Concepts Direct, Inc.

views updated

Concepts Direct, Inc.

2950 Colorful Avenue
Longmont, Colorado 80504
U.S.A.
Telephone: (303) 772-9171
Fax: (303) 682-7140
Web site: http://www.cdir.com

Public Company
Incorporated: 1992
Employees: 520
Sales: $55.5 million (1999)
Stock Exchanges: NASDAQ
Ticker Symbol: CDIR
NAIC: 323119 Other Commercial Printing; 454110 Electronic Shopping and Mail-order Houses

Concepts Direct, Inc. is a direct mail order catalog company that sells personalized paper products, t-shirts, and other casual apparel, home decorative items, gifts, and collectibles. The company’s catalog concepts are Colorful Images, Linda Anderson, Linda Anderson Collectibles, The Music Stand, ana Snoopy etc.: A Catalog With Character. Concepts Direct offers goods for sale by mailing catalogs to 11 million customers annually. In addition, each catalog brand has a corresponding Internet site. Other Internet businesses include NewBargains.com, YourCountryStore.com, and an Internet portal for online retailers, called BOTWEB.

Independence From a 1992 Spin-off

Concepts Direct originated in 1987 as the Consumer Products Division of Wiland Services, a database management and information services company serving direct mail merchants. The division sold personalized paper products, such as self-adhesive address labels and stationery with colorful scenes and images, directly to consumers utilizing the company’s direct marketing resources. As new products were added, the Colorful Images catalog evolved. In addition to 450 different styles of address labels, the product line included self-adhesive lunch bag labels, note pads, pencils, self-inking stamps, and photo coffee mugs. Prices ranged from $5.95 for a set of address labels to $39.95 for a sunflower watch. In less than three years the division neared the $10 million sales mark.

Concepts Direct became an independent company in 1992 when Philip A. Wiland, founder and chairman of Wiland Services, sold the technical services division to Neodata and transformed the direct marketing division into a separate, publicly owned company. With 50 employees, including several key executives from Wiland Services, Wiland planned to develop a mail order catalog company using Colorful Images as a base. Concepts Direct started as a money-losing operation despite revenues of $15 million; the company was valued at 52 cents per share.

The sale of Wiland Services allowed Wiland to improve operations and to refine the marketing base at Concepts Direct. The company streamlined customer service and order fulfillment procedures that enabled telephone orders to be filled and posted within 24 hours and mail orders to be filled within 48 hours. Consolidation of different orders for a specific label design into one printing run also improved efficiency. After experimentation with the product line, adding t-shirts, blankets, wind chimes, statuary, and other items, the company identified its market niche and found a more secure customer base. The company attracted primarily female customers, with 95 percent of orders from women at a slightly above average income. The average customer’s age, at 45 years old, hid the diverse range, from teenagers to retirees.

In 1994 Concepts Direct sought to expand its business with new products and by prospecting for new customers. In January the Colorful Images catalog featured a new line of women’s apparel, which became the basis for a new catalog concept, Linda Anderson. The personalized paper products remained under the Colorful Images line, and gifts, casual clothing for women, and home decorative items sold through the new catalog. Wiland surveyed other retail catalogs to determine competitive pricing and value-oriented products appropriate for the midrange to upscale merchandise. The October 1994 Linda Anderson catalog produced a good response, meriting further testing and mailing. In addition, Concepts Direct expanded the Colorful Images catalog from 32 pages at the end of 1993 to 48 pages at the end of 1994. Prospecting for new customers, the company rented a list of potential customers.

By the end of 1994, Concepts Direct had developed a customer database of 4.8 million people. With five mailings per year, the company circulated a total of 16 million catalogs throughout the United States and Canada, although orders arrived from as far away as Japan. The catalogs generated 2,000 telephone orders per day and more than double that during the winter holiday shopping season. The company filled 15,000 to 20,000 orders for personalized address labels, printing 7,000 to 8,000 labels a day on three laser printers. A staff of 140 full-time employees and a temporary holiday staff of 60 employees filled the orders. The return rate hovered from five percent to eight percent, considered a good record for a direct marketing company. Wiland attributed this low return rate to accurate descriptive text and true-to-life, color pictures.

In 1994 revenues reached $20.7 million in 1994, garnering a first profit of $1.5 million. This prospecting produced a positive result, although the higher overhead, as compared with established customer lists, resulted in slower earnings growth. In addition, the overall response to the catalog, from established and new customers, was higher than expected. Demand required the company to hire new employees and train them quickly, while order fulfillment fell behind schedule, prompting the company to pay higher shipping costs for timely delivery. During the fourth quarter—the holiday shopping season when a majority of sales are generated in direct mail businesses—sales increased 73 percent and earnings grew 49 percent.

Mixed Results in the Mid-1990s

Concepts Direct continued to fine-tune and expand its catalog brands in 1995. In January a second test catalog of Linda Anderson met with a positive response. The fall issue featured more gift and home decorative items and less apparel, all at lower price points, as well as a brighter catalog presentation. With 1.4 million catalogs circulated in 1995, Linda Anderson generated average orders of $69.00. This compared with Colorful Images’ lower-priced products, which generated average orders of $20.00. The Colorful Images catalog was expanded to 80 pages by the October, pre-holiday release. The company more than doubled its catalog circulation to 44 million catalogs in 1995, thereby doubling revenues to $42.2 million.

Expansion and improvements produced mixed results, however. Sales increased 103 percent, causing the company’s stock value to more than double from $5.50 per share in December 1994, to $13.55 in December 1995, topping $20 by mid-1996. The company invested in a new computer system and software development to improve order processing and fulfillment, database management, purchasing, warehousing, and general ledger capabilities. Implementation and disruption to business operations due to bugs in the system hampered earnings. In addition, a 14 percent postage rate increase and the higher cost of paper stock for catalogs lowered company earnings.

Revenue and earnings grew at a more equal rate in 1996, 21 percent and 30 percent, respectively, through higher customer response in relation to advertising costs. Increases in paper costs prompted the company to cut circulation midyear, but lower prices at the end of the year allowed for a full-scale mailing for the holiday shopping season. Advertising strategies designed to sidestep increasing postage and paper costs included promoting return address labels through newspaper inserts and direct mail cooperative advertising and in magazines. Prospecting catalogs, those delivered to untested customer lists, contained fewer pages, offering the company’s key products only. The company launched a new catalog, Colorful Images Presents Impressions, in June; uncertain results required further development of the catalog concept.

With new catalogs in development and plans to add 100 new employees, Concepts Direct took steps to expand its operational capacity. Funds from a secondary public offering of stock in May 1997 provided support for expansion. The company purchased a 153-acre lot where it began construction on a 120,000-square-foot facility, combining its warehousing and manufacturing operations, customer service center, and administrative offices at one location.

Concepts Direct successfully launched two new mail order catalog brands. Linda Anderson Collectibles, spawned by the success of Linda Anderson, featured stuffed animals and figurines. Strong sales of the Boyds Collection, Precious Moments, Hummel, and Charming Tails brands in the original catalog motivated development of direct marketing of collectibles. Concepts Direct launched the catalog with a test mailing to potential customers in fall 1997. Response to the mailing, with average orders at $57, merited further testing and development of the database. Through the circulation of one million catalogs before the Christmas holiday, Concepts Direct obtained 14,000 active customers.

The second successful catalog introduction in 1997 was prompted by the popularity of the Peanuts address labels. Merchandise in Snoopy, etc: A Catalog With Character featured images of Charles M. Schulz’s popular Peanuts comic strip characters, including Charlie Brown, Snoopy, and Woodstock. Concepts Direct obtained a license to merchandise the products from United Media. Circulation of 1.6 million catalogs in the second half of 1997 generated average orders of $71 from 16,000 active customers.

Company Perspectives:

Concepts Direct is focused on serving four critical constituencies: Customers, Employees, Shareholders and our Community. Every decision we make and every action we take is in support of serving these constituents.

Success of the two new catalogs generated a 54 percent increase in sales, from $51.1 million in 1996, to $78.5 million in sales in 1997. Net income declined, however, from $1.9 million in 1996 to $1.6 million in 1997. The decline stemmed from onetime costs for prospecting for customers for the two new catalogs, development of the catalogs themselves, increasing paper costs, and investment in infrastructure. Prospecting for customers through catalog circulation, the largest expense of a mail order business, continued to hinder profits, leading to a loss of $1.4 million in 1998 on a record $84.7 million in sales. Losses continued into 1999 as the company drastically cut circulation to reduce costs while launching new Internet web sites.

In June 1999 Concepts Direct purchased The Music Stand catalog and related assets, including inventory, a customer database, and the brand trademark. The Music Stand sold music-related gifts, collectibles, and awards, finding its main customers among teachers and students of music, dance, and theater for 20 years. Concepts Direct merged The Music Stand into its operations in Longmont. Sales from the fall catalog issues exceeded expectation.

Focus on Internet Commerce at Turn of the Century

Internet commerce being a logical extension of direct mail merchandising, Concepts Direct continued to invest in its computer infrastructure. Through partnerships with software and hardware developers, the company developed Enable to handle all aspects of on-line operations, including hosting web sites for its own catalogs and third party on-line retailers.

In addition, Wiland developed the BOTWEB portal to provide web shoppers quicker access to direct market retailers on the Internet. Short for “Best Of The Web,” the BOTWEB portal site provided reviews of e-commerce web sites under 44 product categories, such as apparel, crafts, and pets, including coverage on download time, customer service, and content. Concepts Direct sold advertising only to retailers deemed “Best of the Web.” The December 1999 launch involved a 48-page directory of BOTWEB participants mailed to 200,000 customers in December and 400,000 in early January. The site generated revenues from banner advertising and the BOTWEB directory.

Concepts Direct successfully launched its own direct marketing web sites, beginning with LindaAnderson.com in July 1999. Sales improved steadily from $1000 in July to $50,000 in October and $118,000 during November holiday shopping. The company also launched MusicStand.com in November; the site generated $46,000 in sales in its first month. A web site launched in December, iGift.com, provided consumers with a Gift Finder that compiled a product list based on the information about the intended recipient. Users input information about the gift recipient, such as gender, age, interests, and hobbies, as well as about the occasion and desired price range. From more than 7,000 items, mostly for women, Gift Finder presented a list with the most appropriate items at the top. The company planned to add men’s and children’s gift items to the product list. In January 2000 Concepts Direct launched NewBargains.com, an online outlet for unsold merchandise from the company’s catalogs. The site offered 25 percent to 85 percent discounts on new, undamaged merchandise.

The shift of resources to Internet-based retailing contributed to a net loss in 1999. Sales for the fourth quarter 1999, the holiday shopping season, dropped 30 percent, and sales declined 35 percent for the year. Like many catalog retailers, Concepts Direct had reduced catalog circulation to cut costs, while hoping its Internet presence would counterbalance the reduction. Circulation for Linda Anderson was cut 65 percent, and sales for the fourth quarter declined 52 percent. A $2.2 million write-off for the excess inventory resulted in a net loss of $1.7 million for the quarter. Sales for 1999 declined to $55.5 million and net loss increased to $3.6 million. J. Michael Wolfe, president and COO since 1992, considered this a temporary setback as the company repositioned itself through better targeted catalog circulation and through investment in the Internet. In addition, each catalog proved to be profitable for the first time in accordance within certain parameters of operational and administrative costs.

To assist shareholders in differentiating areas of profit and loss, Concepts Direct formed two new subsidiaries to separate on-line activities from its direct mail catalog business. iConcepts, Inc. acted as the umbrella for new brands and new web sites until those businesses became strong enough to form independent subsidiaries. iConcepts provided site hosting, on-line order processing, and database management for Concepts Direct businesses and, in the future, for third parties. J. Michael Wolfe became CEO of Concepts Direct, freeing Wiland, still chairman, to oversee Internet start-ups. Wiland also oversaw the second new subsidiary, BOTWEB, Inc., which handled business related to the web portal.

New web site brands launched in early 2000 included TheBearHouse.com and YourCountryStore.com. TheBearHouse.com sold collectibles proven to be popular brands from the Linda Anderson’s Collectibles catalog, such as the Boyds Collection and Judith G. The site was a natural extension of the company’s microniche program, which targets customers for the sale of specific collectibles. The company planned to offer other collectibles on a web site in development, CollectiblesCity.com. YourCountryStore.com offered 2,300 products in American classic country style, including gifts, home decorations, and collectibles. Concepts Direct also expanded its direct mail catalogs, successfully testing Colorful Christmas in late 1999 and Colorful Spring and Colorful Cats in early 2000.

As financial difficulties continued, Concepts Direct decided to sell 100 acres of undeveloped land next to its Longmont facility. Stock value tumbled to $4.34 per share in August on news of losses and a three-month medical leave for Wiland. Sale of the vacant land and a sale/lease back of the building that autumn raised $15 million in capital for debt reduction, continuing operations, and expansion.

Key Dates:

1987:: Company begins as Consumer Products Division of Wiland Services.
1992:: Company is spun into separate company; adopts name Concepts Direct.
1994:: Company launches Linda Anderson catalog.
1995:: Revenues double to $42.2 million.
1997:: Company launches Snoopy etc.: A Catalog With Character
1999:: Internet commerce commences.

Concepts Direct continued to develop its Internet presence. In November 2000 the company launched SnoopyStore.com in partnership with Charles M. Schulz Creative Associates. Colorfullmages.com generated $50,000 in revenue during its first 16 days, offering personalized paper products, gifts, and t-shirts.