Its products may not be the height of fashion but its marketing skills are right on. Nigel Cope talks to the astute mail order company N Brown.
There are certain items that are a little tricky to get hold of in the shops: G-cup bras, for example, or EE-width shoes. And you cannot buy a portable bidet for love nor money. This, you might think, is because outside of Russian shotputters with toilet training problems, there is not much of a market for these items. But you would be wrong. Last year N Brown, the Manchester-based mail order company, sold £140 million worth of goods such as these, together with a whole range of comfortwear - including fur-lined bootees, flameproof nighties and industrial-strength corsetry.
"You can laugh," says N Brown's chief executive, Jim Martin, sounding a little hurt. "But it's very profitable."
He is right. It may be difficult to suppress a snigger at catalogues with titles like "Comfortably Yours" and "Bury Boot and Shoe" but profits of £14 million are enough to wipe the smile off any cynic's face. N Brown has consistently been one of the most profitable mail order companies in Britain. It has also doubled its share of the UK's £4 billion mail order market to 3.6% since 1983, a growth record which none of its larger rivals can match.
The key issue is not what N Brown sells but how it sells it. In a static market, the major players - Great Universal Stores, Littlewoods, Freemans, Grattan and Empire Stores, which account for 90% of home shopping sales - are issuing more and more catalogues chasing the same pool of customers. The sector is also under threat from Europe. German group Otto Versand bought Grattan from Next in March, outbidding Sears, which owns Freemans. In April, La Redoute of France acquired a controlling interest in Bradford-based Empire Stores. Littlewoods' £1 billion home shopping business is also up for sale, with a continental buyer again looking likely.
In this climate N Brown's approach could prove instructive. It consists of selling direct rather than through an army of agents; issuing smaller, better targeted catalogues; and adopting a much more friendly, get-to-know-you attitude towards its customers. As Richard Hyman, managing director of retail consultancy Verdict Research, points out: "It may be the smallest of the major companies but its marketing methods represent the future of the business. In the long term the others are going to have to follow suit."
The mail order business has its roots in the 19th century and has not been a market given to great change. The agency system, which developed in the early part of this century, grew initially to service local retailers who printed lists of their wares. This system, employed by the likes of Great Universal Stores (GUS) and Littlewoods, works on a basis which now appears to benefit the agent more than the owner of the catalogue. Agents get a commission of 10% on everything that they sell. They also qualify for a 10% discount on everything that they buy. This was fine in the 1960s when agents serviced up to 20 customers each, but now the average is just three, and typically they are other members of the immediate family. "It has just become a method of shopping at a discount," says Hyman of Verdict.
Free credit - which means that Enid Glossop of Bolton can pay for her £12.99 poly-cotton floral blouse in 12 weekly instalments - makes no money for the company and takes up valuable administrative time. Worse is the free gift system which has become a common feature of a market desperate to woo new business. New customers qualify for a free gift such as a double duvet or set of saucepans, regardless of whether they buy a hi-fi or a pair of underpants. In many cases the value of the gift exceeds that of the product purchased.
N Brown does things differently. It does not have agents, preferring to sell direct. Credit is available but customers have to pay for it (its current APR is 37.8%). This encourages customers to pay by cash or cheque, aiding cash flow. And interest charges mean that credit is a profit centre, rather than an overhead.
N Brown has never relied on agents. Founded in 1875 by James David Williams, it always sold direct, relying initially on the railways for delivery and then the newly formed Post Office. In 1970 the company, then still called JD Williams, was bought for £1.4 million by Sir David Alliance, the Coats Viyella chairman, who reversed it into his property company, N Brown. Sir David, who still owns 58% of the stock and remains chairman, went round the back streets of Manchester to learn how the catalogue business operated.
"I found that the future lay in direct mail order," he says. "The British character is such that they don't want everyone else to know their business. They don't like their next door neighbour knowing how much they owe."
Much of N Brown's strength is its secure market niche. A typical customer is a woman over 50, of ample proportions, who either cannot get to the shops or dislikes the prospect of heaving herself into a size 18 frock in front of a size eight teenage shop assistant. The catalogues stock dresses and skirts up to size 36, and The Special Collection - "fashion for men and women with special needs" - caters for men with waists up to 56 inches. Other catalogues cater for unusually tall or short ladies, disabled people and people for whom a wander down the high street is just a painful reminder of how their figure has gone down the swannee. They are a good catch. "Their kids have gone, the mortgages are low. They are thinking of retiring and maybe spending a little money on themselves or doing up the house," says Martin. Britain's demographics mean that the number of over-50s in the UK is growing.
Having identified its market, N Brown works it thoroughly. Around £4 million is spent on advertising every year, in publications like Woman's Realm, People's Friend and the tabloid press. New customers are added to the database, N Brown's key marketing weapon.
The database holds the names, addresses and other details of 10 million potential, past and current customers. Of that number 2.5 million have shopped with the company at some stage and one million are regular customers. The database holds an astonishing amount of detail, such as how often they shop and what colours they like. Unlike rivals, the company does not rely on questionnaires ("They're too intrusive," says Martin), but builds up the information from customers' purchases.
Candidates are targeted on the basis of three criteria: "recency", frequency and price (how much they tend to spend). Those selected are sent a continuous stream of smaller, more manageable, 20 or 30-page catalogues rather than the 1,500-page lumps such as GUS's Kays catalogue, which is issued twice a year. The catalogues are mostly fairly basic - some even use illustrations rather than models - and concentrate on price.
Marketing mail order goods has become an exercise in database development and management. Computers account for £2.5 million a year of N Brown's capital expenditure. More than 100 of its 1,400 staff work in the computer department and all of the software is written in house. Executives at the company's modest Manchester headquarters wander around using phrases like "regression analysis". Martin believes that the company has "only really scratched the surface of what is achievable".
Customer research is a high priority for the company. "We like to talk directly to them," Martin says. "So we invite maybe 12 people to a hotel and offer them a fiver or a bottle of wine to come along, and talk to them about their needs and their views on the catalogues." He has also commissioned a post-graduate group to do some research into what happens to the female shape as a woman grows older. "We want to get as near as we can to the size, shape and posture," he says.
Aware that customers grow to feel comfortable with catalogues which they have been shopping with for years, N Brown encourages the view that it is a small, caring and sharing company rather than a faceless, multi-million pound plc. Though it has purchased rather than launched many of its catalogues, it keeps the original name, even though its contents could be exactly the same as some of the other catalogues.
N Brown itself is on something of a roll. Profits have grown from £3 million in 1983 to £14 million last year, an average annual growth of 20% every year apart from 1989 when figures were ravaged by the postal strike. The company recently completed the £20 million development of a centralised distribution centre, and got the nod from the City for a £16 million rights issue to help fund it.
Martin is looking to expand: through acquisition in the UK ("We have a shopping list - though all we really want is the tape of the names and addresses") and possibly through a joint venture in Europe over the next three or four years. Recent catalogue launches such as "Fashion World" and "Candid" have been aimed at extending the company's target market to include the younger, 40-year-old lady. "We need to catch people earlier," says Martin.
There is no apparent rush from the Big Five to follow N Brown's direct route. Littlewoods gains all of its £933 million sales through its 2.5 million agents and stopped its only direct catalogue, "Imagination", last year; 90% of Freemans' £438 million sales are gathered door to door. Only Grattan, and more recently Next Directory, gain a significant proportion of their sales from selling direct.
The invasion of the continentals, who run their agencies as proper businesses rather than via housewives, should add some sparkle to this sector but longer term the likes of GUS and Freemans will have to look long and hard at a system which increasingly seems more trouble than it is worth.
"We've got this system. It's not very attractive. But it's so big you can't just pull it down and start again," says Hilary Monk, senior consultant at Verdict Research. "The key challenge for the majors is how they change it without killing the goose that laid the golden egg."
And while they do it, N Brown will be pumping out the corsets wondering what all the fuss is about.