as many names as possible to the Spiegel customer list. The company also began to include an ever-widening range of products in its catalogs; by 1960, Spiegel was even shipping pets. By that time, sales were well over $200 million, and nearly two million people had Spiegel credit accounts.

In 1965, after a century of operation as a family business, Spiegel was purchased by Beneficial Finance Company. Spiegel stockholders received shares of Beneficial stock, and Spiegel became a wholly owned subsidiary. During the early 1970s, several charges were leveled against Spiegel by the Federal Trade Commission (FTC) regarding some of the company’s marketing tactics. In 1971, the FTC accused Spiegel of failing to adequately disclose credit terms in some of its statements and catalog ads. The company was also cited for its handling of credit life insurance policies, as well as for offering free home trials without informing customers that credit approval was required before a product would be shipped. Moreover, in 1974, the FTC charged that Spiegel’s debt-collection policies treated customers unfairly. Most of the complaints brought by FTC during this period were settled by minor changes in company practices, and serious action by the government was generally avoided.

Rising interest rates in the mid-1970s made financing credit accounts costly. Also during this time, Spiegel began to feel the pressure of competition from discount stores such as Kmart, which were rapidly establishing a national presence. In 1976, to help turn the company around, Beneficial hired Henry “Hank” Johnson, a veteran of the mail order operations of Montgomery Ward and Avon. One of Johnson’s first moves was to streamline company management. Dozens of executives were let go, and overall employment was cut in half over the next five years, from 7,000 in 1976 to 3,500 in 1981. Johnson also closed Spiegel’s remaining catalog stores.

Perhaps more importantly, Johnson sought to change Spiegel’s image to that of a “fine department store in print.” Accordingly, the Spiegel catalog was completely revamped, and low-budget items were replaced by upscale apparel and accessories for career women. Merchandise bearing designer labels began appearing in 1980, when the company introduced a line of Gloria Vanderbilt products. Spiegel soon became a trendsetter in the catalog business, which was booming as a whole during the early 1980s. The company’s sales grew at an impressive pace of 25 to 30 percent a year. Although Spiegel still ranked fourth in catalog sales during this time, trailing Sears, J. C. Penney, and Montgomery Ward, the company’s moves were being followed closely by its larger competitors.

In 1982, Beneficial sold Spiegel to Otto-Versand GmbH, a huge, private West German company prominent in catalog sales. Between 1982 and 1983, Spiegel’s revenue shot from $394 million to $513 million, and the company’s pre-tax profits more than doubled, reaching $22.5 million in 1983. The following year, control of Spiegel was transferred from Otto-Versand itself to members of its controlling family, the Ottos. Under its new ownership, Spiegel’s transformation into an outlet for higher-end products continued. In 1984, Spiegel began distributing specialty catalogs in addition to its four primary catalogs; 25 of these specialty catalogs were in circulation by 1986, featuring Italian imports, plus-sized clothing, and other specialty items. That year, Spiegel mailed a total of 130 million catalogs, at a cost of $100 million, and company sales surpassed the $1 billion mark for the first time. Also during this time, a new president and CEO, John Shea, was named.

In 1987, six million shares of nonvoting stock was sold to the public, the first time since 1965 that Spiegel was not completely privately held. The following year, Spiegel acquired Eddie Bauer, Inc., a retail chain specializing in sportswear and outdoor equipment. Eddie Bauer, which also maintained a catalog operation, had annual sales of $260 million. In the first year following the acquisition, the chain was expanded from 60 to 99 stores.

By 1989, Spiegel had become the number three catalog retailer in the United States, with a total circulation of about 200 million catalogs, including 60 different specialty catalogs, and an active customer base of five million. In 1990, Spiegel acquired First Consumers National Bank, which began issuing credit cards and statements to Spiegel and Eddie Bauer customers. That year, the company enhanced its image as the catalog for career women through an advertising campaign that featured actress Candice Bergen, who portrayed a career woman on the situation comedy “Murphy Brown.” The campaign also featured a specialty catalog promoted by Bergen, emphasizing the inconvenience of department store shopping and the relative ease of shopping by catalog. The company also began to expand its retail outlet operations based on lines from its catalogs. Spiegel stores included For You From Spiegel, which offered large-sized women’s apparel, and Crayola Kids, providing a line of children’s apparel first launched in 1991. In spite of these innovations, the company’s growth stagnated due to national economic recession, and earnings declined sharply in 1991. Slight gains were realized the following year as Spiegel’s revenue topped $2 billion. Eddie Bauer performed particularly well, having grown to 265 stores.

In August 1993, Spiegel announced its purchase of New Hampton, Inc., a catalog company specializing in moderately priced women’s clothing. Later that year, Spiegel unveiled a new specialty catalog, E Style, featuring a clothing line aimed at African-American women. Moreover, Spiegel formed a joint venture with Time Warner Entertainment to create two home shopping services for cable television. Spiegel reported total revenues of $2.6 billion in 1993. Sales at Eddie Bauer stores reached $1 billion that year, bolstered by the 30 new outlets opened over the past 12 months. Between Spiegel and Eddie Bauer, 81 different catalogs, with a total circulation of over 313 million, were distributed in 1993. The company’s specialty retail stores also performed well in 1993, generating $840 million in net sales.

By the mid-1990s, having spent many decades in the shadow of Sears, Roebuck & Co. and Montgomery Ward, Spiegel was regarded as a leader in the catalog shopping industry. Relying on its proven ability to adapt to changes in customer tastes and trends in competition, the company was expected to maintain this status, which would no doubt further benefit from the increasing use of home shopping through catalog and television.