Hanover Direct's Brand New Focus
Hanover Direct Had Nearly Drowned Among Too Many Properties, But its Focus is Clear Now: A New Merchandising Strategy that Concentrates on Core Brands.
By Alicia Orr Suman
Focus. That's what was lacking at Hanover Direct, says Tom Shull, president and CEO of the company. Hanover Direct, nearly insolvent when Shull took the helm two-and-a half years ago, at one time had 22 businesses.
To get out of debt, Hanover shed catalogs and other businesses, and concentrated on growing its strongest brands. Shull, a turnaround specialist who had worked on the revitalizations of both Barneys and Macy's, says it was a difficult decision to "get rid of some very good business in order to save a great business." Hanover Direct says it now is amidst a significant turnaround.
At the forefront of Hanover's road to recovery is a new "branded merchandising strategy" led by the integration of The Company Store and Domestications divisions. John DiFrancesco, president of the newly formed The Company Store Group, created last November, explains the progression of events that led up to the change: "When Tom [Shull] took over, he asked, where was the strength of Hanover? We recognized we had tremendous strength in the home furnishings market, particularly in soft goods. We looked to focus there first."
Commenting on Hanover's new strategy, catalog consultant Jack Schmid, founder of J.Schmid & Associates, says that Hanover's financial difficulties stemmed from a lack of focus and too many acquisitions. "It seems to me that the 'old Hanover' would buy up anything and everything. They had all of these catalogs that had nothing to do with each other. That's been their problem."
Part of Hanover's strength, says Schmid, is its core brands. "I like what they're doing in terms of [putting] The Company Store and Domestications in one group."
Hanover's two strongest brands—The Company Store and Domestications—together brought in $300 million in sales last year and accounted for 60 percent of the 191 million catalogs the company mailed.
Other properties the company kept in the restructuring include Scandia Down, International Male, Undergear, Silhouettes, and Gump's catalog and retail store.
Hanover recognized that Scandia Down, a smaller but upscale catalog retailer, also fell into the home furnishings/bedding group. "So by creating The Company Store Group," DiFrancesco says, "we now would have that market covered with a moderate, better, best strategy."
Schmid agrees with that strategy, noting, "I like their good, better, best focus."
In making the transition, Hanover had no intention of merging the brands. The Company Store has firm roots and has been around since 1911. Its product mix is more upscale than its sister catalog, Domestications, which was started in 1984 by Hanover.
"The decision to create a home furnishings group was made not to integrate the brands as much as to integrate the back ends: the inventory management and marketing departments, specifically. This would help us from a productivity standpoint," explains DiFrancesco, a veteran catalog marketer, who previously was president of Gump's Direct Marketing, and also has worked at Bloomingdale's by Mail, Bedford Fair, Avon Fashions and Montgomery Ward.
The merchandising staffs for the books remained intact following the consolidation, and there is now interaction between the staffs of the four brands, DiFrancesco says. (He includes Company Kids among the brands in the home furnishings group.)
"The nine buyers on the staff work with many of the same suppliers, and so it makes sense for them to work together," adds Farley Nachemin, chief merchandising officer of The Company Store Group.
Given Hanover's ability to "surround the market from highest quality to moderate" through the catalogs of The Company Store Group, Nachemin says that "one buyer can now buy from the high to low ends of the market."
Since both The Company Store catalogs and Domestications focus on the soft side of the home market, many of these products come from the same vendors, and, adds Nachemin, "This can give us economies of scale in buying." Nachemin, a home furnishings merchandising specialist who was most recently president of Domestications catalog, explains that, "Weaving is a pretty stable industry [when it comes to pricing]. Quality is where the differences are."
Hanover works with manufacturers that produce private label merchandise for it. The group structure enables the company to consolidate some of its manufacturing partners in the home furnishings arena, particularly in bedding.
Most of its product is manufactured overseas—mainly in China, India and Pakistan. Hanover has found that in the home furnishings market, overseas suppliers tend to be more cooperative and more flexible. "The large U.S. textile manufacturers are also serving the Wal-Marts and Targets of the retail world. We need lower minimum quantities and also our needs are price driven. It's hard for us to compete with their levels of volume," says Nachemin.
Hanover has, of course, done some domestic sourcing, he says. But the new structure gives it more leverage going in as a larger group in its manufacturing relationships. "We'll be able to use more of their loom time," says Nachemin. Hanover can achieve new price opportunities this way.
A third source of merchandise for The Company Store Group is its own factory. Hanover owns American Down and Textile, a factory which manufactures "filled product"—down-filled comforters, polyester-filled pillows, etc. As a key supplier to its catalogs, the factory gives Hanover another competitive edge by being able to control costs, quality levels and pricing.
Because The Company Store Group's catalogs have clear price differences and therefore differences in customer demographics, there's not much shopper cross-over, says DiFrancesco. But the Group does share some marketing knowledge among the books when it comes to merchandise—particularly between Domestications and The Company Store.
For example, offers Nachemin, "Say The Company Store has a successful comforter. We may want to test it in Domestications."
While certain items such as bedding are price-point driven, making a straight test impractical, the Group may look at adapting products when it makes sense.
Nachemin refers to this as product lifecycle marketing: "When an item starts to slow down in one market, we may take it to a lower spec and move it down. For example, we're considering taking a Company Store print pattern and creating something similar for Domestications."
Hanover's manufacturing capabilities allow the catalogs of The Company Store Group to easily cross-test different levels of merchandise quality.
"We do so much of our own product, it makes what we call the 'manufactured knock-off program' possible," DiFrancesco says.
Hanover also can take the idea for a product knock-off to a vendor for input. "We work closely with the vendors that manufacture [private label merchandise] for us," says Nachemin. "We'll take an item [from The Company Store catalog] to them and say, 'can you do an item like this at a quality and price level we can sell in Domestications?'"
In pursuing this cross-over strategy, Schmid suggests that Hanover needs to proceed with caution. "Having their inventory teams work together is just fine. But in terms of merchandise, they need to keep a uniqueness to the products in each of their catalogs. There's a danger that they could lose their differentiation."
Hanover says that at the root of any new cross-merchandising ideas is an understanding of design trends. In addition to employing buyers, the brands employ in-house home product designers—for a total of six designers and nine buyers in the Group. Buyers meet with designers and regularly share information. "What's working out there? Is the trend toward geometrics or florals? They'll go to the trade shows in New York and internationally to find out what are the trends in textiles," Nachemin reports, adding that the buying and design staffs work as a team.
The cooperative relationship makes another merchandising opportunity possible: category expansion. Different from cross-testing of similar products such as comforters, "There's the ability to grow in certain [product] 'zones,' or merchandise classifications," says Nachemin. By considering product classes where each individual catalog brand has strengths, Hanover can look for product development ideas to try out in the other catalogs. "We can take a look at The Company Store's rug business, or Domestications' outdoor business, then transfer that [product concept] to the other. We can visit The Company Store's rug manufacturers to see what quality level of product we could achieve for Domestications-level prices."
Here, again, good vendor relations help, since these are not the sorts of items the company makes in its own factory. "Fortunately, we've already established a rapport with many of those vendors, so it would make that kind of product expansion easier," says Nachemin.
In the future, Hanover hopes to do with other brands what it's done with The Company Store Group. "There are opportunities to go beyond what's been created in The Company Store Group. We have a very large universe to work off," says DiFrancesco. Hanover's total corporate housefile numbers 2.3 million 12-month buyers.
The company conducted a strategy study last summer, which gave it some direction for the future, says Shull. "After looking at the catalog market we identified who we thought to be the best in the industry, and we determined that those companies had both scale and focus—like Lands' End." Shull says that those are the qualities he is trying to emulate in The Company Store Group.
DiFrancesco says the company will be looking to create other strong merchandising focuses, for example in the women's apparel segment and in the gifts and jewelry market. To that end, Hanover recently consolidated Gump's by Mail catalog and Gump's retail into one operation, and, reports DiFrancesco, the Gump's division is doing much better.
Now that Gump's retail and catalog are housed together, operations for that book have been moved back to the store location in San Francisco. There, the retail channel has begun to test a variety of merchandise focuses by implementing in-store boutiques. For instance, Baby Gump's launched last fall with its own in-store shop.
Another market that may hold potential is men's apparel, where Hanover has two catalog properties: International Male and Undergear. "With International Male, we're looking to reach out to a broader audience," says DiFrancesco. Though that catalog was on the block a few years back, Hanover says it is not actively looking to sell it now. "We continue to improve that business," DiFrancesco adds.
Down the road, success with The Company Store Group could lead Hanover to opportunities that are even more far reaching, including acquisitions. "We'll look for acquisitions when the time is right and it's an appropriate fit," says Nachemin.
Schmid says a logical fit would be the kitchen segment of the home market. "Hanover at one point had a kitchen thrust—Colonial Kitchen and Kitchen & Home [closed in 2001]. It let that get away," says Schmid.
Shull says that at some point, "Hanover may consider the kitchen category again—but really far down the road."
For right now, however, Hanover is focused on making The Company Store Group work, and not on buying and selling catalog titles, DiFrancesco asserts.
"This has progressed a lot faster than any of us predicted," he says. "We're just putting on our track shoes and running to keep up."
Alicia Orr Suman is contributing editor of Target Marketing and Catalog Success magazines. She can be reached at firstname.lastname@example.org.