November 27, 2015

Cards Against Humanity

You are busy trying to figure out how much to discount your merchandise on Black Friday and/or Cyber Monday. You attempt to balance competitive practices with the CFO down the hall who will demand that your department is downsized by 20% if you give away too many gross margin dollars.

It's a tough balancing act.

Then you have Cards Against Humanity. I don't play the game they sell, but plenty of people do.

Today, on Black Friday, this was their offer.
  1. You give them $5.
  2. They give you nothing.
As of this writing, 63,555 customers gave them $5 (assuming that the metric is true ... and that is a big assumption).

Ask your CFO what the gross margin is on a customer giving you $5 and you give the customer absolutely positively nothing in return? I'll bet it is north of 98% ... after factoring in credit card processing fees.

There are two themes that keep coming up, when folks talk to me.
  1. We're unique, we're different.
  2. We are having a difficult time finding new customers and keeping our existing customers.
This (above) is unique and different.

If you are truly unique and different, there will be a customer base that opens the wallet for you.

P.S. If you want a low-cost customer acquisition program, hint - this is one. Just take a look at the free marketing they're getting today. It's the kind of free marketing that Glenn Glieber would be happy with.

November 26, 2015

It's Black Friday!!!!

It is Black Friday, and that can only mean one thing ... free guns!!

Or how about an HD video drone (click here).

Once you get to December 26, here's what I want you to do. Take the November 1 - December 24 timeframe, and do a deep dive. How have sales shifted over the past five years? Who took advantage of the opportunity to claim a free gun? Who shopped on Thanksgiving evening? New customers? Best customers? Do sales on Black Friday cannibalize sales on November 13? Or on December 13? And what about Cyber Monday? Who is the customer who takes advantage of 40% off plus free shipping? How much profit do you generate on Cyber Monday, compared to the day after (Boring Tuesday)?

Make sure you perform a thorough "post mortem" on the November 1 - December 24 timeframe, for the past five years.

November 24, 2015

Something Is Missing

McDonalds is selling mozzarella sticks.

Sometimes, to quote the immortal Frank Costanza, "something's missing".

Something's missing, all right.

I've done more than fifty Merchandise Forensics projects. Eighty percent of those projects illustrate a merchandising challenge.

The image here represents a merchandise challenge. This is new merchandise. If many customers have this experience, then new merchandise doesn't work, does it? And when new merchandise doesn't work during a time when existing merchandise is struggling, you have problems.

McDonalds has problems.

Analyze winning new items, and failing new items. What are the trends? Are there quality issues with new items? Are there reductions in the number of winning new items over time?

So much of business performance is within your control. Amazon has nothing to do with a lack of mozzarella in a mozzarella stick - and Amazon has nothing to do with your development of new, high quality items. That's stuff that you control.

November 23, 2015

This Is Why Retailers Are Being Told They Must Be "Omnichannel"

The omnichannel thesis always smelled putrid to me ... digitizing the business after catering to the needs of best (middle-aged) customers which caused store traffic to turn into online traffic which caused stores to underperform and eventually close (read retailer 10-K statements for details) or get smaller. How is that a growth strategy? 

It made no sense why industry pundits demanded a no-growth strategy.

But now, it makes perfect sense.

There is a process in business.
  1. Startups are funded by VC folks.
  2. Startup goes public, VC folks get paid.
  3. Middle-aged brand maximizes growth potential, early public investors get paid.
  4. Mature brand cashes out, late public investors get paid.
  5. Business closes, or is purchased cheaply by the Private Equity community.
Omnichannel theory satisfies (4).

All you have to do is actually perform an analysis of individual customer data to understand how omnichannel satisfies (4). Simply put, the digitization of the business caters to best customers, the customers who are most profitable. Digitization pushes traffic out of stores, into the online channel. Stores lose traffic and stores lose sales. Poor performing stores are closed. Cash is available. Cash is not used to invest in the business (i.e. new customers), but instead, cash is used to pay shareholders via stock buybacks and dividends.

Omnichannel = Shareholder ATM.

In the article, you can run charts for your favorite retailer. Run a chart for Target, Wal-Mart, Home Depot, and Lowes. In sum, they are cashing out. They are paying shareholders as much via stock buybacks and dividends as they earn in profit. And in just the past week, you've read articles promoting Target / Wal-Mart and their "omnichannel is the future" nonsense. Coincidence?

Well, omnichannel is the future if you want to close stores in an effort to free up cash to pay shareholders. It has nothing to do with taking care of "the customer". It isn't what "the customer" wants. It's what shareholders want. And that's fine ... they own the business. But don't assume that their monetization strategy applies to you.

Finally, all of this omnichannel nonsense makes sense to me. It's the end-game for extracting cash out of a mature retail business. Omnichannel is like an ATM machine for mature brands. The problem, of course, is that loyal customers are never retained, long-term, meaning that a failure to invest in new customers in the short-term will ultimately hurt stage four retailers. We see it all the time - just look at your own customer acquisition reporting.

November 22, 2015

Customer Acquisition Must Read: The Story of 2016 - 2020

Recall last year - I previewed slides for a presentation at the VT/NH Marketing Group. Well, it's that time, once again!

Here's the working set of slides for the 2016 event. Click here if you cannot see the slides. I will add/remove as we get closer to late March.

Give the slides a look - it's Thanksgiving Week and you don't have anything important to do anyway, right?

I'm sure you will disagree with some of the customer acquisition tactics ... so why not leave a comment or send me an email message ( with your suggestions. Or send me a message and let me know what you'd like to see added/removed from the presentation.


November 19, 2015

The Optimized Business: Merchandise Productivity

You optimized the business (click here for the spreadsheet) by entering the following parameters.
  • D6 = 0.700.
  • D7 = 0.250.
  • D8 = 0.100.
  • D9 = 0.100.
  • D10 = 0.100.
  • D11 = 0.450.
  • D12 = 0.300.
  • D13 = 0.300.
  • D14 = 0.200.
  • D15 = 0.100.
  • D17 = 2.000.
Then we added 10% merchandise productivity. Here's what we learned:

Optimized Case (Year 10) = $124,495 demand (in thousands) ... $22,708 marketing spend ... $27,090 variable operating profit.

10% Merch Productivity Gain (Year 10) = $156,466 demand ... $25,805 marketing spend ... $36,782 variable operating profit.

But with a 10% gain in merchandise productivity, you are able to spend more marketing dollars, in an effort to optimize the business. Now, the business is optimized at the following levels:
  • D6 = 1.000.
  • D7 = 0.300.
  • D8 = 0.150.
  • D9 = 0.100.
  • D10 = 0.050.
  • D11 = 0.650.
  • D12 = 0.450.
  • D13 = 0.350.
  • D14 = 0.250.
  • D15 = 0.150.
  • D17 = 2.300.
Our three comparisons now look like this:

Optimized Case (Year 10) = $124,495 demand (in thousands) ... $22,708 marketing spend ... $27,090 variable operating profit.

10% Merch Productivity Gain (Year 10) = $156,466 demand ... $25,805 marketing spend ... $36,782 variable operating profit.

10% Merch + Marketing Optimization = $182,744 demand ... $35,778 marketing spend ... $37,320 variable operating profit.

Do you see what is happening here?

This example is a generalization, of course, but it does help explain the story of the past ten years. And the story is a whopper.
  • Merchandise Productivity Is Dying.
  • Marketers Spend More Trying To Prop Up The Top Line.
  • Profit Slumps.
  • The Business Is Terribly Sub-Optimized.
  • To Optimize The Business, Housefile Spend Is Cut, And Top-Line Demand Drops.
  • Executives Hate Top-Line Demand Drops.
  • Customer Acquisition Spend Is Frequently Sub-Optimized.
The narrative can be changed. Go do something!!
  • Optimize Housefile and Acquisition Spend. You'll Save $$ On Housefile Buyers.
  • Take Housefile Savings, Invest In Free Shipping, Invest In Customer Acquisition. Business Improves!
  • Work With Your Merchandising Team - Work Hard To Get A 10% Merch Productivity Gain. 
  • Feature Winning Items In Digital Initiatives - Home Page, Landing Pages, Email.
  • Feature Up-And-Coming New Items Digitally - Home Page, Landing Pages, Email. Tell A Story.
  • 10% Merch Productivity Gains Are Multiplicative Over Time.
  • 10% Merch Productivity Gain Allows The Marketer To Spend More, Across The Board.
  • Increased Marketing Spend Grows Top-Line Significantly, While Growing The Bottom Line Marginally.
  • The End Result = A Healthy Business Where Sales Grow, Profit Grows, And Marketers Get To Spend A Fortune!
This is what I've been harping on for the nearly nine years I've been writing this blog, for the nearly eight years I've been running my consultancy.

I have a simulation tool that helps me test hypotheses. The path to a successful future is apparent.

If you disagree with me, that's fine. But make darn sure you have the simulation tool or appropriate mathematics to back up your hypothesis.

Do you have a simulation tool that helps you see the future?

Do you need a simulation tool that helps you see the future?

Contact me ( for assistance.

November 18, 2015

Now Imagine If Your Merchandising Team Kicked-In Some Assistance

You optimized the business (click here for the spreadsheet) by entering the following parameters.
  • D6 = 0.700.
  • D7 = 0.250.
  • D8 = 0.100.
  • D9 = 0.100.
  • D10 = 0.100.
  • D11 = 0.450.
  • D12 = 0.300.
  • D13 = 0.300.
  • D14 = 0.200.
  • D15 = 0.100.
  • D17 = 2.000.
Now, I want you to do one more homework assignment for me. Here's what we are going to do. Please change cells G19 - P19 from 1.00 to 1.10. This simulates a 10% increase in merchandise productivity. Look at what happens to top-line demand, marketing dollars, and profit.

Optimized Case (Year 10) = $124,495 demand (in thousands) ... $22,708 marketing spend ... $27,090 variable operating profit.

10% Merch Productivity Gain (Year 10) = $156,466 demand ... $25,805 marketing spend ... $36,782 variable operating profit.



The 10% increase, over time, compounds ... yielding a 25% increase in demand, increased marketing spend (because there are more customers to market to), and another 33% increase in profitability.

Your merchandising team means everything to your business.

Here's the fun part.

We're not done, yet. Now, as a marketer, it is your job to optimize spend once again. Better merchandise productivity yields increased marketing spend.

Your homework assignment:  Go back to cells D6-D15, and D17, and enter new spending estimates until you optimize the business.

We'll go over the results tomorrow. 

November 17, 2015

Acquisition Results

Remember, our housefile spend was way, way, way out of line. By cutting way back, we optimize profitability, growing it by 50% while shrinking the top-line by $27 million dollars.

Even though this is the "best" answer, your Executive Team will probably through you out of the conference room when you share the results. They will find every conceivable reason why your math is wrong and their instincts are right.

Now you fight back.

In the simulation, you modify cell D17 until you maximize long-term profit. That happens, in this case, when you double your customer acquisition spend each year.

Notice what happens to demand, too. The top-line outpaced the base case. The customer file is bigger. Profit is much better. Everybody wins.

The secret to business is in customer acquisition.

Conventional wisdom suggests success is in retaining loyal buyers.

You can do both - but I know, based on 200+ projects, what pushes the peanut.

Find low-cost customer acquisition solutions. They mean everything to your business. Everything!

The smartest catalogers and e-commerce brands are working their way through a transition.
  1. Greatly reduce marketing spend to housefile customers.
  2. Re-invest those dollars on free shipping.
  3. Re-invest those dollars on low-cost customer acquisition programs, in an effort to maintain (or grow) sales and profit.
Do you have a simulation tool like the one I shared over the past two weeks, a tool that helps you understand where you are and where you are headed?

Do you know how much you are overspending on housefile buyers?

Do you want to know?

Contact me for assistance (

November 16, 2015

On To Customer Acquisition

Plug in optimized housefile values in the key cells.
  • D6 = 0.700.
  • D7 = 0.250.
  • D8 = 0.100.
  • D9 = 0.100.
  • D10 = 0.100.
  • D11 = 0.450.
  • D12 = 0.300.
  • D13 = 0.300.
  • D14 = 0.200.
  • D15 = 0.100.
Now, let's run another simulation. Plug different values into cell D17, until you maximize/optimize profit in Year 10. What value in cell D17 accomplishes this task?

You have 24 hours to complete your homework assignment.

Urban Outfitters and Pizza

See this cartoon lady ... she doesn't like it when the industry does things that she thinks are "weird".

"Are they crazy?"

"What does pizza have to do with apparel?"

"How does that fit into a sound omnichannel strategy?"

"They just need to align their channels better, be more relevant, be more engaging, be more personalized, they need to generate a deeper focus on mobile, they need to fuse with social, and the whole thing will work better. They just need to focus on modern marketing, or they are 'dead'."

For me, the most frustrating part of our modern world of marketing are the glib observations and lack of vision that comes from those who hold the megaphone ... specifically, from research brands, trade journalists, consultants, and a small group of thought leaders.

An apparel brand does not purchase a small pizza chain unless every aspect of a modern omnichannel retail strategy approach failed, and failed spectacularly.

Thought leaders told the industry that the customer wanted to research an item online, then get in a car and drive to a store, and then buy an item that was not available in a store (#soldout) but could be shipped from any other store to a home in a day. They told us we wanted this.

Be honest ... who wants to shop that way? Nobody! But vendors make money when the infrastructure to create the vision is built out. Consultants make money by re-wiring the internal dynamics of a business to achieve this vision. Research brands make money by telling vendors that this is the future. And trade journalists couldn't care less - they make money when vendors and research brands pay them for access to the megaphone.

In 2007, retail e-commerce was awful. As a result (and you know this if you actually analyzed actual customer transactions), customers used the website to do nominal research, then continued their habit of driving to a store to purchase something.

From 2007 - 2012 retail e-commerce improved ... dramatically. 

When retail e-commerce improved, the incentive for a customer to visit a store and allow the store to create demand disappeared. It's gone. Research can be performed online, credible research. With 40% of shopping searches beginning on Amazon, the whole discovery process has been reinvented. Worse, the discovery process was reinvented outside of the omnichannel framework. Commodity items rapidly move online. Why does a customer need to visit Office Depot to purchase a printer? The search happens online, price comparisons happen online, and the purchase will happen online (somewhere) unless the in-store entertainment experience is so superior that the customer has no choice but to get in a car and drive twenty minutes to experience the store.

List the conditions where the in-store experience is so superior to the online experience that you eschew online research and instead spend hours visiting a store to buy something. Please. Make your list now. It's a short list, isn't it?

And that's the problem.

Retailers spent the 2007 - 2012 timeframe building out a credible e-commerce experience.

A credible e-commerce experience reduced the need for a customer to visit a store.

When most stores have a credible e-commerce experience, traffic declines. Look at what retailers are saying in press releases and 10K/10Q statements ... they tell you that "traffic" is down. Of course traffic is down. All of that in-store traffic is now online.

When traffic declines at anchor stores, traffic declines at all other 6,000 square foot stores in the mall, hurting all other stores.

When traffic declines at all other 6,000 square foot stores in a mall, anchor stores lose traffic.

When traffic declines, a feedback loop forms, a feedback loop that hurts all retailers.

When retailers are hurt, marginal stores are closed and new store concepts are offered at reduced square footage.

When marginal stores are closed, sales decline, because the sales are not made up online, the sales simply disappear.

When marginal stores are closed, traffic for all stores that remain is reduced, hurting all remaining stores.

When sales decline, new growth ideas are required.

One popular new growth idea is discounting ... either deep discounts/promotions within the existing brand (which erodes long-term business health), or the increasingly popular strategy of building out an off-price channel to capture demand among less-affluent (i.e. you and I) shoppers.

Another growth idea is to expand into other areas.

Have you ever eaten in a Nordstrom restaurant in a Nordstrom store? They've been in the stores for decades, you know. 

Omnichannel strategy is not a visionary strategy. If anything, it's a strategy that cripples the in-store buying experience.

We need ideas that cause a customer to get in a car, drive 20 miles to a store, and spend an hour in the store. Do you know how hard it is to get a modern customer to spend a few hours away from family & friends? It's hard!!!! It's not good enough to visit a store and have your size not be available (or not have your TV with your desired specs available) and then have the inventory system wired properly to get the item shipped to you. That's not entertaining, is it? 

Omnichannel is the opposite of entertainment.

The modern in-store experience has to be entertaining, or there is no reason for it to exist.

Until stores stop closing, and until stores stop contracting their square footage, and until traffic increases, we have to find ways to make the in-store experience an entertaining experience.

So let's hold judgment on retail brands who do things that do not align with the omnichannel playbook, ok?

November 15, 2015

Homework Results

Here is the spreadsheet I asked you to download (click here).

This was our base case.

And this is the optimal solution, given our assumptions.


This is a very different answer, isn't it? What did we learn?

  • We are expected to generate $112 million in Year 10 as-is. Optimal profitability yields $85 million demand. There won't be a CEO who wants to hear that.
  • The 12-month buyer file decreases from 495,000 to 399,000. No catalog or e-commerce marketing executive wants to hear that.
  • The annual marketing budget drops from $28.6 million to $10.3 million. In other words, there is so much marketing waste happening that it is almost appalling.
  • Profit increases from $16.3 million to $23.8 million ... nearly a 50% increase.
The goal, here, is to measure what "optimal" looks like, and compare it to where we are.

I can promise you that your Executive Team will throw you out of the room when you share this with them. Don't hit your head on the tile flooring when they throw you out, you don't want to get concussed along the way.

But it is your job, yes, your job, to know what optimal looks like, and to compare optimal to where you are. And it is your job, yes, your job, to teach your company what you are doing that causes you to not optimize profit.

I see examples like this all the time ... company after company after company trying desperately to grow sales, investing a fortune to prop up the top line. Heck, in year one alone, ten million dollars in marketing expense are saved, comparing optimal to actual. You could start a whole new e-commerce only business unit with the ten million dollars, and build a business that protects your future while harvesting profit out of the existing catalog business model.

What questions do you have? Send me an email (

Are you able to run a simple simulation like this for your business? If the answer is "no", tell me what stops you from running a simple simulation like this.