Scale & Scope

A walk through Acorn Direct’s administrative headquarters in Silver Spring, Md., does little to persuade you that within its walls, a catalog powerhouse is emerging.

To be sure, a glance at the posters of British film and TV shows that adorn this smallish seventh floor suite will help you understand how this direct marketer got its start. But you’ll need more information to understand how this nearly 4-year-old catalog used those film titles, along with the rest of its merchandise lineup, to grow its 12-month housefile a remarkable 200 percent from 2002 to 2004.

Acorn Founder Pete Edwards, President Miguel Penella and Vice President of Merchandising Bonnie Marron talked with Catalog Success about how they were able to experience the kind of growth that makes other catalogers envious. The answer, it seems, is more closely tied to what they sell rather than how they sell it.

There’s little doubt in their minds that focusing their merchandise lineup accounted for sales that rose to more than $15 million in 2004, from $10 million in 2003 and $5 million just a year earlier. Marron and her team found new items that widened the company’s appeal to ever greater circles. This story is about that business strategy.

Establish the Right Relationships

Founded not quite 20 years ago in Edwards’ home, Acorn’s beginnings were decidedly humble. Seeing an opportunity to take advantage of the burgeoning home video market, Edwards, then a cable television consultant, became a producer and distributor of documentaries — the sort of programming that didn’t get much mainstream attention, but enjoyed a strong following by public TV viewers. He called his new venture Atlas Video.

While growing the documentary business, Edwards formed relationships with British video distributors. Ten years after he founded the company, one of the first major merchandising shifts was about to occur. In 1994, sensing a need to diversify, he considered licensing drama titles in addition to documentaries. The problem, says Edwards, was that drama-title licensing was far more expensive than the documentaries he’d dealt with thus far, so it would be a tough leap to make.

But given the growing popularity of British sleuthing dramas, he decided the jump was worth it. That year he licensed “Cadfael,” which was airing on PBS’ “Mystery!,” along with future Acorn title “Poirot.”

Business was good for this wholesaler. By the late ‘90s, there was enough interest in the video titles it distributed to justify expanding into the British market, and thus Acorn Media U.K. was born.

In the United States, Acorn supplied videos to multi-title catalog companies such as Rivertown Trading. But in 2000, that changed. Retail giant Target, having acquired Rivertown Trading two years earlier, shut down the catalog business, and thus Acorn’s biggest customer disappeared. This event also produced a gaping hole in the consumer market for the types of video products Acorn sold.

But another leap of faith was looming. Knowing there was an opportunity to branch into the direct-to-consumer catalog market — but not having any catalog experience — Edwards did the sensible thing. He hired several Rivertown Trading staffers, including Marron, and started production on the first Acorn Direct consumer catalog, which was mailed in 2001.

By the end of the first year, Acorn Direct’s circulation reached 1 million. And four years later, only one person employed in the Stillwater, Minn., office had not previously worked for Rivertown Trading.

Find Your Focus

Since the catalog’s first mailing in 2001, a lot has been done to focus Acorn Direct’s product line. Knowing from previous experience that video customers would also buy non-video gifts, Acorn officials decided to offer both video and non-video products in their first catalog. Sticking to what similar catalogs had done in the past, the offerings were comprised of about 70 percent videos. Acorn executives had established relationships with British video distributors, and knew there was a market for that product. So deciding to work with what they knew — namely, home video programming — wasn’t difficult.

With almost $2 million in sales in their first year, it seemed they’d made the right choice to stick with the products they knew best.

As 2002 drew to a close, however, Acorn officials realized their prospect pool was growing more shallow. They’d already mined video buyer lists and needed a new way to find customers. There was indeed an audience for their videos, but they didn’t just want to sell over and over to the same customers. Rather, they wanted to extend their marketing reach — that is, to expand their scope. They already offered some gifts and thought maybe there was a way to capitalize on that portion of the catalog. “In 2002-2003, we gradually started offering more gift items. Offering these items allowed us to expand our circulation,” says Penella.

Acorn scaled back its video selection slowly, until the merchandise offering was about evenly split between videos and gifts. The latter category ranges from coffee mugs and autographed prints to silk bathrobes and jewelry. As Marron notes, if you want to grow the business, you often have to expand the product line.

And expand they did. As a result of the merchandise shift, the 12 month housefile soared from 40,000 in 2002 to an estimated 122,000 in 2004. Even more impressive, the total housefile reached 230,000 at the end of 2004, for a whopping 70 percent growth from the year before.

The team at Acorn Direct has always sought to set the catalog apart from its competitors. “We recognize that we aren’t all things to all people,” says Penella. Since the business (prior to the catalog startup) served primarily a niche market — Anglophiles — the company knew its target pretty well. Asked to describe the catalog’s product mix, Marron notes, “A thoughtful, eclectic, interesting and entertaining selection of quality videos and gifts, often British, always discerning.”

In Penella’s words, “We see ourselves as an entertainment catalog. We offer gifts that complement the videos we offer.”

Unlike most video catalogs, which can carry thousands of titles, Acorn doesn’t serve the mass market. Rather, it focuses on more mature customers, public television watchers and the gifts that might appeal to them, including war memorabilia, handcrafted apparel and stately home décor. This strategy has worked, Acorn executives say, because the customers initially attracted to the catalog as video buyers often find themselves drawn to the gift items, and vice versa.

Reach Out to New Markets

But developing a solid and diversified product line was only part of the story behind its success. As noted earlier, Acorn executives had another thought in mind when they expanded their assortment. Video buyer lists weren’t performing as well as they’d like, so they had to find other means to acquire new customers.

Working with their list broker, Mokrynskidirect, Acorn executives sought out gift lists whose buyers would likely be interested in their growing merchandise selection. Specifically, they used lists such as Smithsonian, the Sovietski Collection and Travelsmith as jumping-off points to attract new buyers. The eclectic array of products and gifts offered by these catalogs matched Acorn customers’ tastes, so why, Acorn executives thought, shouldn’t it work the other way around?

In addition to a wider variety of lists, Acorn officials also pursued cooperative databases as a way to grow their customer base. Although the catalog had used cooperative database Abacus since it began mailing in 2001, Acorn began to take advantage of other databases, such as I-Behavior and Next Action.

Provide the Right Merchandise

Having worked first at Rivertown Trading and now for Acorn Direct, Bonnie Marron has a good idea of what her customers want.

“Everything in the catalog needs to have a story,” she says. She calls Acorn customers discriminating, and says they have a wry sense of humor and a desire for quality entertainment that’s so strong even the gifts they buy must possess an air of the extraordinary.

To find items with such qualities, Marron constantly is merchandising. She says she never knows when she’s going to find something wonderful. “When I’m walking through the airport, for example, I’m looking around for what might work [in the catalog],” she says.

Although she attends shows such as the New York International Gift Fair, she likes to tread off the beaten path as well. “The continuing challenge for catalog merchants in the gift business is to find unique products,” says Marron. To that end, she often attends shows that aren’t normally associated with the gift world such as events that showcase housewares and outdoor products.

Indicative of the spirit of cooperation throughout Acorn, she gets help from others in the company. For instance, while at a conference in Iceland, Penella found lava rocks people were using as ice cubes. And a member of the public relations department recently showed Marron an old-fashioned walk-behind popcorn maker that may soon find its way into the catalog.

Locating merchandise with good margins certainly is important in her line of work, but when it comes down to it, Marron requires each item to have a specific reason for being in the catalog. The item must be unique and appeal to the intelligent core consumer who buys from the Acorn catalog, she notes.

Do What No One Else Can

One of the reasons Acorn has been successful with video titles is the exclusive nature of the contracts on certain titles just after their release. This advantage is due to the relationships Acorn has established with video distribution companies such as U.K. broadcaster Carlton.

For instance, when John Le Carré’s “Tinker, Tailor, Soldier, Spy” was made available on DVD in 2002, consumers could buy the title only through Acorn for the first three months of its release. These “windows of exclusivity” draw in customers who must get their hands on the title right away, says Penella. And while they’re looking, they may want to buy the radio-controlled Mini Cooper toy car featured below it in the catalog.

Taking full advantage of the benefits afforded by being the only carrier of these exclusives, Acorn makes sure these coveted titles are what the customer sees first. Until recently, every catalog cover featured an Acorn exclusive title. Now the company is testing catalogs with gift items featured prominently on the cover.

No stranger to changing tastes, Acorn’s management knows it must be flexible within its merchandising strategy to remain competitive. As noted earlier, the shift from documentaries to dramas began in 1994. In 1999, the company sensed a new shift and began licensing performance videos, such as “Bernadette Peters in Concert.” By 2003, there were almost no documentaries left in the catalog, but seeing the more recent commercial success of the documentary form, Acorn reintroduced it into the mix. As Edwards notes, the advent of the DVD may be changing the documentary market. The trick is to stay true to the idea that Acorn customers want their entertainment to be of exceptionally high quality.

The Right People Make All the Difference

From the beginning, Acorn Direct has relied on the expertise of its people to help it achieve success. Hiring several staff members directly from Rivertown Trading in 2000 was the first in a series of personnel appointments that seem to have helped Acorn realize its recent achievements. The catalog hit the ground running with the assistance of a merchandising and production team that had been working with the same products that Acorn was offering.

Having excelled on the catalog production side of the business, Edwards sought to bring multichannel expertise to the management team. Enter Miguel Penella, former vice president of customer marketing at Time-Life. Acorn executives are hoping Penella’s experience with catalog and Web marketing, as well as DRTV, will help the catalog maintain its momentum in the coming years.

Recognizing where the company’s strengths lie, Acorn outsources its creative and fulfillment operations. Notes Penella, it’s important to know what you’re good at, and then let a professional do the rest. Marron and her buyers work directly with an outsourced creative director and copywriters to ensure each product in the catalog speaks to the core Acorn consumer.

Tomorrow’s Challenges

* Escalating business costs. Penella points to, for example, increasing freight costs, as well as the impending postage and paper rate hikes, as concerns for most catalogers. At this stage of growth for Acorn, however, some things are getting easier, he notes.

“Economies of scale are starting to kick in as the business grows,” says Penella. “And the business is big enough that some things are starting to become cheaper.”

As the catalog’s circulation has grown, for instance, the fixed cost per catalog has dropped dramatically. Whereas in 2001, the cost to produce and mail each catalog was 80 cents, now it’s closer to 50 cents per catalog, notes Penella.

* Spinoffs. Acorn isn’t content to remain static. For instance, it’s considering spinning off a video- or gift-only catalog, a decision fueled by the continued success of both categories, says Penella.

* E-commerce. Growing the Web site has been a challenge since Acorn began redefining its product mix. Although 20 percent of sales come in via the Web, the site has only recently caught up with the changes made in the catalog. Continuing to keep the site and the catalog in sync is an ongoing exercise, notes Penella.

Each of these challenges is indicative of the attitude embodied by Acorn. Not content to rest on its laurels, Acorn continues to focus on growth — on improving both its scale and scope.

Acorn Direct’s Timeline

1984 - Atlas Video is founded by Peter Edwards, a communications consultant working primarily in the cable TV industry.

1987 - Encouraged by the success of the company’s first two releases (the documentaries “Cavaliers and Craftsmen” and “Virginia Plantations”), Edwards raises a modest amount of bank financing. He quits his job at NBC News and moves his growing company to his basement in Washington, D.C.

1988-1990 - Edwards grows the company, producing and distributing six Civil War documentaries and a 10-hour World War II series.

1991 - The company’s business model shifts to licensing independently produced documentaries, which are sold primarily through wholesale channels.

1994 - Atlas Video licenses its first period drama, Derek Jacobi’s “Cadfael.” The deal is Atlas Video’s first of many with U.K. broadcaster Carlton (then Central Television). Later that year, Edwards changes the company name to Acorn Media.

1997 - Acorn Media U.K. is launched to distribute a similar line of products in Britain.

1998 - The Acorn Media U.S. consumer Web site (www.acornonline.com) goes live and processes its first order for $130.90.

2000 - A change in retail giant Target’s merchandising strategy results in the loss of a lot of business for the wholesale video distributor.

2001 - Edwards launches Acorn Direct and mails its first consumer catalog.

2003 - The company begins an aggressive expansion into new programming genres, and it assesses new business opportunities. One of the first projects in this vein is the licensing of Broadway’s “Lost Treasures,” a rare compilation of performances from Tony Award broadcasts.

2004 - Miguel Penella, a former marketing vice president at Time-Life, is named president of Acorn Direct. Peter Edwards remains Acorn’s CEO. The company changes it corporate name from Acorn Media Publishing to Acorn Media Group.

2005 - The company maintains three business units: Acorn U.S., Acorn U.K. and Acorn Direct.

About Acorn Direct
Headquarters: Silver Spring, Md.
Merchandise: videos and gifts
Channels: 80 percent catalog; 20 percent Web
Demographics: 50+, highly educated, upper middle class, public television watchers
Annual catalog circ: 10 million
Average order value: $95
# of SKUs: 700
# of employees: six in Stillwater, Minn., four in Silver Spring, Md.
Ranking on last year’s Catalog Success Top 200 List (as measured by housefile-growth rate): 16
Printer: R.R. Donnelley & Sons

The Acorn Direct List
Average customer age: 47
Average annual income: $80,000
Base list rental: $100/M
Contact: Mokrynskidirect, (201) 487-8181, ext. 656