Sunday, October 07, 2001

Catalog empire thinks big

Cornerstone targets top spenders from warehouse the size of 15 football fields

By James McNair
The Cincinnati Enquirer

        Contrary to most national companies, Cornerstone Brands targets only 20 percent of the U.S. market. But it's the right 20 percent — the one with the most money.

        Cornerstone, which moved its headquarters from Boston to Cincinnati in 1999, publishes mail-order catalogs for people either rich in assets or taste, preferably both. Its flagship catalog, called Frontgate, sells things such as chrome towel warmers for $1,995, propane-fed mosquito annihilators for $1,295 and stained-glass fireplace screens for $2,795.

[photo] Paul Tarvin, president and CEO of Frontgate.
(Gary Landers photo)
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        Sell, they do. Through six regular catalogs and their special editions, Cornerstone posted $500 million in revenue in 2000. That's good enough for a Greater Cincinnati 100 debut in the No. 5 position. It also makes the West Chester Township company the area's biggest privately owned retailer this side of auto dealer groups.

        Cornerstone's line of catalogs was assembled by William End, a mail-order industry veteran who founded the company in 1995. Mr. End spent 15 years with L.L. Bean in Freeport, Maine, capping his stay as executive vice president. Then he joined Land's End in Dodgeville, Wis., as president and chief executive.

        Mr. End's venture had the backing of two major investors and began with the 1995 acquisition of Frontgate. Later deals brought in Ballard Designs of Atlanta; Garnet Hill of Franconia, N.H.; The Territory Ahead of Santa Barbara, Calif.; TravelSmith of Novato, Calif.; and Smith+Noble of Corona, Calif.

        “It was our intent from the beginning to acquire five to eight catalog businesses,” said Mr. End, who serves as executive chairman from his home in South Freeport, Maine. “Our goal was to acquire companies that were among the best brands in the industry and which targeted the same demography — the upper 20 percent of the U.S. population.”

        Having a common customer base, he said, allows for marketing and mailing list synergies (that is, if you receive Frontgate, you probably won't mind a surprise copy of Garnet Hill). It also makes it easier to consolidate operations such as procurement, warehousing, distribution and phone centers, he said.

        Cornerstone's operation at 5568 West Chester Road is immense, even compared with industrial bastions of old. More than 1 million square feet is divided among company headquarters, a large bank of telephone representatives and “product specialists,” and outlet stores that draw people from throughout the Midwest.

        Most of the space, though, is taken up by a warehouse as big as 15 football fields. Some shelves are so high that crane operators must wear rappelling equipment to get down in the event of power failures. Products ordered from all Cornerstone catalogs except Smith+Noble are shipped from here.

        Cornerstone's tendencies toward bigness extend to its subscriber base. Frontgate, a quarterly catalog with seasonal issues for grills, pools and holiday gifts, tops 30 million mailings a year.

        “Our customers include executives, successful entrepreneurs, professionals, entertainers and heads of state,” said Daniel Lally, Frontgate's director of public relations. “Our customers are busy people. When you're a manufacturer of a huge, growing business, it takes a lot of time to support your lifestyle. They don't have time to drive to five different shopping malls or stores to find what they're looking for.”

        Cornerstone's catalogs are produced entirely in-house — and autonomously from one another. Frontgate, for example, shoots its own photography, lays out its own pages and prints its own catalogs. Its autumn issue is 76 pages.

        Some of Frontgate's products, namely its outdoor grills and patio heaters, look as if they belong in a restaurant.

        “One of our strategies is to take commercial-quality products and translate them for the home, so you have the durability of the commercial product with the styling of a residential product, which sometimes requires us to work with the manufacturer to change the styling or power requirements,” Mr. Lally said.

        Despite its size, Cornerstone would like to do better financially. Revenue increased 3 percent in 2000, and overspending on e-commerce and overcapacity in its distribution center have cut into profits.

        “This, combined with the company's inability to attract enough outside companies to use its warehouse on a contract basis, has left the fulfillment center severely underused with considerable excess capacity, creating a severe financial strain on the company,” said Paul Miller, senior news editor for Catalog Age magazine.

        An article written by Mr. Miller in August said the CEO hired by Cornerstone in May, Dick Gyde, was assigned day-to-day operations after a successful rescue of Disney Direct.

        Mr. End conceded that the company's profitability is disappointing.

        “We've had greater earnings the last two years, but the earnings for 2001 are not where we wanted them to be,” he said. “We've still got improvements to do on the profit side and cost infrastructure, but we're in good shape going forward.”

        Cornerstone was ranked No. 40 on the Catalog Age 100 list of top U.S. catalog companies. Most of the companies, however, are ranked according to total revenue, such as Dell Computer and JCPenney. Among Cornerstone's true competitors, Land's End is No. 19, L.L. Bean is No. 20 and Hanover Direct is No. 31.


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