At 5 a.m. on a hot July morning, more than 45 inventors from as far away as Texas and California descended on the Fairfield (N.J.) offices of AJ Khubani, the "Infomercial King" and chief executive of TeleBrands. Armed with props such as air mattresses and even a kitchen sink, the would-be-Thomas Edisons prepared to pitch products, including metal-free flatware, an ultraviolet sneaker deodorizer, and a zip-lockable trash bag. The dream: that their invention will become the next PedEgg.
TeleBrands has used its "As Seen on TV" marketing machine to sell more than 35 million of the little gizmos used to smooth rough feet. Such products may be cheap, but they're big business; sales generated by infomercials, or direct-response TV marketing as it's formally known, are expected to rise almost 30 percent, to a record $174 billion, by 2014, according to Yoram Wurmser of Direct Marketing Assn.
One reason for the big uptick: Goods touted in infomercials are increasingly moving onto the shelves of big retailers such as CVS Caremark (CVS) and Target (TGT). Rather than just enticing viewers to pick up the phone and order from a telemarketing center, the often schlocky TV ads now are used to build the brand before goods are sold at retailers or online. "They're the movie trailer before the product hits stores," Khubani says.
More than 90 percent of TeleBrands' sales now come from major retailers. Drugstore giant CVS says "As Seen on TV" products constitute one of their largest general merchandise categories, and it displays a new item each month at the end of an aisle—prime retail real estate. Those items had double-digit sales growth in the last three years, according to Erin Pensa, a CVS spokesperson. Target has expanded its assortment of infomercial-hawked products in the last two years and has logged strong growth in the past 18 months, says spokesperson Tara Schlosser.
Allstar Products Group—the maker of the ubiquitous Snuggie, basically a blanket with sleeves—has seen sales move from 50 percent at retail to more than 80 percent in the last three years. Allstar has sold more than 20 million Snuggies, which enjoy a cult-like status. Comedian Jimmy Fallon has donned one on his late-night show, and it has been featured in many YouTube (GOOG) videos. Snuggie pub crawls have been staged in San Francisco and Knoxville, Tenn.
Traditional advertisers "can't ignore [infomercials] anymore. Before they saw it as carnival-y," says Allstar CEO Scott Boilen. "You can't ignore the Ped Egg, and the Topsy Turvy [Tomato Planter]," which grows tomatoes upside down and has been snapped up by some 10 million customers.
Large companies are taking notice. Tim Hawthorne, founder of Hawthorne Direct, an infomercial ad agency, said he recently helped a Fortune 500 client increase retail sales by 100 percent after an infomercial aired for a 10-year-old product. Companies can often recoup advertising dollars even by selling a limited number of items, he says.
That's because ad rates for short infomercials are cheap—as little as $40 for a two-minute spot on a small cable station. Infomercial marketers got a boost during the recession as traditional TV advertisers pulled back, leaving some broadcasters with unsold air time. They filled it with bargain-rate infomercials that ran multiple times. The added exposure helped TeleBrands log record 2009 sales. "We just happened to be at the right place at the right time," Khubani says.
Marketers are scrambling for more products to peddle. Khubani looks for gadgets that solve common problems, sell for between $9.99 and $19.99, and make people think, "Why didn't I think of that?" He can spot a possible product "in about a minute."
At the periodic Inventor Day competitions that he's started at TeleBrands, inspired by American Idol, entrepreneurs whose written proposals sound intriguing get four minutes more than that for their pitches. Rather than use Madison Avenue-style focus groups, Khubani relies on his own gut and a panel of judges that includes his wife of 24 years, Poonam, and a recent addition—his son's math tutor.
The bottom line: After years of pitching kitchen gadgets and closet organizers on late-night TV, the infomercial business is going bricks-and-mortar.