L.L. Bean Moving Money Into Marketing

The last 20 months at L.L. Bean have confirmed one over-arching principle: Progress can be painful.

Faced with stagnant sales, too much inventory and stale creative, Chris McCormick, CEO of L.L. Bean, had to make some difficult and unpopular decisions if he wanted to whip the company into fighting shape for the 21st century.

He instituted numerous reorganizational initiatives that included eliminating 32 catalogs from the mail plan and 2,300 unproductive catalog pages. The staff cut 25 percent of its SKUs. Its vendor list was chopped in half after the company renegotiated nearly all major contracts, including printing, paper, e-mail fulfillment and data services. McCormick closed some of Bean’s physical plants, and he let go about 500 employees.

“The hardest thing a CEO has to do — ever — is eliminate jobs,” McCormick told the Portland Press Herald for a May 25, 2003, article on the company. “But when you come out of that tunnel and see the light and can be in a position to plan efficiently, it’s great.”

That said, however, the training season is far from over for this Freeport, ME-based merchant of apparel, footwear, home accessories, and outdoor and travel merchandise. But the company does appear leaner, more focused and better positioned to go the distance in today’s highly competitive marketplace.

The Rebuilding Plan

One of McCormick’s main priorities has been to move money from infrastructure to the marketplace. Specifically, the plan called for investing in technologies to help improve operating efficiencies, and in prospecting and advertising to grow its market.

One message Steve Fuller, vice president of marketing, wanted to make clear in his new advertising campaigns was Bean’s continued commitment to product quality and value. So television and space ads now tout the company’s reduced product prices and remind customers and prospects that the merchant stands behind its offerings with a money-back guarantee.

“Previously, we were relying too much on our housefile for sales,” says Fuller. “But we learned that was a short-term solution at best.” Buyer fatigue set in and attrition soon followed. “We had to be out there with our marketing message in a broad-based way,” he notes. “One of the big lessons we learned was that customer retention at the expense of acquisition is only a short-term strategy.”

And indeed, Fuller is in full prospecting mode these days. L.L. Bean ads can be seen seemingly everywhere: on television, in newspapers and mass-market consumer magazines such as Smithsonian, National Geographic, and Better Homes and Gardens.

When asked by Donna Loyle, editor of Catalog Success, how response has been as of August, Fuller said he was pleased so far.

Catalog Success: How have sales been this year?

Steve Fuller: We’re having a really good fall sales season.

CS: To what do you attribute that?

Fuller: We’re seeing the results of the plan we put into action about 18 months ago. We’ve reduced the mailings to our best customers; increased our advertising and prospecting; made changes in our product line; and made some subtle improvements to our creative to make it more of an attitude and give it the Bean voice with a stronger point of view. We’re very pleased with the results of all of these initiatives.

You know in the last five years, the retail marketplace has really changed. Companies such as Old Navy, Wal-Mart, Kohl’s, Target and even Lands’ End have redefined to customers what is a good value. We have quality products, and some of those companies have pretty good quality, too. We’ve worked hard in the last 18 months to offer true value to customers.

We’ve been reinvesting in our prospecting and advertising, and we’ve developed new products. Those are the things that drive growth. We’ve seen some companies, even our competitors, that have done things that are good only for the short term. We’re not going to do that. We won’t cut corners in that way.

CS: Your product values and quality really are exceptional. How do you do it so consistently?

Fuller: From a merchandising perspective, I think people would be very surprised at how much product testing we do, stretching fabrics, checking seams and so on. You can’t believe the hurdles our merchants have to jump over to get product approved for sale by Bean. We have to uphold those lifetime guarantees on every product we offer.

That said, however, we still have been able to reduce our prices by about 5 percent this year. And our return rates have dropped, too. We think that’s because of the improved quality and better vendor cooperation.

CS: How exactly was Bean able to reduce its price points?

Fuller: Before, if we wanted to buy 100 shirts, we’d source, say, 20 from Vendor A, 20 from Vendor B, 40 from Vendor C, etc. Needless to say, we’d get slightly different shades and fit from each vendor.

But now we source all of those shirts from one vendor. And we buy the fabric in greater bulk to qualify for discounts. That has translated into better fit and quality. So our costs were reduced, but our quality actually has improved.

CS: Who constitutes your primary demographic, and how has it changed over the years?

Fuller: Our customers, generally speaking, are people who enjoy the outdoors. Their average age is late 40s to early 50s. They’re active, fairly comfortable financially, but shrewd with their money. We like to say: They can afford to stay at the Ritz, but they prefer the Marriott.

Most people may not know this, but our target demographic actually hasn’t changed that much over the years. In fact, it’s been remarkably stable. Oh, in the early 1980s during the preppy boom, we were fashionable — whether we liked it or not.

CS: Tell me about the plans for your retail channel?

Fuller: It has real potential for Bean. We’ve been testing for retail. Our dilemma is like that of other catalogers: How can these three channels — Web, print and retail — interface seamlessly? It’s more complex than anyone could have imagined a few years ago. Retail, Web, assorted media: It should all feel like the same company.

CS: Can you talk about the possible purchase of the Eddie Bauer retail chain?

Fuller: No, I really can’t.

CS: You were quoted as saying that L.L. Bean can no longer focus too much on just its customer file or best buyers. Rather, the company must do more prospecting. Tell me about some of the new initiatives in that regard.

Fuller: Once upon a time, Bean was the only game in town. We were the most well-known direct marketer in the country. But now there are a lot of good competitors, Lands’ End for example, and smaller catalogers, too. Web sites are growing in number, and there’s been tremendous growth in the U.S. retail industry.

But we have to be out there with a very aggressive message. We have to go out and find our customers; we can’t wait for them to come to us.

We recently ran an eight-page insert in Better Homes and Gardens magazine. We wanted to have some fun and to advertise our pricing changes. That was a big deal for us. The customer has to know the value we’re offering. We’ve done a lot of testing, and this insert is one of them.

CS: Your holiday sales last year were up dramatically. In fact they were the highest in the company’s history. To what do you attribute that good news?

Fuller: We had a really good fall last year. We did some aggressive promotion.

You know, 18 months ago, Bean went through some changes. In the late 1990s, our sales growth had slowed down. Our owner, L.L. Bean’s grandson who had taken over the company from his father, took the company from a $10 million-a-year business to a $1 billion-a-year business. But he was close to his retirement years, and he said he’d rather not do what consultants were telling him to do — to reinvent the company.

So we split up the company into seven little companies, and each looks a little different. For example, the Travel and Home division may deserve some extra attention now and then. We had to shake things up a little.

Unfortunately, in that reorganizational process, we had to let some employees go and close some buildings. But the housefile was becoming flat, and we were not seeing the sales returns we should have.

In January 2002, we centralized marketing and made initiatives to reinvest in our housefile and in prospecting. We’ve looked at new-buyer promotions, mailing more to them, less to other customer segments; sharpened our advertising; and we’ve been aggressive in our e-mail marketing.

CS: Are you doing a lot of testing?

Fuller: We’re always testing. Really, always. We’ve tested offers, channel interactions, product purchasing history, e-mail marketing, affiliate programs, search engine marketing, you name it.

Our challenge, however, is to make it all work better, to figure out how a customer’s behavior seen in one channel can impact that customer’s lifetime value to Bean. For example, how should we treat people who live around one of our retail stores? We track demand by channel, but we roll it up into household data.

We have a very large prospecting file, but, you know, buying via direct mail basically is a leap of faith. You call a company and give it your credit card information and your address. Or you go online and key in that information into a Web site. And you trust that they will actually send you what you’ve ordered, and will protect your personal information and credit card number as well. CS: Tell me about your DRTV efforts. I’m seeing your ads frequently these days. How has the response been?

Fuller: Our ads are successful as branding efforts and as response boosters, so they’re hybrid ads, if you will. Customer reactions have been very positive. Many people mention the TV ads to our call center reps.

We decided we just had to be out there with our message in a broad-based way. You know in the end, you have to remind people why they like you.

CS: Your e-mail campaigns are very well done. They’re short, well spaced apart, the links work well and the copy is compelling. How are Bean’s e-mail sales doing these days?

Fuller: We’ve reduced the sale offers we make via e-mail. It’s too easy to bring sale customers onto your housefile, but more difficult to make money on them.

CS: Tell me about your Web affiliate programs and search engine marketing.

Fuller: We’ve cut back on affiliate programs, but we still have some in place with 40 to 60 companies.

CS: You’ve been quoted as saying that Bean moved its investment dollars lately from infrastructure to marketing. How so?

Fuller: Before, we had too many SKUs, too much inventory. When that happens, you can’t afford to prospect and to invest in new technologies that can improve your profitability.

CS: Speaking of technology, I understand you’re installing a Unica CRM [customer relationship management] system. How is that going?

Fuller: Really well. We’re almost done. I’m a bit embarrassed to say this, but before, we had access only to six to eight customer variables in our homegrown database.

But once the Unica system is in place, we’ll have 1,100! Yeah, can you believe it? That may be too many, of course.

CS: How will this help you in your marketing and testing?

Fuller: It will help us to “operationalize” a lot of things we know to be true. As I mentioned, Bean does a lot of testing and we have a lot of institutional knowledge — things that we’ve learned, that are intuitive and that we know quantitatively.

But it was hard to incorporate that knowledge into our operations. This should help us immensely.

CS: How did you select Unica?

Fuller: We looked at every package out there. We were impressed with Unica’s products. They understand the unique needs of catalogers.

CS: What have been your toughest challenges during these past 18 months?

Fuller: The recentralization of marketing was particularly difficult. I had to downsize some staff. Anyone who says they can do that easily … well, I’m not one of those people.

In the process, unfortunately, we lost some people who had core competencies. For example, we had some very smart people working on smaller pieces of our business, and it has been difficult work without them.

CS: What do you anticipate will be your three toughest challenges ahead?

Fuller: First, the postal-rate issue is still a problem. We were pleased with the Postal Commission’s recent report, but as an industry, we have a long way to go in that regard.

Second, spam is a real concern of ours and our customers. Some of the proposed legislation out there is not at all customer or industry friendly. We’ve had e-mail campaigns blocked by the ISPs. But the ISPs are under the gun themselves. This is an area of true concern for us.

Finally, we have to continue to bring new people into direct marketing. We think the co-op databases and their subscribers are in the same position now that we were a few years ago — too dependent on best customers. Some companies now are netting only 15 percent to 25 percent on their merge.

Prospecting is a real challenge for us, as I’m sure it is for other merchants, too.

---

The L.L. Bean List
12-month buyer file: 3.4 million
Demographics: 60-percent women
Cost: Available for exchange only
Contact: Millard Group, (603) 924-9262

---

About L.L. Bean
Headquarters: Freeport, ME
FY 2003 annual revenues: $1.1 billion, down 4 percent from 2002
Year founded: 1912
Products: apparel, footwear, home products, and outdoor and travel gear
SKUs: 16,000
Average order value: $75
Sales channels: 80 percent direct (print catalog, online); 20 percent retail
Number of employees: 3,800 full-time; 8,500 total during holiday peak
Annual catalog drops: 60
Annual number of catalogs mailed: 200 million+
Number of packages shipped annually: 12 million
Rank on the Catalog Success Top 200 list: 44 (as measured by housefile-growth rates)
Search-engine marketing partner: Performics
CRM system: Affinium Suite from Unica
Printer: Quebecor World