February 16, 2017

Wal-Mart / Moosejaw

There are three things happening, all simultaneously.

First - classic e-commerce is cannibalizing the living daylights out of traditional retail. This is the Rabbits/Foxes analogy I've spent a month talking about. You need a ton of rabbit food to generate enough rabbits to feed the foxes. Instead, we're starving the rabbits, which will eventually starve the foxes. I'm asking readers/clients to rebuild their in-store / retail experience, which will benefit both stores and will feed digital. I realize some of you disagree with me on this one - that's fine. Write some code and then come back and have a discussion about this one after you see what your coding tells you.

Second - growth is ending. This is a separate issue. Ultimately for Traditional Retailers, this is an acknowledgement of the failure of the omnichannel thesis. Aligning channels and products and marketing strategy and customer service into a "one brand" thesis did not work. Customers chose Amazon instead. Younger customers chose non-traditional retail brands. So as the omnichannel thesis crumbles into a smoldering pile of waste, Traditional Retailers are acknowledging that growth is ending and the path to growth did not work.

Third - marketing changed. While Traditional Retailers explored, implemented, and then watched in horror as the omnichannel thesis crumbled, Non-Traditional Retailers took a different path, be it e-commerce (Moosejaw / Jet) or fast fashion or mobile strategies or sales fueled by influencer marketing programs - any of a thousand different examples (as illustrated in my customer acquisition presentation from 2015). Honestly, e-commerce marketing skills acquired from 1995 - 2010 are important but skills acquired outside of traditional e-commerce / traditional retail from 2011 - 2017 are more important. You cannot just hire a handful of gurus with modern skills and expect them to "change the culture". So - you are seeing acquisitions like Wal-Mart / Moosejaw.

All three issues are blending together right now. I'm asking you to focus on the first issue, because you can do something about it RIGHT NOW!! It will take us five years to pull out of the rubble of the second issue, and there will be a ton of store closures as a consequence. And we all will have different takes on the third issue and the industry is fully focused on the third issue, so no need for help from me on that front, right?

Make sense?

Why Closing Stores "Works"

All of the best retail brands actively measure what happens when a store is closed. When you close a store in 2015, you create an artificial laboratory where you can see how customers respond in 2016. It's like forcing an A/B test on a market!

Many retailers observe dynamics directionally similar to this:
  • Close a $1,000,000 store, and the store generates $0.
  • However, $150,000 of sales from that store move to other retail stores in that market.
  • And, another $150,000 of sales migrate online.
  • In other words, 30% of the sales still happen when the store closes.
The 30% of sales that still happen ... $300,000 in our example above, happen without the fixed costs associated with the dying store. As a result, these sales are MUCH MORE PROFITABLE than the sales left behind by the dying store.

If you are a Chief Financial Officer and can overcome the cost of servicing the debt on the dying store, closing stores makes sense.

If you are a Chief Executive Officer tasked with growing a brand, closing stores makes no sense whatsoever but generating less and less profit makes even less sense!

As long as customers keep migrating online and as long as Traditional Retailers do not reinvest in stores to grow merchandise productivity, we're going to see a massive amount of store closures.

Worse, as one mall-based brand closes a store, foot traffic for other mall-based brands declines, creating a self-fulfilling prophesy - a feedback loop of sales declines that require more store closures.

The smartest retailers are going to close a ton of B/C locations, and they will then reinvest considerable money improving the customer experience in A locations. Not-so-smart retailers will simply close B/C locations and hope the sales move online. Those retailers will be disappointed, because the sales never move online at sufficient rates.

February 15, 2017

Digital First

None of the responses were positive.

The most common response was this:
  • "If anything, retailers should invest more in digital and simply abandon bad stores - digital is the future and you have to be digital first or you are dead. Your recommendation to focus on improving stores & merchandise is fundamentally flawed. It's all about digital, Kevin."
If you have written computer code to analyze longitudinal customer behavior via in-store retail purchases and online purchases via integrating online advertising strategy and website visitation behavior, you are likely to come to a different conclusion.

Two weeks ago, I analyzed two markets ... one where the brand opened a new store ... one where the brand closed a poorly performing store.

When the brand opened a new store - digital transactions stalled briefly as customers who might have shopped online switched to the store. Then, after about six months, the new store began to thrive - and routinely fed the online/digital channel new customers who had just shopped in the store. Retail (rabbits) fed Online/Digital (foxes).

When the brand closed a store - digital transactions increased briefly as the store was no longer there to generate demand. But then, after about six months, online sales in the market abandoned by retail began to falter. Website visits were down, and online sales declined. Without Retail (rabbits) providing food for Online/Digital (foxes), the digital side of the equation suffered.

I'm not saying you shouldn't focus on being "digital". Please, have at it.

But I am asking you to understand the factors that "feed" digital. Until you understand that a healthy retail environment does as much for digital health as having a strong digital strategy (and a healthy retail strategy yields retail health as well as digital health) you'll close stores and wonder why your online presence isn't performing well.

Please measure how your channels fit together. Analyze customer behavior across 3-4 years. You will observe a story that is different than the industry narrative. Please write the code yourself, and tell me what you observe.

February 14, 2017

Target Cannibalizing Itself - How Do You Fix The Problem?

A long-time reader forwarded this article three weeks ago (click here) about Target moving sales from in-stores to the online channel ... and hurting profit in the process. #Omnichannel!!

These days, it's almost like the worse the news gets, the louder omnichannel advocates yell to become even more digital and even more omnichannel. Those who manage the profit and loss statement don't seem to be cheering as loudly.

Let's really simplify the math here, so that you can see what is going on. Let's look at a sample trade area with $2,000,000 in sales ... $1,600,000 in a store and $400,000 online. Here is the trend.
  • Next year, the "brand" will further digitize the business, causing a 5% drop in stores ($80,000) and yielding an $80,000 gain online ... the net impact on topline sales is $0.
  • Next year, then, retail will be at $1,520,000 and online will be $480,000.
  • The year after, the same dynamic happens, yielding $1,440,000 in stores and $560,000 online.
The industry response has been to "accelerate" this trend ... and by accelerating it, we push stores closer and closer to being unprofitable ... which is why you see so many stores being closed.

Let's pretend that "digital" didn't exist. What would you do to drive traffic in a store?
  • You'd increase your marketing budget.
  • You'd find merchandise that customers wanted to buy more frequently.
  • You'd present the merchandise in a manner that causes it to sell better.
  • You'd remodel a store so that it yielded a more modern experience (and sales would increase 20%, by the way).
So let's say that we execute the magic above, and retail sales increase by 5% in each of the next two years as a consequence. What happens?
  • Retail stays flat.
  • Online grows - potentially faster as there is a bigger retail base to convert to "digital".
In other words, we have to grow merchandise productivity at a rate faster than the loss of sales to the online channel. We'd have to invest in retail - at the very time the vendor industry is telling us to invest in digital.

Think of it this way ... in a field with rabbits and foxes, if foxes are eating all of the rabbits, what is needed to grow the population of rabbits?
  • Fewer foxes.
  • More food for rabbits.
It's time to provide more food for rabbits (retail). And here's the fun part - because customers move from retail to digital, digital benefits when retail is healthier! In our field, foxes would love it if there were more rabbits to eat. In commerce, foxes (digital) love it when there is retail to be cannibalized.

We're doing everything backwards. Truly, we are. We need to invest more in retail, grow our retail channel, and then retail will be healthier and digital will benefit because retail customers will cannibalize themselves over into the online/digital channel.

Invest in retail.

That's what we need to do.

Show of hands - how many of you think that is what will happen?

February 13, 2017

Another Example of Measuring Why A Retail Store Is Struggling

Here's another store trade area (zip codes ranked most sales to least sales, take zips that account for 70% of total sales).

Tell me what you observe?

First of all, the fox/rabbit issue is at play here, to some extent. Online is growing as a share to total spend. Customers are migrating from retail to the online channel. The foxes are eating the rabbits.

Second, there's a Unique Point of View issue at play. Look at new + reactivated customers by year ... 26,000 to 26,000 to 23,000. More than 10% of the new + reactivated customers dried up ... and the ones that are being acquired are starting to skew more and more to the online channel.

This store cratered by about 10% over a two year period of time. It cratered because the foxes (online) are eating the rabbits (retail). It cratered because the brand does not have a Unique Point of View.

Do you perform these analyses, so that you know why your business is succeeding or failing? Run the query!!

February 12, 2017

Measuring Retail Challenges

This is a table I enjoy producing for my retail client base.

The table tells us why a retail store is struggling.

I segment customers based on last year's behavior. Then, I measure where customers spend money in the next year.

If we have a fox / rabbit issue (digital eating retail), then we'll see that retail customers are spending less and less in retail by year and more and more online by year.

If we have a Unique Point of View issue, then we will see that there are fewer new + reactivated customers by year.

What do you see, in the case of this store?

You see a Unique Point of View issue. New customers are constantly on the decline.

In this example, the store is slowly dying (2% per year), and the store is slowly dying because the store is being starved of new + reactivated customers. This store has a Unique Point of View issue.

There is a reason I harp on this topic (Unique Point of View). I know you don't like hearing about it, because you send me emails telling me I'm wrong! Unfortunately, I have a ton of data from e-commerce brands, retail brands, and old-school catalog brands that explains just how important a Unique Point of View is.

The trade area around this store (rank-order zip codes until we get 70% of sales for the store) is being starved of new customers. That's the problem (in this case).

P.S.: Take a look at this image.

Yup, those are online orders literally "hanging around" an upscale store, waiting to be picked up. That's the fox ... invading square footage previously reserved for selling. Now, I get it - you can credit the store with those sales and not the online channel. It doesn't change the story - if somebody told you ten years ago that an "A" shopping center would sacrifice selling square footage to become a nimble distribution center, retail experts would have vomited into a dumpster.

This use of square footage drives the declines in the table above - leading us toward this dynamic.

  1. Retail Works.
  2. Digital Invades.
  3. Retail Serves Digital.
  4. Retail Suffers.
  5. Stores Close.
  6. Digital Suffers.
We need to measure the dynamic - and we need to do something to stop (4) from becoming (5) and then (6).

February 09, 2017

Podcast Week: Crybabies

Our fifth and final featured podcast is Crybabies (click here). The hosts invite guests and then talk about the stuff that makes them cry ... be it Spock's death in Star Trek 2 or The Carpenters or when Prince died. You've gotta be in the right mood to enjoy this series, of course, but when you are in the right mood, this is a good one!

What does this have to do with low cost / no cost customer acquisition programs fueled by having a unique point of view?

Take Ross-Simons for instance (click here). Valentine's Day is just around the corner. Why not produce a show where the host of the show covers all of the lovely Valentine's Day deliveries - sharing customer stories that would make anybody with a modicum of a soul cry? A weekly show featuring engagements, make-ups, and surprises.

I know, I know, you can't do that.

But think about this for a moment.

I'll bet the folks at the Seincast Podcast told them they were nuts to invest 180 hours of broadcast time reviewing television shows that folks have witnessed hundreds of times.

I'll bet the Men in Blazers are told daily that they are nuts to focus on a verbal narrative of a Crystal Palace / Swansea City match that nobody cares about.

I'll bet the folks behind Welcome to Night Vale are told daily that they are crazy for drafting a 2x-per-month narrative about a fictional desert town where paranormal activities happen every minute. Who'd listen to that?

I'll bet folks criticized Starlee Kine for creating Mystery Show - who'd want to listen to a mystery about a belt buckle? And then her show was cancelled - proving the naysayers right. And yet, Gimlet keeps her show up and makes money off of it regardless, right?

And who in their right mind would say it is a best practice to create a podcast about things that make you cry?

There are a million reasons why you shouldn't take a risk - why you shouldn't seek a unique point of view. It might not work - imagine how miserable you'd feel while being criticized by co-workers and the public alike?

But what happens if your idea does work?

The digital revolution - we're now at least twenty years into this thing - stripped so much creativity out of our business models. That's what happens when you solve for short-term return-on-investment - the video of a person getting a Valentine's Day gift from Ross-Simons only gets 194 views and is quickly forgotten and therefore didn't deliver short-term ROI and therefore we should never try again, should we? So we don't try again.

It's time to start trying again.


February 08, 2017

Podcast Week: Mystery Show

The fourth podcast in our series is Mystery Show ... a "one-season-and-done" masterpiece where host Starlee Kine solves obtuse mysteries (click here). If you only have time to listen to one episode ... listen to the second episode where a little-known author notices that a major star is carrying a copy of her book ... just a fantastic episode (click here)!!!

What does this have to do with low cost / no cost customer acquisition programs fueled by having a unique point of view?

Let's pretend you are Petals (click here). Could you not create a series where the marketer solves mysteries regarding people carrying plants / flowers / arrangements? Why is the guy on Wall St. carrying a Silk Hydrangea Centerpiece (click here)? Build a whole episode around the back story surrounding this man. Then if you have to offer a discount/promotion, offer it on the item in the story. Petals already has a much-neglected blog (click here) - use the blog to promote the story series paired with discounts for the items in each story.

I know, I know, there's a thousand reasons why you shouldn't do this. But creating a unique point of view that results in low cost / no cost new customers is a reason why you should do this, right?

February 07, 2017

Podcast Week: Welcome to Night Vale

The third podcast in our series is Welcome to Night Vale (click here).

This is a 2x per month fictional news story about a town where crazy things happen (like the Faceless Old Woman who secretly lives in your home, or "the weather" which is really an indie song played 2/3rd of the way through each podcast). Each episode has a semblance of a self-contained story - and stories arc across episodes. You can visit this fan wiki (click here) for more details.

What does this have to do with having a unique point of view that results in low cost / no cost customer acquisition?

Let's pretend you are Harriet Carter Gifts (click here). You sell distinctive gifts ... frequently "As Seen on TV". Why not create a fictional series about characters who use the distinctive gifts "As Seen on TV" to solve problems in a fictional place? Promote the series on Twitter and the follower count will surge beyond the current 300ish followers (click here). Integrate discounts and promotions with elements of the storyline - create reasons for a customer to buy merchandise.

Have some fun!! Business should be more fun than managing algorithms that enable you to rent prospects at $0.06 each. Follow the example set by Welcome to Night Value.

February 06, 2017

Highly Read Blog Post by Employees at Facebook / Google

When followers from "digital" companies browse content, it's typically about offline tactics, measuring long-term value, and measuring the long-term impact of merchandise/pricing.

Thought you might find that interesting ...

Podcast Week: Men in Blazers

The duo in the podcast mix pop culture and the English Premier League on a weekly basis. Part of their skill involves creating narratives out of essentially nothing - be it pointing out how referee Mark Clattenberg can literally take over a match and make it about him instead of about the players or taking a sad nap after Everton loses a match (after listening to Fast Car by Tracy Chapman of course).

Their podcast and appearances on SiriusXM and the 2014 World Cup resulted in their own TV show on the NBC Sports Network.

How does this relate to what you do? How does this relate to having a unique point of view that results in finding new customers at low cost / no cost?

Say you are the birding enthusiasts at Duncraft (click here). They're selling a lot of products that support a passion for birding. There's no reason they couldn't create a weekly narrative around birders seeking to achieve a Big Year (click here), right? There's a hint that Duncraft is interested in the topic - see this blog post from late 2015 (click here). But instead of one blog post, why not make a weekly deal out of this, reaching out to those who are shooting for 700 birds in a year, bringing the personalities to life?

I know, I know, there's a thousand reasons why folks shouldn't do this ... but low cost / no cost customer acquisition tied to a unique point of view is one reason why we should do this, don't you think?

February 05, 2017

Podcast Week: Seincast

I have talked for nearly two years about the importance of having your own unique point of view - one that allows you go attract new customers at virtually no cost. There's been a common refrain in the feedback I receive.
  • "That won't work for us - our business is unique, and our business is special. Do you have any other ideas, preferably a channel where we can pay a small amount while generating a big return on investment, one that other people haven't discovered yet, kthanks?!"
Well, we all know that approach doesn't work - for if it did, we'd all be doing it and we'd be rolling in cash.

So this week, I'm going to try something different. I'm going to pick out five podcast series you can listen to - folks who are broadcasting a unique point of view and generating listeners at low cost / no cost.

The hosts are in the process of broadcasting their thoughts about every one of the +/- 180 episodes of Seinfeld. They play clips, they read from the script of the episode, and they offer commentary on their personal lives as well as providing in-depth discussions about the characters in the TV show. If you have watched the show, you'll appreciate all of the callbacks from prior (and future) episodes.

Why share this?

Because the hosts are putting their spin on a popular television show, and it's strangely compelling to listen to if you follow the show.

Now pretend you are Country Curtains (click here). Your merchandising vendors are like the TV show ... and you as a marketer are like the hosts on Seincast. It's your job to bring their product to life. You can create an entire world around the merchandise you sell - the characters who provide the merchandise you sell. To some extent, Country Curtains does this via their blog (click here). But there are so many ways that Country Curtains could bring this information to life, creating a unique point of view in the process that enables Country Curtains to acquire customers at low cost / no cost.

Stay tuned for tomorrow's podcast recommendation.