Steady As She Goes

AmeriMark Direct relies on a profitable strategy of adhering to direct marketing disciplines, internal modeling and promotional prospecting.

If anything has characterized multi-title apparel, beauty products and accessories cataloger AmeriMark Direct since Gary Giesler and his partners purchased the company in 1998, it’s steady growth fueled by a disciplined approach to meeting customers’ needs.

Under the current ownership (eight-plus years), sales have grown 300 percent, and the Cleveland-based company has launched three catalogs and three Web sites. What’s more, a credit program, three membership plans and a customer rewards program have all combined to strengthen AmeriMark’s bond with its customers.

No stranger to cataloging, Giesler made a name for himself at Arizona Mail Order, now known as Crosstown Traders. He knew he was taking on a challenge with AmeriMark, describing the company at the time he acquired it as a “1950s-style business, with no management discipline.”

For instance, “There was no budget. They had little or no financial reporting,” he recalls. “The controller often waited about 45 days after the quarter until he had all his bills in to prepare a financial statement.”

But a lack of strict business rules wasn’t the only challenge Giesler and his team faced. On April 5, 1998, just four days after the deal closed on AmeriMark, a heater in the company’s warehouse started a fire, resulting in smoke damage to all of the apparel.

It was a major hindrance to AmeriMark’s business, resulting in unfulfilled orders, back orders and several months’ disruption of service until the warehouse could be repaired. “We were right into the spring season, so we really missed the entire spring and part of the summer season because we were primarily an apparel business at that point in time, with some cosmetics and jewelry,” Giesler recalls. “We closed on the company on April Fool’s Day, so I guess that should’ve told us something.”

But the company soldiered on, in no small part due to its customers’ loyalty. AmeriMark’s primarily mature low to middle income female customers may not be big spenders, but Giesler says they’re more valuable than high-ticket customers, because “they’re not as fickle as high-ticket buyers. … If you treat them right and give them quality and service, they’ll purchase often.”

In addition, customer retention is very high, according to Giesler, who notes that over time, approximately 70 percent of new customers place orders again. “That speaks a lot about the success of the team we have here and how we treat the customer with regard to value, quality and service.”

The transition from a company with little business discipline to a direct marketing powerhouse didn’t happen overnight, but the results have paid off. Last year, private equity firm JH Partners took a 75 percent stake in AmeriMark, leaving Giesler and his team in place to run and grow the business on their own. Giesler says he’s proud of the fact that JH Partners has enough faith in the company to permit existing management to run the business with little or no interference.

Mike Grant, managing director at New York-based direct marketing consultancy Winterberry Group agrees. “People not only invest in a company because of its position in the marketplace, but also [based on] the strength of its management,” he says.

Built on a Solid Foundation

AmeriMark lacked a solid business platform when Giesler purchased it, but he quickly put in place people who could move the business forward. He credits his partners — his son, Louis Giesler, executive vice president of operations, and Diane Huzar, executive vice president of marketing and merchandising — with bringing a great deal of expertise and discipline to their areas of the business.

Because many of the company’s departments were operating in a vacuum, they filled that vacuum with more experienced people and proper planning skills.

He also added people in a few key areas, such as circulation planning, which was lacking at the time. And where little to no circulation planning was in place before the acquisition, the team immediately instituted pre-planning with a budget. “If we’re going to mail these books, we need to know how much money we need in order to mail, and we especially need to know how much money the mailing should make,” Giesler says.

The merchandising process also was overhauled. For a product to make it from one catalog to the next, AmeriMark’s merchants establish a profitability threshold based on the amount of space the item takes up in the catalog. If the product doesn’t reach that profitability point, they don’t relist it on a page, unless the inventory needs to be liquidated.

For new products, merchants are particular about what they present. If a vendor pitches something that’s too similar to something the catalogs have carried before and wasn’t profitable, they won’t add it to the books.

“We have formulas for every part of the business,” Giesler says. “And it’s not a shoot-from-the-hip kind of plan.”

Despite the presence of those formulas, Giesler says his employees have a lot of freedom to run the business as they see fit. “We establish some ground rules about the way we like to do business, and then we let them take the ball and run with it,” he says. “We don’t like to look over people’s shoulders.”

And something about that plan must be working, because AmeriMark has grown 25 percent a year on average during the past four years. The plan and sales growth enticed JH Partners to take notice last year. “When the JH people came in to take a look at us,” Giesler says, “they saw the disciplines we have, the way we run the company and the systems that we use. They said it was the best or as good as they’ve seen in the industry.”

Modeling for Growth

But steady growth doesn’t just happen. Once Giesler built up the team he needed to grow, he focused on bringing his customers back more often.

To that end, in 1999 AmeriMark began building a proprietary in-house marketing database and overhauled its customer database to get a complete picture of customer buying behavior.

Using the customer database, AmeriMark creates in-house models that determine a customer’s propensity to buy, based on the number of catalogs she receives. And with 1.8 million 12-month names and a complete housefile of 5.2 million, there’s no end to the amount of modeling that can be done. Much of the company’s sales growth has been the result of these models’ effectiveness.

Huzar reveals that the marketing database took on a life of its own. “What was supposed to be a two-year project turned into much more,” she says. “We’re constantly finding new modules to add to the database.”

Credit Where It’s Due

As for building up AmeriMark’s housefile, the company’s in-house credit offers are the most effective prospecting promotions the company uses, Huzar says. “Offering credit has allowed us to mail deeper into lists that we already use, because there are people out there who wouldn’t or couldn’t respond to our offers otherwise,” she reveals. And mailing deeper into those lists has reduced the company’s acquisition cost per name.

While Giesler won’t disclose the percentage of customers who use the proprietary credit program, he notes that the program is growing considerably every year. In fact, one of the advantages the JH Partners investment has brought to the table is the ability to expand the credit program.

And it’s a good thing, too, as Giesler explains that credit customers have a lifetime value approximately five times greater than non-credit customers. He also believes the credit program creates a strong partnership with customers.

While AmeriMark began to test the waters of proprietary credit back in 2000, it wasn’t until 2004 that the company rolled out the program in its entirety. Giesler notes that great care initially was taken to determine what the bad debt rates would be among AmeriMark’s customer base.

He recommends that other companies interested in starting a credit program take at least one year to 18 months to test the program and weigh its pros and cons, that is, lifetime value increase versus bad debts.

Current Growth Opportunities

In 2000, AmeriMark launched AmeriMark.com, which would become the main e-commerce site for all of the company’s brands. Until 2005, all AmeriMark-brand Web sales were handled through this single site.

Giesler and his team initially thought the AmeriMark brand would become more dominant and recognizable than its individual catalog brands. He admits, however, that in the past 18 months, they’ve begun to re-evaluate that position.

So last year, the company launched Time for Me, a health and well-being catalog aimed at a slightly younger and more upscale audience than other AmeriMark catalogs cater to. Because of this, Giesler and company decided to give the catalog its own e-commerce site separate from AmeriMark.com.

The younger audience for Time for Me is more used to transacting online, and Giesler theorizes that as this group ages, it’ll easily transition to visiting AmeriMark’s other brands online. Winterberry’s Grant agrees.

“As this baby boomer audience ages,” Giesler says, “these people may want to spend less money or they’ll simply become more value-conscious with various types of apparel, shoes, sleepwear, etc.,” he says.

This may mean that Anthony Richards, Windsor Collection, Healthy Living and other catalogs will need their own sites. True to its deliberate form, however, AmeriMark will first test whether the effort will be worthwhile. To test this, the company launched in September a stand-alone site for its Beauty Boutique brand. “We may eventually have a Web site for each of the catalogs,” Giesler says. “It’s something we keep asking ourselves and trying to determine if that’s the best way to go.

Future Challenge

Indefatigable about AmeriMark’s ability to face whatever the market throws at it, Giesler admits to just one major challenge in the coming year. And that’s the challenge that will face all catalogers as the Postal Rate Commission considers the next rate case.

“The 12.5 percent to 13 percent increase is going to be a big hit to our bottom line,” Giesler says. “And a lot of companies will not survive that.”

For AmeriMark to not just survive, but prosper, Giesler says he’ll probably mail less. “If you’re mailing to a certain point now, and your costs go up, that means your top line gets raised a bar higher; you just end up mailing less to preserve where your profits are,” he notes.

Coming off four straight growth years, he’s not worried. At some point, growth inevitably slows down, usually because of pressures in the market, such as the postal rate increase, he reflects. “That doesn’t mean our profits will slow down,” he states. “We may give up some at the top line to sustain the bottom line. And then the following year, we’ll likely take off again.”