Attention Shoppers!
Forget faux diamonds. Networks ring up billions—on-air and online— with cosmetics, computers and cuisine
By Allison Romano -- Broadcasting & Cable, 11/27/2005 7:00:00 PM
When Chris Cook needs to stock up on hard-to-find cosmetics, she turns to home-shopping giant QVC. But the full-time customer-service rep and mother of two from Akron, Ohio, hardly ever watches QVC on TV. Instead, she buys most of her items during her lunch hour from QVC’s Web site. Occasionally, she records a QVC program on her TiVo to watch in spare moments. Even then, she goes online to order.
“I can see all information in front of me,” Cook says. “I don’t have to speak to anyone. It’s quick and convenient.”
Increasingly, QVC and its home-shopping rivals HSN, Shop At Home and ShopNBC are reaching buyers through their Web sites, testament that the Internet is the best way to sell certain items—and reach certain buyers.
“If you’re not online, you’re not in business,” says Doug Rose, VP of merchandising brand development for QVC. “We find people gravitate to where they are most comfortable, either on TV or online, and our best customers are shopping across all channels.”
This first full week of Christmas shopping, the networks hope to direct more traffic away from the sidewalk shops and into their electronic stores. They are tempting viewers with an ever expanding catalog beyond faux diamonds, including consumer electronics, name-brand beauty products and gourmet food. One of the hottest sellers right now is Smashbox, a high-end line of lipsticks, eye shadows and blushes sold on QVC and at tony department stores such as Nordstrom and Bergdorf Goodman.
Already, TV shopping channels rank among the most lucrative TV networks, generating more than $7 billion in domestic revenue last year. QVC alone took in $4.1 billion in domestic revenue, more than ABC or Fox. The category is dominated by a handful of industry giants: Liberty Media-owned QVC, InterActive Corp’s HSN, ValueVision’s ShopNBC, and E.W. Scripps’ Shop At Home. The fifth-largest, Jewelry Television, focuses on what has been TV’s strongest retail category—until now.
Computers and Cuisine
Jewelry has always been a hot seller: It is easy to store and inexpensive to ship and appeals to the middle-age women who make up the biggest part of home shopping’s loyal buyers. But diamonds and gold—despite high profit margins—appeal to a limited audience, and, seeking to lure more younger buyers and men, the networks have been working to broaden their product mix. On ShopNBC, for example, jewelry accounted for 61% of sales last year, according to Susquehanna Financial Group. This year, baubles will represent about 50% of sales. At Shop At Home, QVC and HSN, the category accounts for about a quarter of sales. In 2000, about 30% of QVC’s revenue came from jewelry, but, by 2005, the share had dropped to about 20%, according to Morgan Stanley estimates.
As the genre has matured and TV audiences have warmed to, makeup instructions, computer demonstrations and on-air cooking lessons, creams, computers and cuisine have started to take off. HSN, which recently bought upscale merchant Cornerstone, expects its Garnet Hill clothing and Ballard Designs home brands to be among its top sellers. QVC now sells Dell computers, Kitchen Aid mixers, even Saturn cars. “We used to have to call and beg for meetings with big brands,” says QVC’s Rose. “Now we get calls from major household brands saying we’re on their radar and they might have something for us.”
Lauren Hutton’s Good Stuff
Few retailers can move product like home-shopping networks. On a recent November day, QVC sold 38,000 fried turkey breasts injected with creole butter marinade and priced at $45.38. The item was the network’s daily Today’s Special Value, a popular discounted item that is introduced at midnight and sold for 24 hours. In December 2001, QVC earned its highest single-day sales—$80 million total—when it offered a Dell computer as a Today’s Special Value and sold $65 million worth.
These days, the networks are using stars and celebrity hosts to win over viewers for an increasingly diverse product mix. When Scripps bought Shop At Home in 2002, many personalities on its popular lifestyle cable channels Food Network and HGTV were pitching products on the competition. Now, increasingly, its top personalities, including Food Network’s Emeril Lagasse and HGTV crafts maven Carol Duvall, appear regularly on the shopping channel to sell their products and give demonstrations.
Former supermodel Lauren Hutton pushes her Good Stuff beauty line on HSN, while Dallas star Victoria Principal peddles her Principal Secret skin care on QVC. A big name isn’t enough, though. “We look for people that have knowledge and credibility,” says HSN Senior VP of Marketing Scott Sanborn. '’We don’t just take a pretty face and match it with a product.”
Despite the retailers’ success on TV, in the past decade, bargain hunters have migrated to online behemoths such as Amazon.com and Overstock.com, lured by discounts and a wider product line. In 2004, Amazon.com alone posted $6.92 billion in net sales. Even traditional department stores, such as J.C. Penney (No. 11) and Wal-Mart (No. 12), are successful online, according to the Internet Retailer’s guide to top retail Web sites.
TV Shoppers Go Online
Not to be outdone, TV shopping networks have jumped online with gusto. QVC’s Web site, which ranks as the 15th-largest online seller, according to Internet Retailer, launched in 1996 and generated $15 million in sales its first year. By 2004, that figure soared to $615 million, or about 15% of its total sales, according to Susquehanna Financial Group estimates. HSN jumped into e-commerce in September 1999; by 2004, Internet orders accounted for $304 million, or 16%, of HSN’s total revenue.
Shop At Home has jumped aggressively into the online fray, too. Shopathome.tv, the company’s Web site, which Scripps bought in 2002, now accounts for 17% of the network’s revenue. Earlier this year, Scripps acquired popular retail site Shopzilla, an online price-comparison search engine that catalogues more than 30 million products from 55,000 retailers. The company plans to integrate and cross-promote the TV network with the Web sites. On average, the Electronic Retailing Association estimates, online business accounts for about 24% of TV shopping revenue, up from 17% in 2003. The group predicts business will grow another 10% over each of the next two years. Says Jim Held, newly named president/CEO for Shop At Home, “Online enhances our credibility.”
Rather than cannibalizing TV business, shopping channels say the Internet opens new avenues for selling. With unlimited bandwidth, they can present deeper inventory and additional items. A vacuum may be sold on air, for instance, but extra attachments and discount bags can be found online. “On the Internet, you have almost infinite depth to present products,” explains ShopNBC President/CEO Will Lansing, “but you have limited ability to demonstrate and no one communicating the benefits of the product.”
On TV, the average home-shopping customer is 49.4 years old with a median income just over $49,000, and 63% of the customer base is female, according to the Electronic Retailing Association. “We get a younger, slightly more male and more sophisticated audience online,” says HSN’s Sanborn. The average online shopper is 44 years old with a median income that is $14,000 higher than the average TV shopping buyer; 53% are male. According to the trade group, 46% of TV shoppers say they also buy products off retail Web sites.
Still, the Internet requires a different strategy, since shopping networks hype products through live video, a concept analysts call “push demand.” TV shopping networks can spotlight a few items and push them hard. “We are editors,” says Sanborn. “Amazon might offer 5,000 digital cameras, and you have to pick one. We select a few that we think are good values and explain why.” One of QVC’s top-selling food items is Chesapeake Bay Gourmet crab cakes from Maryland chefs Margie and Ron Kauffman. Since the item debuted on QVC in 1995—they’re cooked on-air—the network has sold more than 100 million crab cakes.
Diamond Jewelry Menu
On TV, shoppers often become loyal to particular hosts or shows. QVC and HSN shoppers often rave about a successful pitch or product or, often, host in chat rooms. “TV shopping is like talking to your neighbor over the backyard fence,” says David Venable, a host with QVC since 1993. Much of the TV networks’ success depends on the loyalty of these avid viewers and their repeat business; the average TV shopper bought seven items in the past year.
TV shopper Paula Haagenson, who buys from QVC and HSN, turns off TV networks if she doesn’t like the host. But her favorites, like QVC’s David Venable and Lisa Robertson and HSN’s Callie Northagen, usually close the deal. “They seem more down-to-earth, and I can believe them,” says the 49-year-old Maryland legal assistant. “With a product that is more involved, like skin care or makeup, the presenters show you how to use it.”
Trying to meld the vivid experience of watching a product demonstration on TV with the convenience and selection offered by online shopping is the ultimate goal of electronic retailers. Early tests are already under way to offer on-demand shopping. Jewelry TV, for instance, is testing a free video-on-demand service with Comcast Cable in which viewers can call up a menu of diamond jewelry off the Comcast menu—and buy items.
Early next year, HSN will begin testing a new push-button sales technology with interactive producer Goldpocket Interactive. QVC has a similar deal with interactive software company OpenTV. All are efforts to squeeze more money out of a loyal customer base. Ideally, customers could store preferences—including their size, address and credit card number—with their cable or satellite company and be able to make instant purchases, freeing them from waiting for operators on toll-free phone numbers or hunting a product down online.
Though optimistic, QVC’s Rose isn’t certain that interactive shopping will let loose a flood of pent-up demand. “We don’t care so much about new technology as how consumers will adapt.”
| Top Products | |
|---|---|
| Purchased on TV shopping networks | |
| Product | Percent of total purchases |
| Source: Electronic Retailing Association |
|
| Jewelry | 18% |
| Cookware/kitchen utensils | 12% |
| Cosmetics, hair and skin care | 9% |
| Clothing | 9% |
| Cleaning products | 9% |
| Purchased online | |
| Product | Percent of total purchases |
| Clothing | 13% |
| Books | 11% |
| Travel | 8% |
| Software and computers | 8% |
| Audio/visual equipment | 7% |
| How The Networks Stack Up | ||||
|---|---|---|---|---|
| 2004 | ||||
| QVC | HSN | ShopNBC | Shop atHome | |
| * millions NA = Not available Source: Susquehanna Financial Group, B&C research |
||||
| Parent | Liberty Media | InterActive Corp. | ValueVision | E.W. Scripps |
| Net U.S. revenue* | $4.141 | $1.906 | $615 | $293 |
| Gross margin | 37% | 37% | 33% | 35% |
| Units shipped | 138M | 40.5M | 5M | NA |
| Average sale price | $49 | $51 | $179 | $51 |
| Jewelry | 21% | 20% | 61% | 20% |
| Return rate | 16% | 16% | 31% | NA |
| U.S. distribution | 88.4M | 85.5M | 60.1M | 55M |
| QVC Revnue mix | |||
|---|---|---|---|
| E = estimated Source: Morgan Stanley reports |
|||
| Category | 2000 | 2005E | 2010E |
| Jewelry | 31.6% | 21.0% | 21.0% |
| Apparel/accessories | 22.0% | 32.0% | 32.0% |
| Housewares/home | 25.0% | 25.0% | 25.0% |
| Electronics | 10.0% | 9.0% | 9.0% |
| Collectibles | 7.0% | 7.0% | 7.0% |
| Other | 4.4% | 6.0% | 6.0% |
| Total revenue | 100.0% | 100.0% | 100.0% |
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