Mickey Mouse's next big role: e-commerce renegade.
The Walt Disney Co., an icon of mainstream America, will move against the grain of conventional business strategy this spring when it stops distributing a catalog that has filled the mailboxes of tens of millions of households for the last decade, and instead embarks on a Web-only initiative.
"Customers almost dictated this to us," said Paul Gainer, vice president of Disney Shopping, a division of Disney Consumer Products. "Once they go online we just don't see them going back to the phone."
The move bucks a trend that has practically become gospel in online commerce in the past several years — namely, that retailers who sell through the combined channels of catalogs, Web sites and physical stores engender more customer loyalty and bigger profits than those that do not.
Many online retailers lack the means to open traditional stores, so this so-called multichannel approach has been beyond their reach. But they still have the photos, call centers and warehouses needed for a catalog operation.
Why catalogs? Simple, executives say: They're pretty. Unlike most other advertising media, catalogs are something customers want to cozy up with on the couch and browse, sans mouse. Partly on the strength of that idea, companies like RedEnvelope, Ice.com, Amazon and eBay, among many others, have gotten behind the concept and distributed catalogs in recent years.
But useful as they may be, Gainer said, catalogs were simply not ringing the registers as loudly. Disney spent $18 million to mail 30 million catalogs last year — half of them sent in the holiday season. The holiday mailing went to similar groups as the previous year's did, yet Disney had a 45 percent drop in phone orders. The number of customers who responded to e-mail and other online marketing messages, meanwhile, skyrocketed.
"I think it's time to focus just on e-commerce, and see how great we can be," Gainer said.
Jim Coogan, president of Catalog Marketing Economics, a consultancy based in Santa Fe, was critical of Disney's decision, calling it "something I see a lot from the e-commerce world."
"What almost inevitably happens," Coogan said, "is that the business has lower costs, as expected, but a much greater-than-expected drop in sales. Typically companies expect to hold onto almost all the Web sales and are surprised when that doesn't happen."
Disney isn't the first cataloger to cut back radically on its mailings in an effort to shift more business to the Internet. In 1999, Lands' End cut its catalog circulation by 9 percent; its revenue soon fell by nearly twice that percentage, in an experiment that many online executives still point to as evidence that catalogs are more critical to driving Internet sales than they may appear.
But Gainer says 2006 is a much different selling environment online. Not only have high-speed Internet connections led to more aggressive online buying by mainstream customers, but search engines are considerably more effective in helping attract those customers than they were in 1999.
Gainer said the unit, which sold $160 million of products last year, did not make the decision lightly. His team tested various catalog mailing approaches in the last six months to analyze if it should keep the catalog operation running. But no matter the approach, online orders grew much faster than telephone sales, to the point that more than 80 percent of Disney Shopping's sales now come online. In fiscal 2005, Disney's consumer products division, which includes stores, product licensing, catalog and the Internet, sold nearly $21 billion globally.
By eliminating the catalog, Disney will save a substantial amount of money. In addition to closing a call center in Kansas earlier this month, Gainer said he had eliminated an undisclosed number of other staff positions. "We had some people with expertise in print, production and photography," he said. "Some have been restructured, some will be replaced with online-specific positions."
The $18 million that went into the catalog division will instead be used to buy search-engine advertisements, improve the company's e-mail marketing campaigns and develop a more extensive roster of third-party sites, known in industry parlance as affiliates, to help refer buyers to Disney.com.
Disney.com will see "consistent double-digit sales growth" as a result of this switch, Gainer predicted, compared with just 5 percent sales growth in 2005. "Our marketing will be much more efficient online than with print."
While that may be true, Disney is not getting much slack from the analyst community. "I think this is really short-sighted," said Donna L. Hoffman, professor of marketing at Vanderbilt University.
Hoffman said that customers who shopped using a particular retailer's stores, catalogs and Web site spent 15 percent more with that company than those who shopped through just one of those three components. "Disney's just leaving all of that on the table," she said.