Coping With The Worldwide Economic Crisis – Interview with Bernd Schröder

Bernd Schröder

Bernd Schröder: At DirectGroup Germany we operate in the book market as well as in direct marketing. The German book market has been operating at a stable level for years, and so far the effects of the crisis have not been felt. In May, the industry’s cumulative revenues were actually up 2.8 percent from the previous year. If, however, the labor market situation significantly deteriorates as feared, this could have a negative effect on our immensely important Christmas business. The direct-marketing industry has suffered because of increasing customer uncertainty. Significantly lower responses to advertising media such as catalogs and mailings, as well as telemarketing, have reduced the readiness of firms to invest and the revenues generated as a result of this. Our direct-marketing businesses operate in tourism and ad sales, among other things. Here, the crisis is already very noticeable: the tourism industry is particularly hard hit by the growing uncertainty. Customers are waiting longer before to make their bookings. For suppliers like us, this means less planning certainty. And the ad sales business is currently affected by the extreme reticence of all advertising customers.

Has your business been negatively affected by the crisis?

Bernd Schröder: Hardly. Our Club Bertelsmann media revenues are currently on target. However, we have struggled for years with structural problems that are unrelated to the economic crisis, expressed in particular in the declining member count of our Club operations. And it is undeniable that DirectGroup Germany’s direct marketing, tourism and advertising businesses are clearly suffering, in a perfect reflection of the downturn.

And how are you counteracting this?

Bernd Schröder: For the past five years our member business has been operating in a difficult market environment, with declining membership. One might say we’ve been struggling against a headwind that other companies are only just beginning to experience, for years. Our response to this is to leverage our core competencies - customer loyalty and media expertise - and open our Club business to the external market. We are also applying our direct-marketing expertise to new product areas such as tourism or using it to set up customer clubs for third-party clients’ brands and products. It is important to us that we are the customer’s contractual partner . This direct relationship allows us to send our customers offerings that are particularly well tailored to their requirements.

Does this crisis hold opportunities for you as well?

Bernd Schröder: Absolutely. As more and more branches of retail chains such as Karstadt, Hertie, and Weltbild close , the presence of bookstores in German city centers is declining. With the opening of the Club businesses mentioned earlier, we can skim off part of the freed-up demand for ourselves. In tourism there will certainly be some bankruptcies after the summer, releasing market shares that represent an opportunity for us.

Can you give specific examples of how you are currently reducing costs?

Bernd Schröder: By making various savings in divisions that don’t directly affect the success of our business. In this context, we worked with our staff to draw up a long list of measures. For example, we are economizing on this year’s presence at the Frankfurt Book Fair, and will not be hosting our traditional Club reception on the eve of the fair. We are shortening meetings, foregoing larger events and additional staff benefits, all employees are traveling less, face-to-face meetings are replaced by video conferencing. In addition, we are renegotiating all existing contracts with service providers. In this way, many individual measures add up to a sum in the tens of millions.

How, in your opinion, will your businesses develop from here?

Bernd Schröder: I assume that the traditionally stable book market will continue to remain stable in the long term. However, there will be shifts in the share commanded by the various distribution channels. Certainly the Internet will account for a larger proportion of book sales in future. We are already feeling this very clearly: the percentage of our online sales is rising steadily. And one can only speculate about the future revenue share of e-books at the moment. Direct access to customers is becoming an increasingly important component of our business success. We are using our existing customer relationships and our expertise in customer acquisition and retention to build up even more customer relationships with additional products in new markets. Tourism is and will remain a mega-trend where the distribution channel of direct marketing is increasingly important. We will participate in this natural growth.

What entrepreneurial skills are in particularly high demand at the moment?

Bernd Schröder: Two things are needed: first, a firm, detailed approach to costs. And secondly: despite this, not losing sight of the long-term strategy and vision. Beyond this, it is especially important to communicate a lot and stay close to your employees now.

What do you tell your employees in times like these?

Bernd Schröder: As I said: For us, so far these times aren’t so different from the past few years. For years, we’ve been paying very close attention to costs, operating with an extremely lean team, rebuilding the Club business and using our direct-marketing expertise to open up new lines of business with long-term prospects of growth. We have discussed this strategy at great length with our employees in recent years. They know the path we are on and already decided a few years ago to go along with this process of change. Nevertheless, we want to guard against possible revenue losses in the second half by taking additional costs measures now. For the staff, this means cutting back, concentrating on core tasks and taking responsibility. Everyone is already actively supporting the measures we agreed on.