HANOVER FORTIFIES ITS BRAND PORTFOLIO; FOUR CATALOGS ISSUED THROUGH ALLIANCE WITH SEARS

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Hanover Direct is betting big on brands.

The Weehawken, N.J.-based specialty catalog marketer has been on an acquisition binge since 1993, including this year's acquisition of a majority interest in Austad's, the premier golf catalog based in Sioux Falls, S.D.

"Our basic strategy is to build or acquire brands. Austad's is the largest of the golf mail order catalogs .*.*. with a total list of about 3 million customers," said Jack Rosenfeld, Hanover Direct president-CEO.

The company's mission is for each catalog to have a distinct brand identity and be a leader in its market niche. Hanover Direct intends to build catalog brands "by understanding the customer. Each catalog has a fairly targeted customer base and by offering superior service, exclusive or hard-to-find products and value, [customers will] develop trust in that catalog," Mr. Rosenfeld said.

That strong brand strategy comes amid increasingly difficult times. The catalog industry has been hard hit with paper and postage increases and lackluster consumer spending.

Hanover Direct reported a third-quarter net loss of $9.6 million, including a one-time charge of $1.8 million to retire debt, compared to net income of $640,000 for the third quarter of '94. The company had revenues of $169.2 million, down 5.1% from the same period last year.

For the first nine months of 1995, Hanover reported a net loss of $22 million, compared to net income of $6.6 million a year ago. The company had revenues of $528.5 million in the period, down 2.6%.

The nine-month results reflect the dropping of four underperforming catalogs in the second quarter-Mature Wisdom, One 212, Simply Tops and Essense.

"In the third quarter, we absorbed $8.5 million in paper and postage increases over 1994 levels. In addition, we have absorbed our own internal costs of duplicate and start-up facilities, and, in some but not all of our catalogs, a general lack of consumer confidence being experienced by most retailers," Mr. Rosenfeld said in a statement.

Hanover's 1994 sales volume made it the sixth-largest catalog company in the U.S., said Maxwell Sroge, president of Maxwell Sroge Co., a catalog industry consultancy in Evanston, Ill.

In January 1994 the company began an alliance with Sears after a successful test in 1993.

Under the arrangement, Hanover mails four versions of its catalogs to customers of the old Sears catalog, and to Sears' credit card customers. The catalogs feature a title page complete with the Sears name.

Sales in 1994-the first full year of the affiliation-totaled $71 million. The Sears venture generated $1.4 million of operating income in 1993 vs. $2.9 million in 1994.

In addition to Austad's, Han-over has acquired the Company Store, which sells down comforters and related items; Gump's, an upscale catalog of exclusive gifts from the San Francisco retailer; Tweeds, a European-inspired women's fashion catalog; Leichtung Workshops, a woodworking catalog; Improvements, a do-it-yourself catalog; and Safety Zone, a catalog of home safety products.

The recent acquisitions up the Hanover total to 19 catalogs. Domestications, its home textiles title, still accounts for the bulk of the company's sales volume.

The Gump's acquisition is first and foremost "an attempt to acquire a strong brand, which also introduced us to the luxury market," Mr. Rosenfeld said.

"We really have clusters of catalogs. We didn't buy Austad's because it fit into our database. We bought it because it is a strong brand and it will provide a growth area for us," Mr. Rosenfeld said.

Still, some observers are puzzled by Hanover's acquisition strategy. Mr. Sroge said he was surprised by the Austad purchase. "Most of Hanover's business is women and most golfers are men. I don't see it as a good fit at all," he said.

"The people at Hanover seem to be bottom-fishers, attracted by companies that are in difficulty and that they can buy cheaply," Mr. Sroge added. "It is a very scatter-shot strategy, and I don't think it will be successful in the long term."

Hanover has a decentralized strategy for merchandising and marketing. Each catalog brand has its own management team to determine market positioning, strategy, merchandising and design.

But Hanover centralizes related services to give catalogs an edge over smaller competitors. The volume of the company's catalog operations creates opportunities for economies of scale in terms of paper buying, printing, long distance telephone time and postage.

The company's strengths in fulfillment, database management and telemarketing also give catalog brands advantages over competitors, Mr. Rosenfeld said.

Each Hanover Direct catalog has access to the company's 25 million-name customer list of five-year buyers and its 19 million-name three-year buyer list.

About 377 million catalogs were mailed in 1994, up from 322 million in 1993. The 17% increase is attributed to prospecting, acquisitions and the addition of the Sears books, said a spokeswoman.

But Hanover will mail less in 1995, Mr. Rosenfeld said. Hanover plans to do "more selected mailings. We will do somewhat less prospecting .*.*. and a more selective mailing to customers with a high propensity to buy," he said.

"As we use our database more and more, we'll mail to our own customers. The people we already own are good prospects," he said.

International forays are being explored. In June the company hired William J. O'Neill, formerly VP-international at Lands' End, to oversee global development, now exec VP-international at Hanover.

Austad's already mails its catalog to customers in Japan.M

Laura Loro coordinates Direct Marketing. Reach her at 904 Champlain Dr., Voorhees, N.J. 08043 or by phone at (609) 784-9090 or by fax at (609) 784-9119.

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