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Decking the halls with nostalgic miniature villages is becoming a Christmas tradition akin to decorating the tree itself.

But there's nothing old-fashioned about the company that triggered the trend. Built by savvy marketing, tiny villages are big business for Department 56 and President-Chief Operating Officer Susan Engel.

Rising from its storybook beginnings as Department No. 56 at Minneapolis retailer Bachman's, the marketer of quaint collectibles has emerged as a $217.9 million player in the $1.9 billion giftware industry.

"The ultimate appeal is nostalgia, tradition and emotion," says Ms. Engel, 48.

Department 56 cultivates those qualities in its low-key marketing approach, recently stepped up from co-op advertising with its 19,000 retailers and a collectors' quarterly. Efforts now include licensed lap throws, ornaments and a Hallmark puzzle, a how-to video called "Building a Village Tradition" and two photo books.

The company also opened its Eden Prairie headquarters to tours "booked up months in advance," says Ms. Engel.

Department 56 has managed to keep hold of its 75% share of the villages segment of the market via its strategy of maintaining exclusivity. There are currently 3,000 retailers on a waiting list to carry Department 56 products. The company's new Disney Parks Village, introduced in May 1994, was sold exclusively at Disney theme parks for three months.

The company's only consumer advertising is its annual page ad in USA Today heralding which pieces will be retired each December. Retired pieces are worth up to $6,500 from an original purchase price of $25 to $144.

Department 56 devotees have started grass-roots promotions subtly encouraged by Ms. Engel and company. There are now 150 Department 56 collector clubs; a Prodigy online chat club; books, newsletters and 13 annual Village Gatherings where up to 3,000 collectors convene.

Soon Department 56 might not have the village green all to itself, so it's considering more consumer advertising.

"We'll never be Coke [in terms of ad outlays]," says Ms. Engel, "but we may reach out to the consumer more directly."

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