East German refugee Werner Otto started Otto Versand as a little shoe catalog in 1949. A combination of ambitious international expansion and enthusiastic German shoppers thwarted by short retail hours have propelled Otto into a $16.5 billion company claiming 8.4% of worldwide mail order sales.
GROWTH FROM SPIEGEL, EDDIE BAUER
Now the company expects future growth to come from entering new Asian markets and creating international brands from Chicago-based giant Spiegel and Eddie Bauer, a leisure and outdoor clothing mail order house that opened its first European store this month in Berlin.
Michael Otto, the founder's son and chairman of the family-owned catalog business, said his next moves will be to China, Korea and Taiwan. In developing countries where there are few if any flourishing mail order companies to acquire, Otto's strategy is to take a majority stake in a joint-venture with an experienced retailer.
CHINESE CATALOG IN `97
Even Otto was surprised at how swiftly Chinese authorities granted permission in August for the company to build up a mail order business in China in a venture with the Shanghai Cheer Group, a leading local retailer. Otto promises to have its first international fashion-oriented catalog in the Chinese market in 1997.
The development of catalog shopping varies enormously around the world. Individually, Germans are the champion spenders, ordering $352 each from catalogs every year. The U.S. is the biggest market in total sales at $66.5 billion compared to Germany's $28.7 billion, but Americans spend less per capita, $252. Italians, with an unreliable mail system among other problems, lag at $17 each.
Otto's 36 mail order houses in 16 countries in Western Europe, Asia and North America sell mainly textile products like clothing and home furnishings. Germany still accounts for $9.1 billion, more than half of Otto's sales.
"The very stiff competition in the German market encouraged us to become No. 1," said Michael Otto. His family's company is double the size of its other German-based rival, Quelle, owned by the Schickedanz family.
In the first big acquisition handled by Michael Otto, then 39, the company snapped up Chicago-based catalog giant Spiegel in 1982. The deal gave Otto a strong base in the U.S. and access to sophisticated direct marketing techniques used in mail order sales there. Otto bought Eddie Bauer in 1988.
"Americans are much advanced in marketing, particularly targeting special consumer groups," said Detlev von Livonius, Otto's director of corporate communications. "We learned a lot from them. On the other hand, we in Germany are excellently organized with logistics and electronic data processing."
CLOTHES HOME DELIVERED
In Germany, Otto's own distribution system, Hermes, will home deliver clothes on hangers within 24 hours and until 9 p.m., a luxury for shoppers rarely pampered by Germany's retail sector. (In other markets, a courier service is used.) A $14 million campaign by Hamburg agency Baader, Lang, Behnken promotes the home delivery service in radio spots and uses the slogan "Otto is OK by me" as part of an image campaign on TV. Otto's media budget is dwarfed by rival Quelle's $31 million, but the company pours most of its promotional dollars into direct marketing.
Otto works with about 10 direct marketing agencies in Germany, said Christoph Stege, director, responsible for direct marketing and advertising. The $25 million direct marketing budget includes 8 million to 10 million letters and catalogs a year, ranging from a reminder postcard to customers who haven't bought any merchandise in three years to one of Otto's 20 specialist catalogs. Customers who have ordered children's clothes will find a Lego kids' fashion catalog in their mailboxes while the Otto computer sends a Fair Lady catalog to older women who wear large sizes.
Otto also separately distributes a clothing catalog called Together in 10 markets and as part of a country's main catalog in another six.
Outside Germany, the company is building mail order brands but not necessarily under the Otto name. The company's biggest non-German business, Spiegel, has been largely U.S.-based, entering Canada only this year. Eddie Bauer has more aggressive plans to attack Europe and Japan simultaneously.
"Our main goal is to promote the already existing brands such as Spiegel" and Eddie Bauer, Mr. von Livonius said.
Taking advantage of the popularity of catalog shopping in Germany and demand for American clothes in Japan, the Eddie Bauer catalog was launched in both markets in 1994. With 411 stores already in the U.S. and Canada, Eddie Bauer will more than double its presence in Japan from seven stores to 15 by the end of this year and open two more stores in Germany with the rest of Europe to follow.
Despite its company's impact on the mail order market worldwide, the Otto family keeps a very low profile. Otto is widely believed to be highly profitable and has never suffered a loss-but little else is known beyond sales figures.
"Otto is one of the best managed companies in Germany," said Bernd M. Michael, CEO of Grey Advertising in Germany. "Their international managers have freedom to be successful."