InformationWeek

Deregulation is not an issue in the catalog retail industry, but the forces of change are no less profound. "Timeliness is now the No. 1 metric. Brands are measured on it," says Rakesh Kaul, president and CEO of Hanover Direct Inc. in Weehawken, N.J., owner of merchandise brands such as Gump's, International Male, and The Company Store. "Every brand has a service component. And for some, like [online grocery delivery service] Webvan, the timely service is the brand."

At Hanover Direct, that means much more than offering Web-based ordering of its merchandise, which it began doing in early 1997, and investing in a world-class warehousing and order-fulfillment operation. It means using that same infrastructure to get into a new business--the timely delivery business. It launched a third-party fulfillment services operation called Keystone Internet Services Inc. in 1998. Keystone handles fulfillment chores for 18 dot-com retailers, including Fogdog Sports, KBKids.com, and National Geographic's online store.

Keystone isn't yet a big part of Hanover's revenue stream, delivering just $6.5 million to a top line of $130.1 million in the first quarter ended March 25. But that was an eightfold increase over the year-earlier period--and that's with Keystone being picky about its customer base.

Turning down business is a different business model indeed. "For every 10 phone calls, we turn down nine," says Kaul. "This land-grab phase of E-commerce will come to an end, and we only want clients that we think are able to become leaders in their niche. We're trying to build for the long term, and I'm not willing to compromise that for short-term revenue metrics."

Hanover Direct is investing heavily in IT for both sides of its business--fulfillment services and direct Web selling. It owns a 60% stake in personalization software provider AlwaysInStyle LLC, which it helped incubate, and also uses Cisco Systems' WebLine service that connects Web shoppers to live customer service reps with voice-over-IP technology. In the next 18 months, Hanover plans to move all of its own brands and third-party customers to a common Web platform that can be accessed through wireless and broadband connections. "Fifty percent of our Web traffic is from our print catalog customers, but the other 50% are new to the company and have much higher expectations for responsiveness and timeliness," says Kaul. "If they're not satisfied, they move on quickly."

Another example of the changing nature of catalog retail will occur this summer in Tysons Corner, Va., where L.L. Bean Inc. will open its first retail store, other than factory outlets, away from its headquarters in Freeport, Maine.

"We're moving from a catalog company to a multiple-channel retailer," says Doug Faherty, director of database marketing at the 88-year-old outdoor apparel merchandiser. "The Web channel was an easy one. As a catalog company, you had to be there. But now we're thinking about other new channels in terms of what the customer wants."

Following other retailers from Nike to Disney, L.L. Bean is taking the first step toward selling the shopping experience, not just the products. In a sense, that's always been the case at the company's legendary, always-open Freeport location--if you're traveling along the southern Maine coast. But the Freeport store traditionally contributed only about 10% of the company's revenue. In the past five years, catalog sales have dropped from 90% of revenue to 70%; most of the other 30% is online sales. "We're now looking to retail stores to round out our business and expand it appropriately," says Faherty.

L.L. Bean has always earned high marks for customer service, such as fast refunds on returns. Now it wants to use customer service to prevent the need for returns. The company is working on mining sales data so a telephone service rep knows when a call comes in from a customer with a history of multiple returns of, say, women's apparel. "That rep would be trained to spend more time on the phone with those customers to get the right fit," says Faherty. "The goal is reducing returns by helping them get the product they need the first time. It's a good blend of personalization, customer service, and marketing." The company also plans to purchase software that links Web content servers to the database to deliver personalized Web sites to customers.

Whether you're in retail, electric power, transportation, or manufacturing, the No. 1 asset for every company is the customer. The Internet has thrown a glaring spotlight onto that truism in many companies, causing them to change the very nature of their businesses.

What business are you in? Even in this age of the Internet and E-business, "serving the customer" is still the correct answer. But the best way to do that will be a matter of constant change.

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