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ShopNBC Focus Shift Good for Home

During the first nine months of the year, ShopNBC’s new customer rates were up 86% for the home category.

Frank Elsenbast, svp, cfo, explained in a conference call with analysts last week that the company allocated more air time to categories such as home and health and beauty during the quarter and reduced air time dedicated to higher-ticket consumer electronics products.

“While these categories drive lower top-line sales, their margin dollars provide potential and new customer acquisition make them critical categories for ShopNBC as we reposition our merchandise offering,” Elsenbast continued.

The third quarter “proved to be another solid step in the right direction in our turn-around,” said Keith Stewart, president and ceo of ShopNBC, which is accessible on cable and satellite television, online at www.shopnbc.com and on mobile devices.

“In addition to watches and beauty, we are starting to gain real traction in some of the other business units we haven’t experienced before. In the home category, customer response is starting to accelerate, with sales up 55% in Q3, driven by increases in textiles, holiday collectibles, housewares, mattresses, outdoor living and gourmet food. These increases are the result of strong promotions, new launches and events,” he added.

In what Stewart described as an effort to establish ShopNBC as a destination and authority in home, beauty, fashion and jewelry, the company added a record 122 new vendors to its roster, launched 58 new show titles, product categories and brands, and added 103 new cast experts during the quarter.

They include Suzanne Somers, Esprit Outerwear, Laundry by Shelli Segal, Sensual Solutions by Dr. Robert Rey, Sensa Weight-Loss System, Brilliante Purely Platinum, The Culinary Institute of America, and Griot’s Auto Care. Of the 103 new guests, 90 are said to be experts in their respective fields.

Although the company did not find profitability during the quarter, it narrowed its net loss to $12.9 million from to a net loss of $20.8 million for the same quarter last year.

For the third quarter, ended Oct. 31, revenues fell 4% to $119.4 million as ShopNBC shifted its merchandise mix, intentionally lowered its average selling price by 49% and increased unit volume by 90%.

For the first nine months of the fiscal year, net loss was $33.2 million compared to a net loss of $54.0 million in the first nine months of 2008. Sales declined 11.9% to $372.6 million.

The company noted several improvements in the third quarter.

New and active customer traffic rose at record rates by 118% and 64%, respectively, versus the same period last year. Increased customer demand in the quarter led to a 4% growth in net orders over last year, representing the company’s first increase in seven quarters.

“This is an acceleration of the company’s first half performance of new and active customer growth of 60% and 29%, respectively,” Stewart said. Additionally, return rates for the quarter were 21.9% compared to 29.2% in the year-ago quarter, which Stewart said reflected improvements in delivery time, customer service, product quality, and lower price points.

The customer service contact rate decreased 24% in Q3 compared to an 18% decrease in Q2, Stewart added.

Gross profit margin fell 130 basis points to 33.2%, driven primarily by increased promotional activity. Executives said such promotions contributed to the new customer growth the company experienced in the quarter. Net average selling price, which was lowered to $95 during the quarter, a 49% decline from $187 in the year-ago quarter.

Net shipped units in the quarter increased a record 90% as lower price points and new merchandise drove sales. One of the big unit generators ShopNBC credited included Grand Suites 700-count sheet sets, which sold 17,500 units.

The Internet segment, www.shopnbc.com, saw its penetration grow to 34% of total sales in the quarter, up 300 basis points versus last year. The ecommerce site is said to have attracted new and returning customers with expanded product categories, assortments, and content enhancements, resulting in 31% of the company’s new customers.

In addition, live-chat programs and extended social networking increased buyer conversion rates to 6.3% and an increase in orders of 78% over last year’s same period, executives said.

Building on its web-based momentum, ShopNBC plans in the fourth quarter to launch an ecommerce-enabled mobile site as well as incentives to drive customers to the website to decrease transaction costs.

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