Going Global

Although Peruvian Connection didn’t launch its first international catalog until 1994, CEO and Co-founder Annie Hurlbut maintains the cataloger was an international company long before its first foray into the global market. As its name suggests, the Peruvian Connection has shared its history with the country and mountain people of Peru.

Peruvian Connection began as a “happenstance” when Annie Hurlbut came home for her mother Biddy’s 50th birthday at Christmastime in 1976. At the time she was conducting research in Peru in pursuit of a doctoral degree in anthropology. As a gift she gave her mother an alpaca sweater she found in a Peruvian market. Taken with the quality and warmth of the gift, friends suggested Annie and Biddy import the sweaters. Mother and daughter seized the opportunity to work together and convinced a local department store to sell 50 sweaters in three sizes. Annie went back to Peru to make the necessary arrangements and a wholesale business was born.

In the tradition of Banana Republic and J. Peterman, the fledgling direct marketing business started by placing small space ads in The New Yorker and The Wall Street Journal. From these ads it built a tiny list and converted inquiries with a small black and white brochure. What began as a wholesale business mushroomed into a small mail-order business virtually overnight when a writer from The New York Times met with Annie at an apparel show in New York in 1979. The Peruvian Connection story hit the front page of the Style section and generated more than 5,000 catalog requests. Because the business was not yet automated each request received a personal note from the Hurlbuts along with a catalog. The conversion of these early catalog requests was phenomenal, says Annie Hurlbut. Peruvian Connection was a bona fide mail-order business.

Today, Peruvian Connection mails 6 million catalogs a year domestically and approximately 4 million catalogs internationally. Collectively, the United Kingdom, Japan and Germany account for 40 percent of its business.

Branching Out

Unlike its speedy and decisive business launch, Peruvian Connection’s global expansion was undertaken with tentative steps. In the late 1980s the Hurlbuts held informal interviews with direct marketing experts in the United Kingdom to explore the feasibility of a U.K. catalog. The United Kingdom was the cataloger’s first choice for an international launch because not only is it an English-speaking market, but it has a long, well-established knitwear market.

The reviews were mixed. In its favor was a European appreciation of alpaca, the principal fiber used in Peruvian Connection sweaters. Another boon was the anticipation of a unified Europe. On the downside, a few of the experts didn’t believe Britons would pay Peruvian Connection’s high prices—$300 or more—for a sweater. Undecided, the Hurlbuts sat on the idea of expanding into the U.K. market for the next several years.

The first test mailing in the United Kingdom finally dropped in the spring of 1994. Prior to the launch, Peruvian Connection hired a local direct marketing consulting firm to provide direction in creating a British version of the catalog and to help select and obtain local lists.

Says Annie Hurlbut, “It was difficult to get names because we didn’t have a list to exchange.” So it used space ads placed in local publications to build an inquiry file from which it generated a small customer file. This file was in turn exchanged for outside lists.

“The number-one problem facing anyone wanting to mail overseas is resistance [on the part of other mailers] to renting their lists to what they perceive as competitive offers,” Hurlbut says. She believes that because the Peruvian Connection is an original design firm it “helped open doors” because other mailers from whom it was trying to gain list access didn’t have to worry about competition.

Germany was chosen as the next market for expansion because, as Hurlbut explains, it recognized that “there is a healthy mail-order tradition in Germany as well as an appreciation for alpaca.”

The Peruvian Connection was in the throes of the German launch when it encountered local expertise. Biddy Hurlbut, chairman and co-founder, attended a direct marketing event co-sponsored by Deutsche Post and the U.S. Postal Service. There, she made contacts that would later prove helpful in setting up a call center facility in Germany. The first test mailing of 100,000 catalogs mailed in the spring of 1998. The results were promising enough to justify a second, larger mailing of 200,000 catalogs which dropped last fall.

Creating Country-Specific Versions

The Peruvian Connection catalog has matured into a four-color, 48-page catalog with photographs of models shot on location in Peru. Also included are a note from the Hurlbuts and editorial pieces on the craft of art-knitting and Inis Meain knitwear.

A side-by-side comparison of the German, U.K. and U.S. versions of Peruvian Connection’s Fall 1999 catalog reveals that the same layouts—down to the photos, products and the progression of pages—are used in each catalog. What changes are the copy and pricing. The German version of its catalog includes German-language copy and pricing in deutsche marks. The U.K. catalog uses Anglican spellings, and prices products in pounds sterling.

When determining your prices in foreign currency, “you have to be careful,” warns Hurlbut, who points out that “you can have a currency fluctuation of 5 percent to 10 percent within the life of a catalog.” While the cataloger doesn’t necessarily raise its prices to counterbalance the increased cost to market overseas—as many overseas marketers do—it does build in the Value-Added Tax (VAT) charged in Europe. This is important because Europeans are accustomed to having VAT incorporated into the quoted price. While it factors in adjustments for currency fluctuations, Hurlbut maintains its overall strategy is to keep its prices the same internationally.

The same basic copy, written by Hurlbut, is used in all versions of its catalogs. With the help of a U.S. translation service, copy is translated into German and tweaked to accommodate cultural differences. The translated copy is then sent to a consultant in Germany for final review. “You don’t want to take the market for granted,” cautions Hurlbut. “You have to be thoughtful and sensitive.”

The biggest production issue is scheduling because copy translation adds another step to the catalog production process. “You have to build in two to three weeks for translation to make sure the catalog makes its deadlines. Each version you have adds to the complexity of the project,” says Hurlbut.

Since creative changes are minimal, only a black plate change is required when printing different versions of the catalog. All catalogs are printed in the United States. Catalogs destined for the United Kingdom and Germany are injected directly into the appropriate country’s postal stream with the help of Royal Mail in the United Kingdom and Deutsche Post in Germany.

Order and Payment Choices

Because payment preferences and clothing sizes change from country to country, the Peruvian Connection creates an order form, complete with a size conversion chart and local payment options for each individual market. For example, in the United Kingdom, the cataloger offers payment by Switch card, one of the most popularly used credit cards, in addition to standard international cards, including American Express and Visa. It also gives U.K. customers the option of paying by cheque or postal order.

One of its stumbles in the German learning curve, which Hurlbut feels may have hurt its initial test, was that the company thought German customers would order using credit cards. “This proved to be wishful thinking,” rues Hurlbut. Compared to the United States, credit card penetration is very low in Germany and those who have credit cards are reluctant to use them for mail order.

The majority of payment for mail-order goods in Germany is made on an open account, which means the customer is billed after he or she receives the product. Learning from its mistakes, the Peruvian Connection has since offered this method of payment to its German customers and has encountered little fraud. However, Hurlbut adds, it does screen customers for bad debt prior to shipping orders. The cataloger also offers payment by check, direct debit and credit card in the German market.

To handle the transfer and exchange of foreign funds, Peruvian Connection has set up local bank accounts in the United Kingdom. “You have to manage foreign funds very carefully,” cautions Hurlbut. This involves determining when money will be transferred from one account to another and when it will be exchanged so as to capitalize on favorable exchange rates.

German and U.K. customers can order using local toll-free phone and fax numbers or by e-mail. Orders come into one of two call centers Peruvian Connection has set up in Europe—one in the United Kingdom and one in Germany.

Training of its telemarketing representatives is a priority. In-country reps participate in on-site training two times a year during which they are shown the entire catalog collection. This gives reps the opportunity to touch and see the products and fabric swatches. They are also given detailed product information. Hurlbut says she deeply believes in training for local sales reps. “It is important that they feel they are part of the team,” she stresses. Perpetuating a team atmosphere results in a fair amount of personnel exchanges with staff traveling back and forth between its European and U.S. operations.

The Global Buyer

Today Peruvian Connection has a customer file of 12,000 in Germany and 75,000 customers in the United Kingdom. Its audience shares the same characteristics regardless of country: upscale females, with an average age of 50, who are very educated and well-traveled. The average order is $300-plus in most markets.

While most of its customers enjoy a healthy income, Hurlbut claims education is a more important factor in a customer’s buying decision than wealth. The typical Peruvian Connection buyer is “exposed to the world beyond the community she lives in. She is a thoughtful customer who cares about the product,” says Hurlbut, who explains that product and design play a major role in Peruvian Connection sales.

The cataloger employs several designers who sketch out sweaters and other product designs in the U.S. headquarters. These designs are sent to knitters in the Andes who add their own personal touches. Hurlbut says the reason her customers will spend $300 for a sweater is because they view Peruvian Connection products as investment pieces. “They are buying not only fiber, but craftsmanship,” she adds.

The List Equation

Peruvian Connection follows the same mail schedule in each market in which it operates, dropping three major mailings a year. Twenty percent of each mailing in both the United States and the United Kingdom are sent to house file names while the remaining 80 percent are sent to inquiries or names gleaned from prospect files. In Germany, where its prospecting efforts are much more aggressive, the mix overwhelmingly favors outside lists.

In Germany and the United Kingdom, the cataloger rents local or in-country lists, and this is often done on an exchange basis. Generally speaking, local lists have larger universes; used in combination with a local-language package priced in the local currency, this strategy allows Peruvian Connection to dig deeper into the market.

Response rates in Germany and the United Kingdom are very similar, and tend to be higher than its domestic rates. However, Hurlbut is quick to point out that along with higher response rates, you have to factor in the increased costs to market overseas. Marketing costs, including list rental, fulfillment and delivery, are considerably higher internationally.

Overseas Fulfillment

One of the biggest changes Peruvian Connection has made to its international operation is the way it fulfills European orders. Initially, the cataloger fulfilled all international orders from its U.S. headquarters located in Tonganoxie, KS.

After gaining more experience the cataloger switched its strategy. All European orders are currently filled from its distribution center located in Goring-on-Thames, England. Hurlbut explains it is much more cost effective to ship orders in bulk from South America to the United Kingdom, particularly when it comes to duty. It also results in a quicker turnaround for its customers.

Returns are also handled by the in-country call centers and are forwarded in batches to the U.K.-based distribution center.

A Media Medley

While the catalog is its bread and butter, Peruvian Connection also uses space advertising and the Internet to complement its business. Its Web site (www.peruvianconnection.com) has recently gone through another reincarnation to better serve the needs of global customers. Although the site doesn’t have multiple-language capability, it does offer viewers the ability to access pricing in either deutsche marks or pounds and it offers size conversion charts for German, U.K. and Japanese customers.

The Peruvian Connection also continues to use space ads in Germany, United Kingdom and the United States. “It’s how we launched our business, but just as the world turns, direct mail is the most effective way of going after customers,” maintains Hurlbut.

The Challenge Of It All

Hurlbut’s biggest challenge has had more to do with people than operations. She says her greatest challenge is “to make every effort to maintain a unified company spirit. It’s a people thing, and it’s about motivating.” She is constantly striving to keep this global company working as a whole and on continuing to provide good customer service. “It is very easy for it to break down internationally because of cultural differences,” says Hurlbut, adding it is not necessarily the U.S. headquarters or Goring-on-Thames distribution center way. It’s the Peruvian Connection way.