October 22, 2014

Omnichannel = Store Closures

Did you read this little ditty (click here folks)? The article is about Pier 1 and their "omnichannel guideposts".

Read the second paragraph within Guidepost #2. Heck, I'll quote it for you:
  • "... with approximately 60% of its leases coming up within the next three to four years, the retailer can carefully evaluate real estate needs and adjust the size of its store portfolio accordingly. Each store and market will be reviewed to determine the appropriate number of stores to maximize market share and optimize profitability."
The quote may as well read something like this:
  • "Thank God 60% of our leases are coming up, because we're going to close a ton of stores in poor locations and ask the website to carry an ever-increasing level of responsibility. We only want to keep the very best stores, and we want to unload the junk before the rest of the industry wakes up and realizes they have to do the same thing."
Omnichannel is headed toward a very interesting and unanticipated outcome.

Great retail locations are always going to be great retail locations. Lousy retail locations, however, are experiencing a different dynamic. The great location has an "entertainment draw" that keeps traffic flowing. It's fun to be at a great location! The lousy locations, however, do not have the same buzz. And if the individual store does not have buzz, and does not sell product that requires a store visit to complete the purchase, well, then e-commerce can (in theory) do a better job. When e-commerce can do a better job, then the store no longer serves a purpose.

Therefore, the bottom 30% of the retail portfolio is "at risk" in an omnichannel world. The best locations warrant the investment in infrastructure. The bottom 30% of the retail portfolio experiences slow leaks in demand from stores to e-commerce, and eventually, the bottom 30% of the portfolio is at or below break-even. Why would you invest in the omnichannel infrastructure in stores that are at or below break-even? There will be CFOs that look at the numbers, and say, "we're closing these stores, it's up to the website to pull more weight."

One problem.

If you close a store in a single-store market, you lose 80% of the volume. If you close a store in a multi-store market, you lose 60% to 70% of the volume, your mileage will vary. 

The logical outcome of the omnichannel revolution is this: E-commerce will gain share in cases where there is no entertainment value in the retail experience. This will ultimately lead to a rationalization of the bottom 30% of the retail portfolio, and once those stores are closed, sales will be lost (just like when Borders closed, that demand did not flow to Barnes & Noble - some of that demand floated to Amazon, most of that demand disappeared).

A lot of stores are going to close. You're going to have omnichannel to thank for it.

October 21, 2014

Sitting At Home: The Problem With Retail

The story of the Fall is the inability of businesses to acquire new customers, and the inability to reactivate lapsed buyers.

It's a catastrophe in retail.

We have spent a full decade teaching the customer that they do not have to get in a car and drive to a store. From 2000 - 2009, it was all about "being multi-channel", which was code for "make sure the website integrates with the retail store experience." Retailers dove in, head-first. Today, it's crazy to think about a retail website that provides a fundamentally different creative and merchandising experience from the store.

This level of integration, of course, came with a caveat.
  • "If the website offers the same merchandise and the same prices as the store, why should the customer get in a car and drive to a store?"
Nobody bothered to provide an answer to that question. I've been in the meetings. You should see the blank stares one gets when one asks that question.

We're now seeing the consequences of not being able to answer that question.

Retail is a habit.

In other words, it takes hard, hard work to encourage a customer to visit a store all the time. You're asking the customer to give up an hour or two of time, battling traffic. In e-commerce, you're asking the customer to give up 10 minutes while sitting in a recliner. 

Which is the path to least resistance?

By encouraging the customer to sit in a recliner and shop online, we broke the customer habit of visiting a store. It took years to break this habit ... and as it became obvious we were breaking the habit, we tried to patch the pothole with discounts and promotions.

So now we've got a problem of our own creation. We told the customer to sit at home. Now we want the customer to sit at home researching our merchandise, and then we want the customer to get in the car and drive to the store. We want the customer to spend more time with us, but we give the customer no reason to spend more time with us.

It will take a decade for us to re-train the customer. By then, stores will be closed, brands shuttered.

Omnichannel!

It is time for imagination. Imagination, and only imagination, can be used to retrain the customer to visit our physical stores.

In other words, we're not going to fix lapsed customer and new customer problems with tactics. We're going to have to imagine our way out of the problem we created.

October 20, 2014

Why Can't I Reactivate Or Acquire Customers Anymore?

The theme of the fall is this:
  1. It has become really difficult to acquire new customers.
  2. It has been difficult to reactivate lapsed buyers for a couple of years now.
  3. Consequently, the customer file is being starved.
  4. If the customer file is being starved, it is going to be really hard to grow in the future.
In catalog marketing, it is now clear why it has become so hard to acquire new customers.
  1. The cataloger focused on a 50 - 75 year old customer ... and has for the past decade.
  2. The co-ops spun 50 - 75 year old customers to catalogers "at scale", creating an unprecedented level of laziness and comfort among catalogers. It takes almost no work to order 1,000,000 names from a co-ops.
  3. Today's 50 - 75 year old customer was a 40 - 65 year old customer ten years ago ... and the younger half of that generation from ten years ago learned how to shop online. Today, those customers shop online, via online marketing (hint - Amazon), and are not responsive to catalogs like the half-generation ahead of them still respond.
  4. Therefore, the co-ops still spin a 50 - 75 year old customer, but a third of this audience (those age 50 - 60) lean toward the online channel, and consequently, do not respond to catalogs like those age 60 - 75.
  5. Catalogers, in a thirst to be multi-channel / omnichannel, aligned the whole business around the 60 - 75 year old customer. This means that the merchandise they sell is preferred by customers age 60 - 75, further shutting out younger customers.
  6. As a consequence, catalogers need co-ops more than ever for access to older, rural Americans, creating increased competition for the 8,000,000 names that the co-ops routinely spin at catalog brands, lowering response further.
The result is a looming catastrophe, one nobody wants to talk about or acknowledge.

Here's how the catastrophe develops.
  • Say you have 100,000 12-month buyers, and a 45% repurchase rate.
  • Say you convert 30,000 reactivation candidates to a purchase.
  • Say you acquire 25,000 new customers, annually.
  • Next year = 100,000 * 0.45 = 45,000 + 30,000 + 25,000 = 100,000 customers next year.
See, that looks ok, right?

Here's what I'm seeing in 2014:
  • 100,000 12-month buyers @ 45% repurchase rate = 45,000 customers.
  • 25,000 reactivation candidates (down 17%).
  • 20,000 new customers (down 20%).
  • 2015 File = 100,000 * 0.45 + 25,000 + 20,000 = 90,000 customers.
And here's what that means by the end of 2015.
  • 90,000 12-month buyers @ 45% repurchase rate = 40,500 customers.
  • 23,000 reactivation candidates.
  • 18,000 new customers (down 20%).
  • 2016 File = 90,000 * 0.45 + 23,000 + 18,000 = 81,500 customers.
This is the dynamic that is developing.

I've analyzed 29 catalog businesses this year. This is the overriding theme.
  1. A twenty-year partnership with the co-ops now results in utter dependency upon the co-ops for new names.
  2. The co-ops are spinning 60-75 year old names at catalogers at scale.
  3. 60-75 year old customers love merchandise targeted to 60-75 year olds.
  4. Names 50 and younger do care about the merchandise targeted to a 60-75 year old customer.
  5. This causes the merchandising assortment to evolve faster-than-average, toward the 60-75 year old customer.
  6. Therefore, individuals age 40-59 do not respond to the merchandise assortment, when sent a catalog. This forces down reactivation rates, and new customer response.
  7. Co-ops respond by further optimizing models for 60-75 year olds.
  8. Catalogers respond by mailing more 60-75 year olds.
  9. 60-75 year olds receive an ever-increasing number of catalogs, further diluting response.
  10. Customer files begin to shrink.
  11. Smaller customer files mean the co-ops have fewer names to spin back at catalogers, thereby further diluting performance and increasing competition and reducing response.
This is why so many (not all) catalogers are struggling so mightily in 2014 to find new+reactivated customers.

And e-commerce fanatics ... your time is coming ... mobile is going to ultimately create a similar dynamic in your world. Mobile is siphoning off customers < age 30. Give that trend a decade, and see what happens.

October 19, 2014

The Biggest Story Of The Fall

The biggest story of the fall, to date, is the inability of so many e-commerce, retail, and catalog businesses to reactivate customers, or to acquire new customers.

It is an epidemic, folks. 

You keep asking me if your situation is unique.

Your situation, my friends, is not unique.

Catalogers, known to grumble with the best of them, are rumbling these days about the "collapse of the co-ops". I hear the questions all the time ... "The co-op business model literally forced me to use them, and now, performance is awful and nobody will help me. What happened, and how I can fix the problem?" Hint - you're not going to fix the problem. This is a consequence of incremental decisions made for twenty consecutive years. It can't be fixed by asking your co-op "big data modeler" to "do better". Co-ops are a symptom of a bigger problem ... catalogers have been cut off from customers < age 45 ... so the co-ops spin you the same 65 year old names over and over, to all catalogers, deflating response and exhausting the customer at the same time. Going forward, you should be asking the co-ops to pay you for names, given the profit some of these folks make off of your data when your data is sent into the mobile/social ecosystem.

Retailers know that core customers are hanging in there, but reactivation segment repurchase rates are bad, and new customer counts are falling. The common theme, one that makes the vendor community a ton of money, is to simply be more "omnichannel" ... as if the real problem is that a customer doesn't want an item shipped to her house but would instead prefer to do all the work herself and buy the item online and then get in a car and waste two hours picking up the item. If these omnichannel tactics truly worked, then wouldn't new customer counts be exploding ... and wouldn't customer reactivation efforts be at all-time highs for effectiveness? The real problem is that we spent the past decade telling customers to not visit our stores. We told our customers, over and over, to sit at home and "browse". After 3,650 days of browsing (10,000 hours?), we trained the customer to sit at home. Now we wonder why customers won't get into a car and drive to a store? We did this to our customers and prospects, it's our fault. 

Omnichannel!!

In e-commerce, folks are learning just how hard it is to reactivate a customer when all you can do is email the customer or send messages in apps. Customer relationships, or the lack of them in e-commerce, are hurting e-commerce reactivation activities. Have you ever analyzed what happens to a first-time buyer at an e-commerce-only brand? Try it sometime. I get to see it every day, and it's not pretty.

It doesn't take a rocket scientist to know that if you cannot reactivate customers, and you cannot acquire new customers, then you cannot have a healthy business.

This is the story of the fall. You won't read about it in trade journals, and your favorite vendor will never talk about it, because they don't analyze the data in a way that allows them to see that this is happening ... it's impossible to see this issue if all you do is try to allocate affiliate orders on a mobile phone back to the retargeting ad that caused the behavior to happen ... and it is most certainly impossible to see this dynamic in your web analytics package.


Three unique business models (cataloging, e-commerce, retail) ... all dealing with the exact same problem. This problem cannot be solved by Cyber Monday promotions. This problem cannot be solved with brilliant attribution algorithms. This problem most certainly cannot be solved by omnichannel. This problem can, however, be solved by your own marketing and merchandising efforts. We're all going to have to refocus on to stuff that matters, or in 2015 and 2016, our businesses will shrink.

October 16, 2014

Returns

Some of you sell widgets, and nobody ever returns widgets. That's a good thing. You picked the right business model.

The rest of us deal with returns.

On the surface, you want to do everything possible to prevent a return. You lose the sales associated with the return, and you are dinged five bucks or ten bucks for shipping and/or warehousing fees. Your CFO sure doesn't want you encouraging customers to return merchandise, now does she?

When you do the math, however, you learn two very interesting things.
  1. Returns act as a "mini-order" if the customer exchanges the item for something else. In other words, if the customer spends $100, keeps $50, and exchanges $50 for another $50 item, the net of $0 in the transaction is offset by a "mini-order" of $50 ... the customer performs more like a 2x buyer spending $150 than a 1x buyer spending $100.
  2. In almost every business I analyze, you have an eight-to-twelve week window to encourage a customer to buy again ... then the customer slowly becomes inactive.
So use the opportunity to encourage any communication with the customer in the weeks after a purchase.

And if you're really concerned about returns, then stop emailing customers who return merchandise all the time!

October 15, 2014

Diagnostics: What Do I Do About The Results?

It's easy to create a system for diagnosing business challenges.

It's not easy to communicate the results in a digestible way, without offending people.

Therefore, try to stick to the facts. It's perfectly reasonable to say that the business is not meeting expectations, and to show why. Try to stay away from opinions like these:
  • "Your merchandising team really butchered the past three years, didn't they?"
  • "You need to shift to an omnichannel business model or you'll be out of business in a few years."
  • "Your business model is so old-school that you need to digitize or die."
Stick to the facts. Take our example from earlier this week, for instance:


Stick to the facts.
  • Comp customer performance is down from two years ago, and though it rebounded some last year, it rebounded not because of more customer loyalty, but because of a slight increase in spend per customer (did discounts/promotions drive this behavior)?
  • Customer productivity dropped at the same time that productivity in the Kids merchandise division dropped. What decisions were made in the Kids division, and why were those decisions made?
  • Customer productivity in low price pints dropped dramatically. This is not entirely due to the Kids division. What was the business strategy surrounding changes in price points?
  • You are not observing declines in Mens, Womens, or high price point items. Good job!
  • New item productivity is down. Is this because of Kids?
At this point, prepare for some blowback. People, especially those accountable for the problems, are going to get defensive. It's just human nature. Merchants will quickly blame marketers for not promoting the top-selling items enough. The CEO will get defensive because she made decisions that backfired. Try to keep folks focused on the data, and not on opinions.

In my projects, I try hard to get these facts out there, in the first 1-2 days of a project. There's no sense in delaying the story - get the story out there, and let there be discussion. You'll find that folks will ask questions, and those questions will make any subsequent work you do that much better.

October 14, 2014

Buying an iPhone 6 - Omnichannel!!

Your business is probably in lock-down ... your IT team won't let you do anything, in an effort to "protect the business" through Christmas.

Other businesses are at the whim of technology. Imagine having to forecast the sale of tens of millions of iPhones? Good luck getting that right. No amount of genius can allow anybody to accurately forecast that kind of demand.

So when I visited my local mobile phone provider on Monday, I, too, wanted to upgrade one of the phones in the household to an iPhone 6.

Step 1: Upon entrance, I was greeted by a tablet-toting employee. I told the employee I wanted to trade in an iPhone 4s for an iPhone 6 - 16gb. I stated the color I wanted. My name was logged, and I was told that it would take 30 minutes before somebody could chat with me. Alright.

Step 2: 42 minutes later, an earnest employee greets me. He asks me what I want - I again communicate the iPhone 6 color/storage request. He nods his head, apologizes for the long wait, and then communicates that the iPhone 6 is sold out. He offers to order one for me, online. I offer to go home and order it myself. He again offers to do the work for me, given that I stood in line for 42 minutes. But I've just wasted 42 minutes, plus travel time, and there's no way I am wasting another 20 minutes while being up-sold on tablet choices.

Now, the omnichannel community once again clinks their champagne glasses in celebration, for #omnichannel has saved yet another sale. They cheer the "bricks 'n clicks" dynamic that resulted in a purchase. They love the fact that inventory systems could get the customer what the customer wanted.

Are these folks right? Of course they are right.

But the whole thing is simple mudheaded nonsense, and you know it is.

Omnichannel creates a severe disincentive to ever visit a store. Why should I ever visit again and spend 42 minutes staring at a Bose wireless speaker that intermittently plays a selection of Maroon 5 tunes to be disappointed by sales staff that already knew the phone was not in stock and allowed me to stand there like an idiot?

Omnichannel is killing retail. Omnichannel, and distant relative Multichannel encouraged customers to use the website, and now mobile, to never have to set foot in a store again. Unless the store has a special purpose that cannot be replicated online, describe the reason why the customer should ever visit the store? Be honest!

In my case, the sales staff voided any omnichannel benefits by making me wait 42 minutes to obtain information they already knew ahead of time. Now, mobile phone carriers don't make real money in retail anyway, so I'm sure they don't care. But I care. And you care. And your business probably has similar situations where you are encouraging customers to never visit your store again. What happens when you've convinced half your audience to never, ever visit a retail store again? How do you cover the fixed costs of that store?

Discuss.

October 13, 2014

Diagnostics: Rapid Identification Of A Problem

If you employ a reasonable system, then you should be able to quickly identify the problems plaguing a business. You won't identify the problems analyzing conversion rates, measuring engagement, or through A/B testing. You have to have a system.

Let's look at a business. Tell me what you see happening with this business:


What do you observe?
  • The file is shrinking (100,000 to 110,000 to 103,100 to 95,647).
  • Annual demand is shrinking ($18.1 to $17.1 to $16.5 million).
  • Repurchase rates are sinking (40% to 36%, then a bit of an uptick to 37%).
  • Spend per purchaser remained constant, but then blipped up among existing customers in 2014.
We can easily see that this business is struggling. Now, clearly, Management would already know that the business is struggling, but your job is to diagnose the problem using your unique system, and your unique system is showing new customer problems (canary in the coal mine) and is showing repurchase rate problems (that's usually a symptom of a merchandising issue).

We move to a comp segment analysis next.


Well, the story becomes clearer, don't you think? What do you observe?
  • All of the productivity declines are from the Kids division, which appears to have experienced an abrupt decline in items offered in the past two years - why else would productivity drop so significantly?
  • Notice that $0 to $20 item productivity declined significantly. You can't pin this entirely on Kids, can you - just look at the dollar magnitude of the drop?! The new item column experiences a significant drop in productivity as well, while existing items actually show a modest increase in the past year.
This is not a marketing issue. This is clearly an issue with the Merchandising team, specifically, their decision to cut back on Kids merchandise. Customers did not reallocate spend into Mens / Womens, they just but back on spend, period. And the Merchandising team made a decision to cut back on inexpensive items - causing some demand to flow back into expensive items, but not enough to make up the difference.

Your "system" should be able to quickly dissect the business problem. You cannot do this if you're looking at campaigns or conversion rates. You have to have a system that allows for a longitudinal view of the business.

October 12, 2014

Subject Lines Work, And One Really Odd Trick To Turbocharge Response

Are you as tired of misleading subject lines as I am?

Unfortunately, subject lines work. People can be manipulated.

I've purposely written different styles of subject lines over the past three months, to see what impact subject lines have on readership.

These posts attracted an audience 40% above the average - what do you observe about the subject lines?
These posts attracted an audience 40% below the average, they were duds - what do you observe, after reading the subject lines?
The "Sandbagging" article alone should be worth 2% to 4% of annual pre-tax profit - seriously. And it was a complete dud. But there's no need for your business to make money when you can read a blog post about Matthew McConaughey, right?! 

One really odd trick to turbocharge response? Stay away from boring topics that generate profit for clients.

Of course, I'm being silly - I'm not going to change how I write subject lines. But I thought you might like to see actual data that illustrates that if views are important to you, then subject lines are important to you.

Paying clients and teaching readers are important to me. The correlation between subject lines and paying clients is poor, FYI.

October 09, 2014

What Is A "Hook"?

Look at my visit to the Progressive Insurance website? Who do you see depicted?


That's Flo! You know that because you've seen ads featuring Flo somewhere just shy of 34,000 times in the past few years. She's their marketing "hook", the tactic they use to obtain your attention.

Sort of like "Nationwide is on your side".


Or 15 minutes can save you 15% or more on your car insurance.


In other words, the insurance industry understands the importance of a "hook".

There are other effective "hooks", like this one from Paul Fredrick.


In their case, magazine ads coupled with a great deal ... that's a "hook".

This is also a hook, I suppose.


The problem with this hook is that too many companies utilize it, and when too many people utilize it, the effectiveness of the hook is diluted - you lose profit and nobody cares, all at the same time.

Catalogers are constantly contacting me ... "How can I get better response from the co-ops, the co-ops are killing my business in 2014!" Why are you dependent upon the co-ops in the first place? Do you put 70% of your retirement investment in Sears stock?

What is your marketing hook? Is it a spokesperson? A cartoon character? A great item at a great price? Incessant discounting? Customer service? Free shipping (product shipped in 24 hours) and free returns, like Zappos? An Amazon Prime clone? An app ecosystem like the one Apple nurtures to get folks to keep using their phones?

If you don't have a marketing hook, well, then you at the mercy of the vendor partners you decide to work with, you are simply relegated to mechanical tactics.

When a catalog leader contacts me with a business performance question, I usually ask what their "hook" is? Most often, I don't get an answer, which, ultimately, is the answer to why business isn't great.