Lillian Vernon

Need a new set of steak knives? How about some gourmet mixing bowls? You could head for a housewares store. But cataloger Lillian Vernon Corp. thinks many would rather buy such things at home--and starting in February, when Vernon launches its new "Lilly's Kitchen" catalog, they'll have the chance.

Not that the New Rochelle (N.Y.) cataloger is taking a flyer. Vernon created the book only after it discovered that more than 700,000 customers had bought kitchen doodads from its core catalog.

That's quite a change for the once stodgy company. In a crowded, often flashy field, Vernon had grown steadily, if unspectacularly, with few modern touches. It concentrated on low-priced, homey items such as picture holders and place mats. Today, 73-year-old company founder Lillian Vernon is CEO of a $200 million company that posts 150 million catalogs annually. Now the company--which sold 53% of its stock to the public in 1987--is updating its strategy: By studying the records of previous purchases by its customers, Vernon has become adept at developing specialized niche catalogs spun from its core book.

Vernon's first niche book, "Lilly's Kids," was launched in 1990 after a database screen showed that many customers were buying presents for children and grandchildren. Today, Lilly's Kids does $30 million in sales of toys and school equipment--and anyone who buys a kid's product from Vernon's core catalog goes on the mailing list. In 1992, Vernon created a special Christmas catalog from the most popular holiday decorations in its main book. And a new "Welcome" catalog of household items is mailed to customers who change their addresses. Says David C. Hochberg, Vernon's 37-year-old son and a corporate vice-president: "This is a much more effective way to grow sales."

Vernon needed a better way. By the early '90s, it had outgrown a homegrown management team headed by longtime President Fred P. Hochberg, Vernon's other son. Under Hochberg, Vernon lagged rivals in providing services such as 800 numbers for customers. By 1993, Vernon hired an experienced team of managers headed by Stephen S. Marks, a former catalog executive with The Limited Inc.

Marks immediately boosted sales by setting up a toll-free number. And he focused on mining the database for catalog spin-offs. The changes are paying off. Analyst Kenneth M. Gassman Jr. of Davenport & Co. of Virginia Inc., a Richmond (Va.) brokerage, expects earnings to rise 15.6% this year, to $14.8 million, on a 15% sales gain, to $225 million.

More specialized books are on the way, including one featuring luggage. Vernon is also screening its database to weed out those who rarely buy. Rising costs "will force catalog companies to mail smarter and tighter," says David Hochberg. With its niche books, Vernon is already figuring out how to do that.