QVC’s Best Customers in Italy Spending 58% Above Average

Italy is in crisis, with surging unemployment, political upheaval and declining consumer spending. Yet all of that is non importa for QVC, the home shopping network owned by Liberty Interactive Corp. (LINTA)

Two years after QVC entered the country, hard-hit Italians have become the channel’s best customers. On average, they spend $1,900 a year on QVC, about 58 percent more than the channel’s sales average. At 44 purchases a year, they’re buying about twice as often as QVC shoppers elsewhere.

Italians have taken to QVC with gusto because service at stores there is often lacking while e-commerce is less developed than in other industrialized nations, QVC Chief Executive Officer Mike George said.

“We recognize there are short-term challenges that are very severe,” George said in a telephone interview. “But we also see it as an opportunity. It is a time when other retailers are avoiding the market.”

QVC, which last year accounted for 86 percent of Liberty Interactive’s $9.6 billion in revenue, is more aggressively pushing into overseas markets. The first overseas QVC channel debuted in the U.K. in 1993, followed three years later by Germany, then Japan in 2001. The Italian channel marks QVC’s first new foray since then; the company is eyeing Spain, Brazil or France next. It began a joint venture in China in July.

QVC’s Englewood, Colorado-based parent is trading at a 6 percent discount to the Russell 1000 Index on a price-to- earnings basis, down from a five-year high of a 94 percent premium in March, according to data compiled by Bloomberg.

Celebrity Wares

QVC, which stands for “Quality, Value, Convenience,” featured Sears merchandise and wares from celebrities and eager entrepreneurs. It has since expanded its assortment, and today viewers can buy everything from a $44 Joan Rivers “Joan Knows Best” slim skirt to a 16-gigabyte Apple Inc. iPad for $779.

QVC reaches 25 million Italians -- almost half the population -- and is taking on Mediaset SpA’s (MS) Mediashopping, the network controlled by former prime minister Silvio Berlusconi. The barriers to entry were relatively low because local networks are losing advertising revenue and eager for carriage fees from QVC, George said.

At the same time, the channel’s liberal return policy is a revelation in a nation where many stores limit returns. QVC is also taking advantage of the dearth of online shoppers. Only 0.1 percent of retail sales happened online in Italy last year, according to Euromonitor International, a London research firm. That compared with 5.8 percent in the U.S. and 1.6 percent in the U.K.

German Cookware

When QVC started the Italian channel in October 2010, its staff was convinced viewers would want to buy only local goods, George said. Instead, shoppers flocked to a variety of foreign merchandise, including Stoneline, a German cookware brand. Only one or two of the top-10 bestselling brands are Italian.

The Italian customers favor similar categories to QVC’s typical shoppers, including housewares and consumer electronics, George said, although they tend to have an even larger appetite for fashion and beauty items. About 85 percent of QVC’s shoppers are women.

QVC Italia brims with brio, its hosts extolling the attributes of various products in rapid fire, with ample gestures and touching. On a recent evening, an English-speaking demonstrator applied “Mally Beauty All Night Party” makeup to a model while a host in a black evening dress translated, and then applied some to herself.

While QVC’s Italian business is still small, with sales of $35 million in its first full year 2011, it’s growing quickly. For the third quarter ended Sept. 30, revenues were 17 million euros, or $21.9 million, an almost 140 percent increase from the previous year’s quarter.

Growing Room

There is room for growth. Just 2 percent of Italians shop from their TVs, said Lisa Byfield-Green, an analyst at Planet Retail, a London consulting firm. By comparison, 6 percent of Americans shop via television.

Still, QVC could find itself under pressure as more online retailers make their way into the market, said Daniel Lucht, an analyst at ResearchFarm, a London-based consulting firm specializing in retail and consumer products.

“Online demand in Italy cannot be ignored,” Lucht said. “This will mean stronger competition for QVC going forward.”

In older markets, the network was able to build loyalty before the rise of online shopping, Byfield-Green said.

“The risk that QVC faces in new countries it goes into is that consumer behavior has changed quite a lot,” she said.

George is sanguine, noting QVC has its own online operation. He said Italy is a warmup for a possible move into Spain. Given QVC’s propensity for challenged markets, is Greece on the shortlist, too?

“We’re not that gutsy,” he said.

To contact the reporters on this story: Lauren Coleman-Lochner in New York at llochner@bloomberg.net; Julie Cruz in Frankfurt at jcruz6@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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