i-C@talogue
(working title)
DEVELOPING A WORLD CLASS SERVICE TO MATCH AN EXPANDING MARKETPLACE
Charles Kelly December 2004
Contents: 1. Overview 2. The Opportunity 3. The Industry 4. Market Results & Forecasts 5. Market Analysis 6. The USA Model 7. The UK & International Model 8. Timing & Strategy 9. Routes to Market 10. Partners 11. Background 12. Funding Requirements 13. Synopsis Appendix 1
1.0 OVERVIEW
This proposal is designed to build a new business almost from scratch, but it is one which is based on the experience of a number of strategic partners, each of whom bring high levels of skill and experience to the project. The new business will offer world class services to a wide range of clients many of whom will be well known names in a variety of different industries. In addition to the top names there will be different tiers of service aimed at fulfilling the needs of a rapidly developing and already established market across a wider front. In developing a range of services it will emulate the success of a small number of specialist companies in the USA, and the business model follows an already established pattern which supports some of the largest companies in the world.
i-c@talog will operate from a Scottish base but the services will be aimed at
companies which serve the UK and international markets and from the outset it will offer support to a multi-lingual marketplace. The business will address the needs of the catalogue and home shopping market, which is already well established, and the developing market for the delivery of brochures and other content by electronic means. The market statistics and forecasts show that the UK market opportunity is poised to develop rapidly and here again this follows the success of the USA marketplace during the past 2/3years. In order to speed the time to market for the new business it will utilise already tried and tested software from a USA based company.
2.0 THE OPPORTUNITY
The timing is right and the technology is now available to support the creation a world class business which will serve the needs of the rapidly developing market for the delivery of product and service information across a variety of platforms. Digital assets in the form of text, pictures, graphics, video, animation and sound are now the lifeblood of most companies involved in marketing products and services. There is an increasing demand for these assets to be utilised more effectively across a number of marketing channels including paper based catalogues, magazines and brochures; Internet based web and e-commerce sites; CD and DVD distribution; G3 devices and other forms of presentation. In the area of catalogue and home shopping, the USA has been the world leader over many years and has recently seen a dramatic rise in the delivery of product content through electronic means. The UK is now experiencing a rapid development in this field and is set for further growth. As product and service companies look for new ways of utilising existing assets and developing new ones to meet this trend there are opportunities for new businesses to be created to meet the needs and aspirations of this developing marketplace.
i-c@talog will
3. THE INDUSTRY
4. MARKET RESULTS & FORECASTS
4.1 The USA Market An analysis of the last five years up to and including 2003 show that the Mail Order and Home Shopping industry more than doubled in size to reach US$207.5 billion in 2003. The key drivers in creating this growth were a combination of longer working and commuting times combined with a greater increase in female workforce, leaving less time to shop at traditional outlets. These factors, coupled with the rapid growth in the uptake of the Internet and consumer confidence in shopping online, and linked with ever more sophisticated online technology, continue to provide growth opportunities in this field.
Mail Order & Home Shopping in the USA (June 2004)
300000
250000
200000
$ Millions
150000
30%
100000
50000
113%
1999 2000 2001 2002 2003 Year 2004 2005 2006 2007 2008
0
Source: Euromonitor International, June 2004
The experience of US based companies in responding to the market opportunities has led them to develop ever more sophisticated solutions. The traditional catalogue based companies are increasingly looking for a single platform to host and manage their visual and content assets for the full range of marketing initiatives from normal print to e-commerce and online catalogues. At present US companies are leading the field in these developments but it is likely to be only a matter of time before some UK companies challenge their supremacy.
4.2 The UK Market The UK has set the trend within Europe for the uptake of mail order and home shopping (see later for comparative analysis) with a 33% rise in the past five years to reach a value of £12.0 billion in 2003. Here again the combination of
a more time conscious society; the rapid acceptance of the Internet; the introduction of faster Internet connections, and the increasing sophistication of web sites (particularly in e-commerce) has offered opportunities for rapid growth. Unlike the USA which saw a doubling in five years and which is now projected to increase at a slower pace, the UK is scheduled to increase the rate of growth over the next five years and this additional £60 billion sales market offers considerable opportunities for companies which are tailored to the needs of the industry.
Mail Order & Home Shopping in the UK (June 2004)
20000 18000 16000 14000
£ Millions
12000 10000 8000 6000 4000 2000 0 1999 2000 2001 2002 2003 Year 2004 2005 2006 2007 2008
48.5%
33%
Source: Euromonitor International, June 2004
Throughout the catalogue industry worldwide there is an ever increasing pressure to reduce costs and the move to have more and more catalogues delivered to end users through the Internet creates opportunities for cost reduction coupled with increased ROI.
UK Example: Arsenal FC created an electronic version of their merchandising catalogue. This could be downloaded from their own web site. The result - within 3 days, 10,000 copies were downloaded at no cost to the Club saving them over £24,000 in costs, and they saw a dramatic increase in sales take up.
The figures shown in the above charts do not take into consideration the market for electronic delivery of other product and service information such as brochures, portfolios, reports etc.
5. MARKET ANALYSIS
The figures shown in the above charts indicate the total mail order and home shopping markets and these can be broken down into: General mail order Interactive shopping Direct response Specialist mail order Teleshopping Of these the highest growth rate (1999-2003) of 61% was shown for teleshopping with general mail order and interactive shopping achieving 36% each, and direct response and specialist mail order achieving the lowest at 14% and 19% respectively. In the UK the general mail order category accounted for 60% (£7.2b) of the total sales value in 2003. Many direct catalogue retailers are now actively looking at web based delivery systems to both reduce their costs and increase their sales . In the USA major catalogue companies are reporting increases in conversion rates from 20% to 130% when customers are offered the latest ‘feature rich’ online versions of catalogues. The trend in the catalogue market in the USA is for the close integration of physical catalogue and web based catalogues and, where possible, for the ‘re-purposing’ of assets created for one distribution medium into another medium thereby providing a greater ROI. New developments in presentation technology make the online viewing more user-friendly and there is a move to have the online experience mirror the familiarity of leafing through a paper catalogue. Increasingly major companies are outsourcing their catalogue creation and hosting to third party specialists. One such company in the USA with 200 major stores in its portfolio quotes the ten key reasons for companies adopting their services:
1. 2. 3. 4. 5. 6. 7. 8. 9. Enables cross-channel consistency Leverages significant catalog investment Quick ROI payback Conversion rates at least equal to or greater than the catalog and/or website Greater reach at lower cost as electronic distribution is much cheaper than print Excellent branding tool Familiar buying format that is ideal for transitioning new customers to the web Ideal for educating customers to a brand to which they are familiar Can handle an immediate catalog request via email and customer support capability provides better customer service 10. Enables emailed catalogs that can serve as prospecting or previewing among existing customer base.
6. THE USA MODEL
In the USA the main catalogue industry support business is dominated by a few specialist companies which offer outsourced service to retailers such as Disney, American Express, Sears & Roebuck, J C Penney etc. The outsource companies such as RichFX and Scene 7 offer a multi channel service to the retailers where the content from existing catalogues is republished into electronic online catalogues, e-brochures and email campaigns thereby making maximum use of existing assets. While there are many services on offer to enhance the basic presentation the key services split into main offerings. One where the service company carries out the complete conversion or creation of a new online product, often including the web presence and ecommerce site, and… A DIY service where the client may use the service company’s servers and software to create and update their own online products. In addition to the above there are situations where the retailer may decide to install the complete system and run it in-house although the move in the past years has been to outsource the service and support. Charges for the service levels vary from around $250 to $1500 per month for smaller companies using the DIY service, to $5000 + per month for larger companies. For in-house applications the fees can be in excess of $100,000 per annum. In addition to these service charges there are separate fees for the design and creative services.
7. THE UK & INTERNATIONAL MODEL
Level 1 Level 2 2 Level 3 3
High level services aimed at major catalogue retailers. Including conversion, hosting, design, implementation and reporting.
Medium to high level services aimed at larger SME companies with both fully serviced and self-serve options
Potential franchise operation. Self serve applications for smaller retailers and service businesses with optional full design service to create e-brochures and related services.
8. TIMING & STRATEGY
There will be a limited time window where any new business can successfully take a lead and establish itself as long term player in this field. Technology is now often being developed at a faster rate than it can be successfully implemented and it is critical that any new business takes cognisance of this fact to ensure that it stays successful. The core services however must be solid and in place to ensure that a stable base will not be rocked by changes in technology but can embrace and support such ongoing developments. The UK is now starting to see the follow through of the market changes which have taken place in the USA some 12/18 months ago and UK companies are now seeking new routes to market. It is likely that within 12/18 months time these companies will be fully operational with new solutions..
9. THE ROUTES TO MARKET
10. PARTNERS
11. THE BACKGROUND
12. FUNDING REQUIREMENTS
13. SYNOPSIS