Digital delay

Polestar Direct, the direct mail arm of the UK's largest print group, is a good barometer of the industry. Its reading? Digital direct mail's progress is only moderate, while offset looks set fair. By Alex Grant.

Unlike so much of the rest of the company, Polestar's Direct division ­ newly formed last autumn after a string of divisional mergers ­ should achieve a profit margin of about 10% this year.

Even more surprisingly, the direct mail arm of the UK's largest printer says most of the growth is in longer run, conventionally printed direct mail, and not from digital. Or at least not yet.

Long time coming

The new division was a long time coming. In April 2001, Jowetts Direct and Select Print united under the Polestar Connect name, although they continued to operate from different buildings just 500 yards apart from each other in Leeds (the former Jowetts plant, a mailing house with nine Sitma polywrapping lines and inkjet personalisation, on Middleton Grove and Select on Dewsbury Road).

Polestar also said it was linking up with www.directmail.co.uk, a so-called portal for the direct marketing industry, to drum up more direct mail orders.

Bewilderingly, these two plants have since been rebranded again, when the Polestar Connect and Polestar Digital divisions were combined under the Polestar Direct name last October.

The Direct name now attaches itself to five plants: Dewsbury Road, Middleton Grove, Bradford, Sherwood Park in Nottingham and Tunbridge Wells.

These plants all do very different kinds of work. Bradford, formerly known as Polestar Corporate Print, prints share offer documents and about 75 report and accounts jobs a year on its four B1 presses, three of them Rolands and one KBA.

In a tough market, Polestar says it is holding its market share in report and accounts, but buyers are becoming noticeably more frugal in what they specify. "The days of using the best possible paper for report and accounts are over," says Polestar Direct managing director Graham Beales. "Buyers are taking stock much more nowadays."

The Tunbridge Wells operation (formerly called Whitefriars) is not a printer at all but a software house. Sherwood Park (formerly called Polestar Digital Nottingham), evolved out of the digital arm of the former Thomas Forman label works in the city, and opened in 2000 in a brand new building with three Xerox presses.

Most growth

Where Polestar is seeing most growth is direct mail for financial services and retailers, printed either on Miniwebs at the Dewsbury Road plant or digitally at Sherwood Park.

But most of this growth is mail that is printed offset, not digital. Print buyers seem to like mail that is targeted at specific groups but not fully personalised mail with variable colour images. For each targeted variation of the Tesco Clubcard mailing, for example, runs are still too high to justify digital printing. But the expansion of retailers into banking offers a real sales opportunity for the division. (Asda, for example, already has its retail direct mail printed by Polestar and is now expanding into banking as Tesco and Sainsbury's have already done.)

While packaging printers grumble about reverse auctions and contract retainer payments, Mr Beales says that his relationship with the supermarkets is "excellent". He adds: "They drive a commercial deal but I don't feel I'm being screwed every time I talk to them. We handle data for the likes of Tesco Clubcard as well as just print, and they're happy to pay a fair price for this."

Single management team

Despite the wide range of services the division offers it has a single management team for all five plants, as is increasingly common across the Polestar empire (on the web side, Polestar Petty and Polestar Watford now have a single managing director, for example).

Following the early retirement of Polestar Digital Nottingham managing director John Incles, all five plants now report to group operations director Mike Walmsley and a single managing director, Graham Beales, who had previously run the Bradford and Leeds plants.

Each plant still has its own operations director. But crucially there is now a single 18-strong sales team, officially based in Leeds but in practice mobile, serving all five plants.

This is headed by new sales director Paul McMorrin (former head of sales Graeme Selby has recently gone to head office in Milton Keynes to concentrate on key accounts).

New structure

The new structure, unveiled by chief executive Barry Hibbert last November, gives customers one point of contact for a wide range of different direct mail (and direct marketing) services. The days of plants being run as individual silos with a separate md for each are long gone.

But behind the incessant name and organisational changes how have Polestar's direct mail businesses fared in the last few years?

The division is hoping for sales of £45m in 2003, up from about £40m last year ­ about a tenth of Polestar's total turnover. Polestar hopes to make a margin of about 10% on these sales this year.

Polestar Direct stays away from very long run bill printing, commonly printed on a Scitex Versamark. "The very long run market is saturated and thankfully we're out of it," says Mr Beales.

But he adds that there is still growth in medium run, offset printed direct mail, on which the only personalisation may be the name and address printed on them later.

Polestar Direct's three mini-webs at Dewsbury Road are kept busy, and will shortly be joined by a new nine-unit Müller Martini Progress S press with uv drying due to be installed later in April.

The split between digital and offset remains 5% digital, 95% offset, although in value terms digital brings in slightly more than that and Mr Beales says there are "more discussions all the time" with digital press suppliers about more installations.

On top of the Xeroxes at Nottingham and the Océ lines at Dewsbury Road, Polestar may yet install an IGen3, although the Nexpress already installed at another Polestar plant, Wheaton's in Exeter, is "better for them than us" says Mr Beales.

In 2001 Polestar Digital said that its digitally printed mailings had grown 43% on the year before, compared to overall growth of only 5-6% in direct mail as a whole.

Total volumes

The Direct Mail Information Service estimates that total volumes in the UK still grew by 5.9% in 2001, the last year for which figures are available, to nearly 5 billion items.

But digital growth seems to have slowed down since. "There was a big show of hands for digital a few years ago and everyone expected it to take off," Mr Beales says. "It will happen, but more slowly than planned."

In late 2000, Polestar set great store by a new e-mail marketing system, called Messaging Direct, through which Polestar could create personalised emails to send to a client's customers in place of printed bills or statements.

But more than two years later, the idea is "still being worked on" with a handful of key account holders. Clearly ink-on-paper has proved more resilient than the fickle Internet.

And the key demand from print buyers is not simply for more personalisation but more die-cutting, more use of labels, remoistenable mailing and other "added value" features.

For this reason, the current round of investment is going into finishing as much as presses. More finishing equipment, including a Sitma line, for one-piece mailers is also due to be installed at Nottingham later this year.

In the longer term, the closure of the Bradford plant (of which Polestar owns the freehold) and relocation to one of the Leeds sites, probably Dewsbury Road, is likely.

Total capital investment will total £3m this year, and asset utilisation is already above the 50% that is Polestar's overall target (and higher than 50% on the presses, hence the need for another Miniweb). "The market is deflationary but growing," says Mr Beales.

New contracts

Polestar Direct has won new contracts since last autumn. One of the largest is with Lloyds TSB (a two-year deal which sees the bank's direct mail split between Polestar and two others), which should bring in at least £2m of extra work this year.

In February Polestar won a renewal of its huge contract with Tesco Clubcard, which Polestar has enjoyed since 1995 and now involves 10.5m mailings every quarter.

Paradoxically, another big new contract is with Centurion Press, the print farmer now owned by Communisis, which with Vertis and K2 Direct is Polestar Direct's chief competitor. Centurion is using Polestar as its print supplier for a huge two-year contract with Homebase.

Polestar's existing web offset and gravure contract with Toys 'R' Us has also been extended to cover direct mail as well.