Eddie Bauer, Inc.

1999 Eddie Bauer Sales: $2 billion

25% catalog operation and Imedia

75% 600 stores

80% of customers visited stores

Products: men’s and women’s casualwear under the Eddie Bauer name:

Furniture and furnishings as Eddie Bauer Home

Men’s and women’s officewear as AKA Eddie Bauer.

Licensing agreements: Eddie Bauer eyewear, bicycles, and vehicles.

www.eddiebauer.com, triple-digit sales growth.

1998: a 5% decline in same-store sales and bigger decline in profits.


Julie Rodway, executive vice president for merchandising: “Two years ago our brand stumbled. We used trendy colors on classic clothes. It was a mistake. We got distracted and tried to reach too many segments.”

Extensive market research survey: Many focus groups and in-depth segmentation analysis

CEO Rick Fersch decided on Communications policy of “One Brand, One Voice, One Customer”

Implementation of One Brand, One Voice, One Customer
Assure the same experience for customers regardless of the channel they shopped.
Customers could return products in the most convenient way—through mail or the stores— regardless of the channel through which they had been purchased originally.
Catalog items could be ordered through special phones in the stores. The catalogs acted as marketing vehicles for the stores and the stores allowed customers to experience the catalog products.

Company was reorganized. Historically, organization by distribution channel; retail and catalog products with separate design, production, and management teams.

New organization structured by product. Men’s and Women’s items were designed, manufactured, and merchandised without regard to channel; only in the forecasting and allocation process were distribution outlets considered.

Competitors: . Mail Order: L.L. Bean and Lands’
Stores: Abercrombie & Fitch and The Gap.

The Gap focused on its retail divisions, despite resurrecting the Banana Republic catalog.

Abercrombie & Fitch, primarily retail, produced a 300-page quarterly “magalog,” which combined an editorial section with promotional product photos. This marketing vehicle had a circulation of over 200,000 subscribers who paid a $10 annual fee for it.

Victoria’s Secret, stores and catalog were entirely separate. The assortments differed; the stores carried only lingerie and sleepwear, while the catalog augmented the lingerie line with a broad assortment of casualwear, swimwear, and office apparel. Victoria’s Secret Catalog generated 31% of the company’s $2.6 billion in sales. Victoria’s Secret Stores would not accept returns of catalog products, and, until recently, each channel had separate lingerie design teams.

1998 gross catalog sales $528 million….Returns- 25% of that…. net sales = $345 million
Footwear and swimwear, two of Eddie Bauer’s catalog-only categories, had extremely high return rates throughout the industry, often over 50%. The company could not track whether returns to the store came from I-media or the catalog, but suspected that I-media returns were lower.

Catalog Sales:

Eddie Bauer’s primary marketing tool: Catalog: to reach new customers, to generate direct sales (often of styles or sizes not available in the stores) and to inspire customers to visit the stores.

33% of catalogs were mailed to prospects, people who were not yet customers.
The back cover lists the nearest store and described promotional items only available in stores.

67% mailed to existing customers (2.5 million).
40% would make no purchase during the year. 30% only shopped catalog, spending avg. $200 per year. 30% shopped both, spending average of $300 per year in catalog and another $200 in the stores.

Catalog sales jumped dramatically after a catalog drop, with a similar reaction on I-media, but store sales responded moderately if at all.

New customers were thought to be responsible for about 25% of catalog sales, and their average first time purchase of $130 meant Eddie Bauer broke even on its acquisition cost.

Women’s products accounted for 70% of the goods sold in the catalog, but 75% of the time “the voice on the phone” was female. Half of all women’s apparel sales were in large or petite sizes that were not carried in stores.

Retail Sales:

Eddie Bauer’s stores tended to be in mid- to up-scale regional malls.
One well-performing store of 21,000 square feet (17,300 square feet of selling space), with all three lines (sportswear, AKA and Home), generated roughly $445/square foot.

75% of Americans lived within 40 miles of one of its U.S. locations:
100 million people walked past at least one of its stores in a given year,
10 million actually entering the store and 7 million buying.
New customers were responsible for about 25% of sales (same as catalog).

70% of retail customers were women and women’s products were 45% of sales.
“When women’s business faltered, the loss is two-fold because many women shoppers also shop for men.”
Store customers were slightly younger on average than its catalog customers.

Each store has a Catalog Order Desk with a direct telephone line to the call center and free shipping (but not free handling). These desks generated sales of $75 million per year.
Catalog fills stockouts,” common sizes are not always available and this can lead to a customer perception that we do not stand behind our product.” The Gap and Banana Republic maintained high stock levels.

I-media

Table A Web Population Comparison

Eddie

Attribute All Web Bauer J. Crew L.L. Bean Gap

Married 67% 68% 35% 71% 48%
Shopped on-line in last 6 months 68% 88% 99% 90% 82%
Shopped for clothes on-line in last 6 months 11% 70% 98% 73% 62%
Bought clothes on-line in last 6 months 4% 22% 26% 26% 17%
Income $75K+ 37% 44% 38% 45% 31%

Eddie Bauer views I-media is a marketing platform, not a distribution platform.
One potential benefit: reduce the number of catalogs mailed, and thus the costs of catalog production.
Completely discontinuance of the catalog would result in savings of $75 million.
Catalog production is all-or-nothing sort; if you run any, you run a lot because initial costs of production and print setup are so high.

Customers:

Customers included groups ranged from “Fashion Clothes Horses” to “Apathetics.”
Segment priorities: Quality and Cost against Lasting Styles and Trendiness
The Quality/Timeless segment, encompassed two segments that together made up 19% of all adult clothing buyers (9 million people) and 28% of clothing expenditures ($39 billion).
Marketing appeal spill over would add another 30% of all clothing buyers and 23% of apparel expenditures to the potential market (Classic Family Budget and Labels for Less).


Overall, women’s products made up 55% of sales. 70% of actual store purchasers were women.
Catalog and I-media had 70% female purchasers and 70% of products sold were women’s.

Advertising:

1997: $214 million marketing, 95% on customer/direct campaigns, direct mail catalogs, promotional mailers, and rewards.
5% brand advertising, public relations, retail visuals, and I-media.

1999: $180 million marketing, 83% on customer/direct marketing.

1998 Advertising Expenditures

Net Sales Profit % of $
Company ($million) ($ million) Sales (millions)

Eddie Bauer Store 982 13 2.4% 25
Eddie Bauer Catalog 345 6 2.6% 9
The Gap 9,100 824 6.0% 550
Victoria’s Secret Stores 1,800 171 5.3% 95
Victoria’s Secret Catalog 800 35 NA NA

Channel Conflicts

The company tried to ensure that its channels presented a unified customer experience through synergy. “80% of our customers buy through retail, most people think that Eddie Bauer is a store.”
Products should arrive in stores at the same time that catalogs arrived in homes and items appeared on I-media. Prices were to be the same. Markdowns were taken on the same items and at the same time across all channels. Customers could return products ordered from the catalog or I-media to the store, and order catalog products through a store’s Customer Order Desk.

Reality Sound Bites…
The catalog and I-media offer some product lines, items, colors, and many sizes that are not in stores. “As long as it fits in the brand filter, we’ll offer it.”

Stores have limited space or display problems—means that it will be a catalog-only product.

We can always add pages to the catalog, but we can’t add space to the stores.” Some customers came to the stores seeking catalog-only items and left empty handed.

50% of women’s SKUs and 30% of men’s were unavailable in the stores.

Women’s dresses and swimsuits appeared only in the catalog… didn’t show well and would detract from the male sense of the brand; 55% of store sales (45% of sales overall) were men’s items.

The company wanted to continue offering dresses, because of high profit margins and strong sell-through. Specialty sizes were a problem: small and large sizes (petites, talls, and sizes 16 through 20 for women, tails and double- and triple-extra large for men) only through the catalog.

Catalog and retail used different distribution centers: same item would be packaged differently depending on the channel: catalog items did not need price tags…. Complicating accepting returns. 40% of the sizes and 20% of the items were not in the store, so had to be shipped back to distribution.

Product timing not uniform between channels.
Holiday Catalog dropped at the end of September.
Store items arrived in the stores at the end of October.
Customers could order the catalog products over the phone or on the Internet, could not buy them through the stores until a month later.

I-media’s potential for quick response fell afoul to production lead times and legacy systems.
Inability to provide real-time stock availability… required lots of time, manual input and customer service issue.

Comparative Income Statements (1998 calendar year, in $000s)

Abercromble Eddie Bauer Eddie Bauer

The Gap & Fitch Retail Only Catalog Only Lands End

Net Sales 9,054,462 815,804 982,251 344,932 1,371,375
Cost of Goods 5,318,218 471,853 522,660 174,718 754,661
Inventories 1,056,444 49,879 520,035 135,695 219,686
Gross Profit 3,736,244 343,951 459,591 170,214 616,714

SG&A 2,403,365 176,993 363,330 132,616 544,446
EBITDA 1,332,879 166,958 96,261 37,598 72,268
Income Before Tax 1,319,262 170,102 21,589 9,120 49,500
Net income 824,539 102,062 12,954 5,472 31,185