Home Shopping’s Hard $ell9/19/2008 8:00 PM Eastern
As TV viewers sift through news reports of financial bailouts by the government, record gas prices and a struggling economy, home-shopping channels are bracing for a tough winter.
Collectively, the four largest shop-at-home networks are expected to post lower revenue this year, due largely to overall consumer belt-tightening, as well as recent management turmoil at ShopNBC.
The numbers aren’t pretty: August retail sales were down 0.3%, according to the Commerce Department. Unemployment is up to 6.1%. The Standard & Poor’s index of retail shares is down more than 20% from last September. And it doesn’t look like Santa Claus is going to rescue retailers this year: Deloitte Research recently forecast that holiday sales would rise by only 2.5% to 3%.
“Home shopping is one of those discretionary expenditures that is the first to go,” said Chris Haack, senior analyst at market-research firm Mintel.
|Domestic Revenue||$460.7 million (Q2, ’08)*|
|Average Purchase Price||$62*|
|* Includes HSN´s catalog business.|
|Domestic Revenue||About $500M for '07**|
|Average Purchase Price||$80|
|Return Rate||Not disclosed**|
|** Jewelry Television is a privately owned company and does not publicly disclose specific revenue figures or return rates.|
|Domestic Revenue||$1,181 billion (Q2, ´08)|
|Average Purchase Price||$47|
|Domestic Revenue||$142 (Q2, ´08)|
|Average Purchase Price||$225|
|Sources: Company financials and SEC filings|
To be sure, there are bright spots for the strongest players. HSN is perhaps the healthiest of the home-shopping channels, with revenue up 11% in the second quarter, to $460.7 million, and with operating income up 23%, to $26.7 million.
And online sales at HSN, QVC and ShopNBC are strong (and show the most growth potential), accounting for more than a quarter of their respective national sales. Moreover, the industry is hopeful that new technologies such as high-definition TV can energize the market.
At QVC, a unit of Liberty Media, domestic revenue were flat, at $1.181 billion for the second quarter from $1.184 billion in the same period last year. Senior equity analyst April Horace of Janco Partners says that in such a tough environment, “it is testament to QVC that sales are not lower.”
Despite the economic downturn and the fact that QVC is already fully distributed, CEO Mike George said there is room for sales growth. According to George, in any given year, 8% of the 92 million households where QVC is available will purchase an item from the network. He considers the remaining 92% of abstainers to be potential buyers.
Executives from other home-shopping networks also expressed optimism about industry growth despite the economy’s chilling effect.
“I feel bad for our [brick-and-mortar] competitors,” said ShopNBC president and chief operating officer Keith Stewart. “There is a lot of growth opportunity before I start worrying about the retail environment affecting this company.”
But ShopNBC’s second-quarter numbers belie that confidence: Revenue was $142 million, down 26% from the same period last year. The results coincided with a management shuffle in which former CEO Rene Aiu left after just five months on the job, replaced by John Buck, and QVC veteran Stewart was brought on board.
In addition to Aiu, three other officials exited the company: Glenn Leidahl, chief operating officer; Terry Curtis, senior vice president of customer analytics and sales planning; and John Gunder, senior vice president of media and on-air sales.
Shareholders, bitter over the company’s performance, called for parent ValueVision Media to put the network up for sale. ShopNBC is now on the block. The network’s board has appointed a special committee of independent directors to review strategic alternatives, and Minneapolis-based Piper Jaffray & Co. has been retained by the special committee to serve as its financial adviser.
Because ShopNBC is much more in the luxury market, Mintel’s Haack predicts it could be hit hardest by belt-tightening consumers. The network’s average sales price is $225, which reflects an emphasis on selling big-ticket consumer electronics. ShopNBC is providing no guidance on its earnings for the remainder of the year. Some investors are concerned that company could burn through its reserves before completing a sale.
To grow audience, almost all the networks have modified their programming, adjusting the mix of products for sale. ShopNBC, for example, intends to place greater emphasis on more moderately priced beauty and cosmetics items. It will spend less time on air touting expensive consumer electronics in a bid to increase profit margins and boost repeat business.
“Acquiring new customers in that digital landscape is going to require a different set of strategies,” said ShopNBC’s Stewart. “In the past, our industry relied on channel surfing. Customers would literally trip over us.”
Channel surfers are still drawn to buy a product on impulse. “It is giving the customer the direction,” said Jewelry Television (JTV) senior vice president Bill Lane. “This is the one you want, this is the right one and, by the way, you want it today.”
The sense of urgency provided by live television is what often seals the deal.
But 25% of QVC’s sales and 33% of HSN Inc.’s purchases now come from their Web sites. HSN is now “trying to serve customers in both camps” said John McDevitt, its advanced services vice president. It’s the difference between “the live spontaneity of TV and the more considered world online,” according to McDevitt.
HSN is aggressively pursuing new customers beyond its Web site. The network now has 15,000 videos hawking products, divided into themes, on its YouTube channel. Its Facebook page has 2,300 registered users and serves as a petri dish for new product offerings.
“How we distribute our content is a real opportunity for us,” said HSN senior vice president of programming and advanced services Bill Brand.
Repeat customers who buy from both the television channel and Web site rack up an additional $1,257 in sales more than those who buy only from television, according to HSN.
HSN customers who subscribe to satellite-TV provider Dish Network can bypass call centers using “buy-button” technology, which enables them to make a purchase using their remote control. The program has been in effect for the past year.
QVC already has the option available at its subsidiary in the U.K. and plans to roll out a test in the U.S. next year. But “I don’t think it is the killer app,” said QVC’s George.
Neither is video on demand. Three of the four shopping networks have not fully rolled out VOD. Two are testing it and the third, JTV, has ditched it altogether.
Kelly Fletcher, JTV spokesperson, said the network “test-marketed VOD for several years with marginal success and kind of determined our customer was not one who was going to easily migrate to VOD. They like the live shopping experience, which is hard to emulate.”
HSN executive vice president of affiliate relations Peter Ruben thinks “the issue with VOD today is that the navigation system is … time-consuming.” HSN has a VOD pilot in addition to its shop-by-remote test, but not in the same markets.
High-definition television offers a greater opportunity, say home shopping executives. “We’re hoping it increases the sales,” said Al Ulozas, QVC’s senior vice president of affiliate sales and marketing. Several executives interviewed said they hope it will reduce returns, which are significant. In the last quarter, QVC had a 20% return rate, HSN’s rate was 18% and ShopNBC’s was 33%.
The theory: viewers will get a better look at the merchandise and experience less buyer’s regret. JTV’s Lane believes diamonds “will feel more real [in HD] … it is not just the sparkle. The way the eye works with HD, it will bring you into it in a way that you feel almost surrounded by the product.”
QVC rolled out its high-def signal in April; JTV will transmit in HD in October; and HSN will do so next year. ShopNBC does not have a firm date in place.
Securing HD distribution is a challenge because operators have limited bandwidth. Currently, QVC’s HD signal is available from AT&T and Verizon by year end. QVC and HSN may benefit from favorable placement on analog basic, but they are starting from scratch in the high-definition tier.
HSN has an “Advanced Services” team, which works on using technology to find ways to connect with existing customers and attract new ones. “Without developing the technology — figuring out how to reach those new customers — we won’t be prepared for the future,” Brand said.
QVC launched a mobile Web site in July, which enables clients to view products via cellphone and order via text message. HSN currently uses text messages to confirm orders and share shipping details.
QVC offers mobile purchasing in the United Kingdom and Japan. In the U.S., it is held back by slower consumer adoption.
Aside from pushing to be on as many platforms as possible, the networks are placing greater emphasis on outside promotional efforts and publicity. QVC was present at New York Fashion Week this year. ShopNBC intends to more aggressively take advantage of available promotional spots available to it on other NBC properties. HSN has begun advertising in high-end women’s magazines such as Elle.
This is part of a drive by HSN, the original home-shopping channel, to rebrand itself. CEO Mindy Grossman is leading the push. Investment analyst Horace said Grossman has “done a great job at reinventing HSN.”
Across the board, there is more of an emphasis on interspersing lifestyle tips into what had been non-stop product pitching. “Our content is more than just 'selling things.’ It really becomes entertainment,” said McDevitt. “The advertisement isn’t this weird thirty-second ad that people try to avoid and that doesn’t have anything to do with the rest of the programming. It is actually part of the entire experience and why they are watching our programming.”
This shift places them closer to the many programmers inserting product integration and placement into their entertainment shows. HSN kicked off a one-hour pilot program this summer that aired on nationally syndicated entertainment show Extra, featuring Sarah Jessica Parker and other celebrities. It was billed as “powered by HSN” and featured the actress’ new line of perfume. This was the first time HSN had sold products through an outside programmer.
“I don’t want to downplay the challenges” said JTV’s Lane, who has spent 27 years in the retail business, including 17 in home shopping. “[But] I think it is a very exciting time.”