CEO's Corner: QVC's Mike George on the Shopping Channel's Big Plans
Oct 5th 2011 3:30PM
Updated Oct 5th 2011 5:20PM
In 1986, QVC (LINTA) launched its first live broadcast out of its studio in West Chester, Pa., entering the world of television shopping then dominated by HSN (HSNI).
Since then, the network, which celebrates its silver anniversary next month, has morphed into a multichannel, international retailer with $7.8 billion in annual sales -- nearly triple that of HSN -- with a $2.8 billion online business.
QVC's hokey image -- fed by a product lineup that included items like Chop-O-Matic food choppers, cubic zirconia rings, porcelain cats and Christmas sweaters -- has also evolved. While the retailer still sells everything from kitchenware and computers to jewelry and beauty products, it's gotten notably edgier.
QVC has upped its fashion and style credibility in recent years by adding exclusive clothing lines from runway designers such as Isaac Mizrahi, luring tony department store brands like Lancôme cosmetics, and showcasing celebrity-backed wares such as a new jewelry collection from supermodel Heidi Klum.
Although some industry pundits wrote off the television shopping format as passé when online shopping started to take off, a funny thing happened on the way to the era of digital retailing: QVC ended up being among the biggest beneficiaries of the shift.
"QVC's business has held up better than general retail," said Christopher Marangi, an analyst with GAMCO Investors. "There are strong secular trends behind it: It's essentially an e-commerce business."
Mike George, CEO, spoke with DailyFinance about QVC's next growth phase, which he said will be strengthened by parent company Liberty Interactive's spin off last month of its non-core, retail assets.
He detailed the channel's wide-ranging expansion plans. These include wooing a West Coast audience with the recent launch of LA Live, its new Los Angeles-based studio; penetrating international markets so that overseas sales eventually surpass U.S. sales; and stoking e-commerce and mobile commerce -- the fastest growing parts of its business.
DailyFinance: How does QVC define itself these days?
Mike George: It's something we wrestle with because all of the traditional labels don't work very well [anymore]. We think of ourselves internally as a global shopping community and a video commerce retailer.
If you think about the old stereotypical experience [of a home shopping network], it's a customer watching QVC on her TV. Today's consumer is interacting with us on multiple screens. She has her PC or tablet besides her, and probably her smart phone.
Twenty-five years ago, we pioneered the testimonial call, when the customer calls into the show to say, "I really like and used this product." Today, she might be sending a tweet to us about a product or guest, which will appear on a scroll live on screen during the broadcast. She might be using her PC and tablet to engage in a Facebook chat about the program, or asking us questions on Facebook or QVC.com, which we might answer live on the air. We're using all of the technology to engage that customer.
Traditional retailers have their product on the floor, which might not change over the course of a day, or even a season. What we do changes based on the multidimensional live feedback of our customers. The customer may be telling us on Facebook, 'I don't understand if this product does a, b or c.' If we find that a certain demonstrability of a product doesn't make sense, we'll change that. We have producers change the product mix based on the multidimensional, live feedback from customers. It's the world's greatest shopping democracy.
Who's shopping QVC these days?
I'm hesitant to put a label on her, because she's very diverse. Our customer is a 35- to 65-year-old woman with a somewhat above-average income, The sweet spot of the household income level for QVC goes from $50,000 to $250,000.
What's interesting about QVC is at any given hour, the demographic of who is watching dramatically changes. K-DASH [the fashion line from the Kardashian sisters] is going to appeal to a customer who is newer to QVC and might be younger and overwhelming female, while during a Dell computer hour, you'll see a balance of men and women.
What do you hope to accomplish with the launch of LA Live, QVC's first West Coast studio?
We program our day to accommodate the bulk of our audience, which is on the East Coast and Midwest. We don't get our fair share of West Coast customers. [So QVC decided] to have a studio out of L.A. to create great programming in prime-time hours on the West Coast. The formula is such that there is a little more time spent telling the stories behind the story, a little more of an entertainment focus to the program. On premiere night, for instance, Kristin Chenoweth promoted her new CD, but there was also an opportunity to have more of a talk show format.
How will the new corporate structure of QVC parent company Liberty Interactive help you invest in the business? Any chance an acquisition of HSN could come from it?
It's very good news for QVC and our shareholders. QVC will represent more than 80% of the revenue of the new Liberty Interactive. The reason that's important is that historically, as part of Liberty Media, many of the investors were media investors. The new [entity] is a retailer, so it really opens up opportunities for that investment community to invest in what we think is a pretty dynamic video/e-commerce entity.
So what do we do now that we have this currency in the form of Liberty Interactive stock? The first use of cash is to invest back in the business in the form of global expansion and technology. We'll continue to pay down our debt, and buy back our shares.
Acquisitions are third on the list of priorities, and they could take on [a few] different flavors, such as acquiring small, e-commerce retailers or purchasing other video commerce companies. We own 35% of HSN, which is included on that list, but we have also been clear to say that we don't view an acquisition of HSN as a high priority.
If they are interested in selling, and the value is right, then it's something we could consider and evaluate.
Is QVC bullish on the international business?
International is a big focus for us. Today we get one-third of revenues and profits from markets outside of the U.S. Italy launched October 2010. We're really thrilled with the response from Italian customers: They have a repeat purchasing rate that exceeds all of our markets. [QVC is also in Germany, Japan and the U.K.]
We're actively exploring a few markets. We have a dedicated team who is working in China. We think it would be an extraordinary market for QVC [due to] the growing middle class, the growth of the country. So we're hopeful we can find an effective partnership and way to enter China.
We're looking at other opportunities in Europe -- certainly France and Spain would be on our list. Other high-growth developing markets, like India and Brazil [are of interest.]
We'll be entering new markets over the course of the next few years. At some time, international will certainly be larger than the U.S. business.
What's the growth potential of e-commerce and mobile?
There have been these mega-trends that perfectly play into our concept. One is the explosion of video content.
The second mega-trend is the power of social networking through what used to be small and localized communities. Now technology makes these communities even more engaged and expansive. Now we can enhance communities' ability to engage through social networking forums, Facebook, etc.
E-commerce and mobile is 35% of QVC's total revenues, and growing at a 15% to 20% rate per year -- which is double the industry. Mobile [commerce] is about 3% of total sales, growing 10 times faster than e-commerce. About 60% of new QVC customers make their first order on an e-commerce platform, and many become avid viewers of the live program. These channels are not in competition. Each one reinforces the other.
What are the big merchandising opportunities?
We've made great strides in creating a world-class mix of brands. Another dimension is bringing in great personalities that have a big following, and leveraging their credibility and following, such as fashion lines from the Kardashians and [celebrity stylist] Rachel Zoe -- which is a great example of explosive sales of a product from both existing and new customers.
Another dimension of product would be leading designers, like Isaac Mizrahi. [You'll see] more of the top-tier celebrity brands as well as great designer brands.
What's your outlook for the holiday season?
To use an overused phrase, we are cautiously optimistic. There's a growing uncertainty about the global economy, we do compete around the world, and I think consumers around the world are tentative. We [still] think we can grow our business in this economy by taking market share from other guys.
Holiday is a great time for us. Generally, we do quite well. We'll try to avoid all the crazy promotions out at retail. We'll be as competitively priced as everyone, so the value is there, but we'll be just very focused on the best gifts of the season.
We're trying to bring fresh, innovative products to you before you see them at retail. Like a lot of retailers, we'll also do a great business on Black Friday, but our Black Friday tag line is, "all of the deals, none of the craziness."