Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, January 15, 1995 TAG: 9501160020
SECTION: BUSINESS PAGE: F-1 EDITION: METRO
SOURCE: LEIGH ANNE LARANCE SPECIAL TO THE ROANOKE TIMES & WORLD-NEWS
DATELINE: LENGTH: Long
The blue-and-white building, which juts out on a pier near the Lincoln Tunnel connecting New Jersey's industrial harbor with Manhattan, houses the executive and creative offices of Hanover Direct Inc.
It's the country's sixth-largest catalog company and among the Roanoke Valley's fastest growing operations, building a facility in Roanoke that will handle distribution for six of the company's 18 home textiles, kitchen, clothing and gift catalogs.
One side of the New Jersey building is all numbers, with orderly offices and shelves packed with annual reports, financial statements, Black's Law Dictionary and volumes explaining New Jersey employment law.
The other side of the building, however, is a showroom.
There are photo studios on two floors where designers, marketers and photographers huddle over plans for the next catalog.
"They check to see that everything fits the way it should - the sheets, everything," explained Linda Heinberg, director of investor relations.
Almost all the office desks sport stylish lamps - free samples acquired at one of the company's in-house sales to clear out storage space.
Heinberg stops in an open storage room to look at the glass chimney of a hurricane lamp. Hers broke in a recent move; at the next sale, this might be a replacement.
In these offices, chilly despite being packed with the comforts of home, executives anticipate what customers in a given age or income category want to wear, how they will decorate their homes, how they might stock their kitchens.
The catalog merchant's creative teams design exclusive products, but they also consider merchandise based on samples sent by manufacturers.
They'll go through stacks of quilts to decide which will be most popular with customers who order from Domestications.
"Ninety-six percent of our customers are women," said Domestications President Susan Yager. "They're 25 to 45, have children, and a $45,000 to $50,000 median family income."
Her division must be doing something right, because the home textiles catalog is growing rapidly. It had $311 million in sales in 1993 and accounted for half of Hanover Direct's total business
The quilts that are displayed in her catalog have a short life on these office shelves, but soon they will be manufactured en masse and shipped to the mail-order company's new warehouse, a $17 million project on 57 acres in Hollins, according to Bob Rhudy, vice president of operations for Domestications.
That warehouse, which just got the building official's approval for occupancy, was to receive its first merchandise shipments last week.
By the summer of 1995, Hanover Direct will be a major player in the Roanoke Valley, employing about 750 workers in the tentatively named Hanover Direct Textile Warehouse and the nearby Hanover Direct Apparel Division.
If the facilities reach that level of employment, the company would be 16th among the Roanoke Regional Chamber of Commerce's list of top employers. By comparison, Carilion Health System employs more than 5,000, and Roanoke County, excluding the school system, employs about 630, according to the list.
Hanover Direct reported a $17.3 million profit on $642.5 million in revenues in 1993, and Heinberg cites an investors' analysis that estimates $17 million in profits on revenues of $750 million in 1994.
She attributes lower-than-expected earnings for 1994 to the catalog company's heavy fall prospecting - sending catalogs to new addresses in hope of winning new customers. The idea was to mail to 30 percent more people than usual in anticipation of higher postage rates, she said.
Because other catalogers had the same idea, mailboxes were flooded. "Response rates were disappointing. People were inundated. They weren't buying anything," Heinberg said. The company's goal is to reach $1 billion in annual revenues, she said.
Bill Dean, a catalog investor analyst with California-based Bruce, Dean & Co., said there are two ways the company can get there.
"You can be single-focused, like Lands' End or L.L. Bean, or you can go the other route, which is a combination of in-house conceived and generated catalogs, or doing strategic alliances a la Sears," he said.
The biggest mail-order merchants are single-focus. Spiegel is No. 1, followed by J.C. Penney Co., Fingerhut, Lands' End and L.L. Bean, according to industry reports.
Hanover Direct differs from those companies because of the number and diversity of its catalogs. It is able to cut costs by consolidating catalog operations - shipping the women's apparel shown in five catalogs from one facility and consolidating telemarketing operations, Dean said.
"There is going to be a consolidation, and the Hanover method is very good," he said. "You've got a situation in the industry where costs are going up. Postage is more expensive. Paper is more expensive. "Everybody is going to be affected."
Still, the prospects for Hanover, and for the $67 billion per year direct-mail industry as a whole, are promising.
"All forecasts show the catalog industry is ... outpacing retail," Dean said. While cataloging is growing at a rate of about 7 percent a year, retail is growing about 3 percent, he said.
Heinberg and Yager attribute the popularity of mail-order catalogs to the general feeling that there's less time for leisure. With double-income households, there's often more money to spend but less time to shop, they said.
"There are also safety considerations," Heinberg said, "because of increased crime in shopping malls and parking lots."
There is such a thing as growing too fast, however.
Hanover had expanded so much during the past few years that it was having problems filling orders, Dean said. With Domestications' rapid growth, the company had leased warehouse space piecemeal, so its distribution network was in several warehouses in Hanover, Pa.
"They were at a point where it was highly likely that the orders might be in four different locations," Dean said.
That means customers sometimes would get several packages to complete one order - a waste of time and money, said Michael Sherman, executive vice president and general counsel for Hanover Direct.
The new facility in the Hollins area consolidates warehouse operations, he said. "Now, all under one roof, it should cut costs considerably."
At 530,000 square feet, the Domestications warehouse is big enough to hold 11 football fields. It's like one huge closet, with shelves upon shelves stretching to the top of the 40-foot ceiling. Trucks will deliver merchandise through 18 tractor-trailer loading docks on the right side of the building, and customers' packages will leave via one of 23 docks at the front of the building, just past workers' packing stations.
Between those two points, the building will be a network of automation, like an oversize game of Chutes and Ladders, with tilt-tray sorters, conveyor belts and machinery guided by grooves in the flooring between shelves.
The lobby, administrative offices and employee cafeteria are tucked at the front of the building.
It "is certainly a state-of-the-art facility, incorporating new technologies, a real leapfrog effort," Rhudy said. The building makes use of scanner technology and computerization to move merchandise more quickly.
It also is Hanover Direct's first major undertaking in designing and building its own center. The company is now undertaking modernization and automation of remaining facilities in Pennsylvania.
The company is leaving plenty of room for growth, according to Mike Lutz, executive vice president of operations. He said the facility will operate at an estimated 50 percent capacity by summer to meet current catalog orders.
The extra space will allow for expansion as the catalog business grows, he said. And because that warehouse is a 10-minute drive from the Hanover Direct Apparel Division, which formerly housed operations only for the Tweeds catalog, trucks can carry packages from both warehouses to UPS shippers.
It was the Tweeds purchase, and its 175,000-square-foot warehouse, that introduced Hanover Direct to the Roanoke Valley.
"When we acquired Tweeds in the summer of 1993, we wanted the facility," Heinberg said. "Tweeds was using 20 percent of it. The business just did not justify the facility."
Tweeds had expanded too quickly and the debt on the building was a burden, Heinberg said. But Hanover Direct knew it could utilize the space for its other clothing catalogs. The Tweeds building was perfect - a state-of-the art facility that made use of mechanization, bar coding and computers that could move merchandise efficiently.
In addition, the clothing could be stored on moving hangars, rather than folded on shelves, Heinberg said.
Meanwhile, Hanover Direct was bursting at the seams in Pennsylvania.
"Tweeds was an opportunity. It was hurt by the operating costs of that underutilized facility," Heinberg said.
This summer, Hanover Direct moved its women's apparel shipping operations to Roanoke. Now merchandise from Tweeds, One 212, Silhouettes, Simply Tops and Essence by Mail is stored in and shipped from that facility.
Hanover Direct leases most of its other warehouse properties, but now has a half-interest in the 175,000-square-foot Tweeds distribution center, which straddles the boundary between Roanoke and Botetourt counties less than a mile west of U.S 460.
Potential employees sat in the plush atrium lobby of the apparel division earlier this month filling out applications for jobs that will open up at the new warehouse in Hollins.
Positions at the two facilities are mostly $5.50 to $12 per hour telemarketing and warehouse jobs, with some administrative positions, Rhudy said.
Although the Virginia Employment Commission recently warned of a shortage of labor for low-paying jobs, Lutz said he isn't concerned about filling the posts.
Two recent newspaper ads drew a great response, he said. "We had 700 applicants for 100 positions," he said. "Most were not unemployed. They had other jobs but were looking for a change."
Hanover Direct won't bring only jobs, though. Those who appreciate leftovers from Lynchburg's J. Crew may soon look forward to catalog returns from Hanover Direct's women's apparel and home furnishings in an area outlet store.
"I've got a plan to call [headquarters] this morning to talk about that very subject," Lutz said. "We need to find a place to get rid of overstocks we have here."
One person looking for work at Hanover Direct's new warehouse happened to list retail outlet experience on his application. Now the company is considering him to run the outlet, Lutz said.
Decisions about such logistics such as the outlet store will send questions to headquarters. But for most operations, the Roanoke Valley's connection with the offices on the Hudson River are limited.
Yager's concern is the catalog's continued growth, but she hasn't yet had a chance to see the distribution facility since the groundbreaking.
But soon the catalog's merchandise, including her own orders, will be moving through the racks.
Asked whether she buys through the catalog often, Yager seemed to remember something, picked up the most recent issue of Domestications and flipped to a page toward the back.
"I have to order some quilts for my mother," she said, pointing. "Mother told me over Christmas, she wants this quilt."
by CNB