April 15, 2014

Successful E-Commerce Brands

Last month, a catalog advocate left a comment ... this smart person pointed out that there are terribly few e-commerce brands that have achieved "scale" (meaning that the business became very large and dominant).

Her point was that e-commerce needs an "assist". Amazon aside, unless the e-commerce brand has retail stores to market the website, or unless the e-commerce brand has catalogs to market the website, e-commerce is unable to achieve critical mass.

This opinion, of course, was offered as a defense of maintaining a catalog marketing strategy.

Last month, one of our long-time retail/catalog/e-commerce readers sent a very well-written article, penned in the past year, called "E-Commerce is a Bear" (click here).

That's a well written piece, don't you think? It should have, at minimum, caused you to think!

If there's one thing I've learned, it is that e-commerce fits within many different business models.

  • Judy-Centric Cataloging:  Here, the e-commerce business model is the "order form" business model. For so many catalogers, e-commerce ultimately replaced the catalog order form.
  • Jennifer-Centric Search Business: These businesses don't "scale", as the pundits say, but who cares? These are e-commerce models that are built on search, they quickly approach $10,000,000 in annual sales and $500,000 in annual profit, then stall. Businesses that "scale" require secret sauce. Search (and email) are not secret sauces, are they? Honestly, these businesses are the modern parallel to the New England based catalog business of the 1980s - New England was host to a thousand businesses that grew to a small but profitable size that printed money for the owner.
  • Jasmine-Centric Social/Mobile Business:  For Jasmine, e-commerce is the mobile/social order form. Again, it's terribly easy to build these businesses to $10,000,000 with $500,000 of annual profit, but then you need secret sauce.
Once a business hits the $10,000,000 to $30,000,000 range, secret sauce needs to be applied.

It's not much different in retail, by the way. Wal-Mart applied the secret sauce (everyday low prices), running the non-scale oriented downtown department stores out of business. Look at what Best Buy did to electronics sellers. Or what Staples did to office supplies stores.

The article speaks of a fundamental truth ... there is no longer room for "mid-sized" businesses. It's easy to get a business to $30,000,000 ... then secret sauce is needed to get a business to a billion or bigger. Secret sauce frequently requires branded merchandise sold at lowest prices or at deep discounts, allowing the billion dollar plus business to generate 3% profit.

We should probably do the opposite. We should probably sell proprietary merchandise, becoming a mid-sized business generating 10% pre-tax profit. Unfortunately, too many of us are willing to spend somebody else's money trying to figure the secret sauce out on the fly.

April 14, 2014

Hillstrom's Retail Nightmares: Storm Clouds Are Brewing

I know, I know, the experts want you to digitize your retail store. By making the store more like a website, customers will happily visit your store instead of using your website?


Ok, so digitizing the store will cause the store to be integrated with the website, causing customers to use your website more often. The customer will stay at home, enjoying a fully integrated experience on a tablet, leaving the parking lot looking pretty darn empty. Who wants to visit a store when there are no cars in the parking lot?

Let's take a look inside the Office Depot store pictured above:

Yup - nobody in there. And we already knew that from looking at the parking lot.

Where is the pleasure in this shopping experience? Be honest! Where is the thrill? The excitement? The discovery?

I know, what the heck are Office Depot / Office Max & their competitor, Staples, supposed to do? I get it. Not fun.

But the pundits cannot save Office Depot / Office Max or whatever the two-headed monster will be known by in the future by recommending they create an integrated experience where 20,000 square feet are used as a digital distribution center for customers who mysteriously choose to not order via Amazon and instead order online and then drive to a store to buy a pre-ordered item coupled with an add-on calculator that could be cheaply simulated via a free app on a mobile device.

Retail seems to be moving in opposite directions ... a gigantic Cabelas store chocked full of entertainment ... or very small stores that serve a unique and entertaining purpose. Turning a retail store into a digital distribution center only pleases those who sell solutions designed to turn retail stores into digital distribution centers. I imagine it is horrible to be Office Depot / Office Max, to be caught in the middle.

Amazon: Hologram Marketing

I've been talking about Hologram Marketing for eight years. It's coming (click here).

  • Catalogs = Judy.
  • E-Commerce = Jennifer.
  • Mobile = Jasmine.
  • Hologram = Jadyn.

April 13, 2014

Hillstrom's Retail Nightmares: Coldwater Creek

Maybe you can tell - I am ANGRY about this. ANGRY!

The story of Coldwater Creek is the story of an investment-based color-by-the-numbers "multichannel / omnichannel" strategy designed to achieve "scale". Well, "scale" was achieved ... there is no shame in a business that nearly generates a billion dollars.

The sadness, of course, is that scale was achieved, but in turn, the business was destroyed. Scale without profit is pointless. We've all learned that humble profits are lasting profits.

Let's walk through a series of graphs.

Here's the first graph. This graph shows us how retail net sales and direct (online + catalog) net sales evolved over time.

We've been taught that direct grows nicely in a retail environment. 

We've been taught incorrectly.

Coldwater Creek financials show us that the catalog investment was a big, fat, juicy line on the expense statement. Over time, retail growth was fueled by debt. And, by a reduction in catalog mailing strategy.

Compare this graph to the number of stores, by year. Tell me what you observe.

I'm not saying that catalogs should be mailed in perpetuity - heck, I spend a ton of time reducing catalog mailing expense for my clients (quite profitably, I might add).

But the shift to retail brings about two pressures.

  1. Reduced catalog expense to fuel retail.
  2. Reduced gross margin percentages to gain retail market share.
Gross margin means everything. It's the foundation for business. Gross margin dollars fund marketing, they fund corporate expenses, and gross margin dollars generate the profit that allows shareholders to either increase value or realize gains via dividends. The best managed businesses find a healthy equilibrium between gross margin rates and growth.

Here's what happened to gross margin percentage at Coldwater Creek.

By the way ... do you see the gross margin bubble in 2005, 2006, and 2007?

  • Feb02 - Feb04 Total After-Tax Profit = $23 million.
  • Feb05 - Feb07 Total After-Tax Profit = $126 million.
  • Feb08 - Feb10 Total After-Tax Profit = ($84) million (loss).

Gross margin means everything.

In the 1996, Coldwater Creek was a modestly-sized catalog brand with 57% gross margins and 10% pre-tax profit.

In 2014, Coldwater Creek evolved into an "omnichannel" brand with 31% gross margins, and is bankrupt.

You cannot blame this on the economy. Gross margin percentages were in free fall from the time of the IPO (early 1997) through current - you can fit a nice regression line through the relationship in the gross margin map, don't you think?

Do you understand how critical gross margin dollars are to a business? Let's say you are a $750,000,000 business generating 31% margins - and you have a 20% ad-to-sales ratio (marketing), and 10% of sales are required to cover fixed costs and administrative costs.

  • $750,000,000 sales.
  • $232,500,000 gross margin dollars.
  • $150,000,000 marketing costs.
  • $75,000,000 fixed costs.
  • $7,500,000 profit.
Now let's look at a business with the same marketing costs, same fixed costs, but a business generating just $500,000,000 net sales at a 57% gross margin.
  • $500,000,000 sales.
  • $285,000,000 gross margin dollars.
  • $150,000,000 marketing costs.
  • $75,000,000 fixed costs.
  • $60,000,000 profit.
The first business is a 1% pre-tax profit business that will die the minute a 5% shock hits the system.

The second business is a 12% pre-tax profit business that can withstand myriad challenges.

That's the power of gross margin.

I know, I know ... "your business is different" ... or ... "your customer is different" ... or ... "your competition is different" ... or ... "your pricing strategy is different" ... or ... "your customer buying cycle is different".

Stop it.

Just stop it.

We are trading fundamentals for fantasy.

Did Coldwater Creek not follow the MBA-inspired, research-brand advocated, Wall St. enabled multichannel / omnichannel playbook to the letter? Bricks 'n clicks! Multichannel customers are worth 9 times as much as single channel customers!

Coldwater Creek followed the playbook to the letter. And if multichannel/omnichannel customers were truly worth 9 times as much as single channel customers, then Coldwater Creek should be a three billion dollar monster generating three hundred million dollars of profit.


The playbook led them to bankruptcy.

Might it make sense to sell merchandise customers love, at healthy gross margins?

April 10, 2014

Old-School Multichannel Forensics - Mobile

When I founded MineThatData more than seven years ago, folks wanted to understand how channels fit together.

Today, folks want to understand how channels fit together ... so that they can prove that retail, or catalogs, or e-commerce fits well in a mobile world.

Last week, I read an article where the author said that 2/3 of e-commerce demand will come from mobile.

And yet, I have clients who are not even close to generating 2/3 of their business online.

The story, of course, isn't the macro-level data you read about.

The story is how your customers behave.

Click here to see an old-school analysis, called a "Migration Probability Table". This technique still helps us understand how customers are evolving, how they are changing.

There are two big stories being revealed in MPT tables in 2014.
  1. The dynamic between e-commerce and mobile as transactional channels.
  2. The dynamic between e-commerce/mobile and retail as transactional channels.
If you are a retailer, the latter is really important. We're seeing two interesting dynamics. New retail customers are, in some cases, being cut off by e-commerce ... this is a new dynamic. We're also seeing retail customers becoming more willing to shop via e-commerce, this, too, is a new phenomenon, and is easily measured via the MPT.

In e-commerce, there is a transactional shift from desktop/laptop to tablet (more than desktop/laptop to phone). Use the MPT to measure this shift.

This is important, folks. If your table tells you that when customers shift from e-commerce to mobile (as a transactional channel), and then do not shift back, then your e-commerce business is about to be fundamentally transformed.

Give the MPT some love - it may just tell you when your business is about to be transformed.

April 09, 2014

Another Retailer Is Struggling

This time, it's J and R Music World (click here).

Remember, you were told that bricks 'n clicks, combined with catalogs and e-commerce, represented the "Multichannel Bonanza".

You've been cheated, again and again and again, by consultants, vendors, and trade journalists who posit an agenda that benefits them, not you.

It's like the nonsense of the whole "Social TV" movement. Why do you think networks, advertisers, technologists, and social media experts want you to watch television programs live and comment about live programs via social media platforms projected on to a second screen?
  • Because television ratings increase, which allows TV networks to get paid.
  • Because live television means you won't fast forward through commercials, which means that advertisers get paid.
  • Because social media experts measure the whole dynamic, which means they get paid.
  • Because Facebook, Twitter, and others gain traction, which means they get paid.
  • Because you buy a second and third device, which means that device makers and ISPs get paid.
How do you get paid?


Do what is right for your business.

In 80% of my Merchandise Forensics projects, there's been a product issue that holds the business back. Why do we ignore merchandise, but care so much about omnichannel theory or the interaction of social and mobile? What, exactly, are customers buying in an omnichannel environment dominated by social and mobile?


Hopefully, a combination of merchandise and entertainment will help J and R Music World's reinvention process.

The Missing Middle

I get to analyze a lot of businesses. Some businesses cater to the quality/service/margin audience (i.e. Apple or Nordstrom). Some businesses cater to the lowest common denominator customer (low price, discounts, promotions, gimmicks).

Many (most) businesses are stuck in-between.

When you're stuck in the middle, you see a few things, disconcerting things. These things became easy to see in Q4-2013.
  1. Retention rates among best customers were not much different than in past year.
  2. Retention rates among marginal customers were down 20%.
  3. New customer acquisition counts were down 20%.
This is a sure sign that a business is caught "in the middle".

Many retail businesses are caught "in the middle", not selling high quality, high margin merchandise with outstanding service ... and not selling lowest cost, cheap merchandise via discounts and promotions. In Q4-2013, loyal customers, a small number, kept coming into the store. But traffic dropped, by most accounts, reflected via low retention rates among marginal customers, and via horrific new customer acquisition counts.

Classic cataloging / direct marketing has been going through this transition for nearly a decade, courtesy of Amazon and commodity-centric big box retailers.

Retail is going to go through this transition, thanks to a combination of boredom, Amazon (to a much, much lesser degree), and too much square footage. If you notice 1/2/3 above, it's a good indicator that you are "caught in the middle". Nobody should be caught in the middle. It's time to pick a path.

April 08, 2014

Omnichannel - The Red Dress Boutique

From $63,000 to $7,000,000 in four years.  That's what The Red Dress Boutique did (click here to read the Fast Company article).

This is a Jasmine-centric business, as you'll see when you visit some of the social-centric properties they play on.

We all know that social media can take a business to $7,000,000, pretty easily, just like in the old days when catalogs could easily take a business to $30,000,000 ... or a combination of search and email could take an e-commerce business to $10,000,000. Most marketing tactics get us moving in the $10,000,000 to $30,000,000 direction fairly easily.

Then the hard work begins.

I hear cataloger after cataloger say that social media doesn't work. Of course it doesn't work ... if your customer is 60 years old. It doesn't work for the same reason that catalogs don't work among 30 year old customers.

Look at what The Red Dress Boutique does. Go ask your 29 year old female employee what she thinks about this business.

Is there a future for catalogers with a distribution center and call center and website infrastructure to leverage younger employees to build a business like "The Red Dress Boutique"? I'm just asking the question.

Wal-Mart Shoppers Prefer Amazon Over Wal-Mart's Own Website

Click here to enjoy this article.

Anybody who has ever analyzed inter-channel dynamics knows a fundamental truth. The fundamental truth is this ... there are two types of retail businesses.

  1. Direct-Centric Retail Businesses.
  2. Retail-Centric Retail Businesses.
Retail-Centric Retail businesses struggle with direct channel sales ... sales totals that are frequently 15% or less of total net sales, on an annual basis. Most often, these businesses have an outstanding retail in-store experience. Wal-Mart counts - you may despise their business model, but they have a wide array of merchandise at everyday low prices. The Wal-Mart shopper doesn't need to shop the website, because the customer goes to the store. But the Wal-Mart shopper needs Amazon for different reasons.

If Wal-Mart were a direct-centric retail business (i.e. 30% or more of annual sales via the direct channel), then this story would have meaning. But the very reason Wal-Mart is not a direct-centric business is because they execute so darn well in stores.

The better the in-store experience, the worse e-commerce penetration typically is ... the customer doesn't need to shop the website ... the customer wants to shop in-store.

Analyze your own retail business, you'll see this truth repeat, over and over and over again.

April 07, 2014

Selling Your Catalog Business?

Many of you hired me to execute a Contact Strategy project (click here for the booklet on Amazon).

But increasingly, the Contact Strategy project is used as a tool for helping a seller, or to help a potential buyer understand the profit potential of an acquisition target.

Well, there's no need to go through a full Contact Strategy project, if the goal is to understand the profit potential of a modified catalog contact strategy.

Click here for project pricing - notice the new Catalog Seller / Private Equity Evaluation row ... this is the cost for subsequent projects, should you be looking to sell / buy a catalog / e-commerce / retail business and want to understand the profit opportunity available by changing the company catalog contact strategy.

Also notice how inexpensive it is to conduct a Merchandise Forensics project (click here for the text from Amazon). I'm working on a Merchandise Forensics project as we speak - it's the most popular project in my seven years of consulting.

Omnichannel: Birchbox

Speaking of recurring revenue streams, click here to see Birchbox.

Weirdly, innovation is happening among Baby Boomers, and younger shoppers.

Among Baby Boomers businesses, I've witnessed a ton of innovation designed to squeeze every last dollar from customers who are about to retire. It's all "gaming the pricing system", if you will - it's not remotely a merchandise-centric revolution. Honestly, it's stunning. Not what I would do, but it sure is creative.

Jennifer-centric businesses just seem petrified of Amazon. It's hard to innovate when you're scared ... it's the "Maslow's Hierarchy of Needs" thing.

Jasmine-centric businesses like Birchbox are inventing the future ... most will fail, some will succeed wildly.

None are going to execute the omnichannel playbook as currently prescribed. Instead, they'll create the rules for their generation of customers.

April 06, 2014

Monday Mailbag

As always, you can email your questions (kevinh@minethatdata.com) or sent them via Twitter (@minethatdata) ... the latter seems to be the most popular method.

Today's question comes from Colton:

  • "You probably read that Neiman Marcus is integrating their online and store teams. Do you agree that this is likely to result in a favorable omnichannel outcome?"
My answer - no.

Asking store and online employees to work together is like asking in-laws to spend all their time together, not just at Easter.

I created this thing two years ago, and for good reason ... our industry loves to focus on mechanical, tactical topics. "If we simply aligned stores and online channels, we could be more effective and please our customers."


The issue, of course, is that people simply don't get along. We're only human, of flesh and blood we're made, to quote a song from the 80s.

Humans disagree. Sometimes they despise each other. Or they love each other and support ideas for each other that are meaningless to the customer. People hold grudges. They dig their heels in on principle. They don't like it that the online exec gets paid more and is responsible for 1/6th of the sales volume. They don't like it that the store exec gets a car allowance and doesn't have to be on call at 2:45am when the website goes down. Neither exec likes it that the IT executive always tells them "no". Merchants hate everybody for not working hard enough to sell merchandise. Everybody else hates merchants for being arrogant. Nobody wants to partner with the marketer who wants to spend $11,000,000 creating awareness.

Does any of that resonate with you?

Org structures can be a lot like shuffling deck chairs on the Titanic. Org structures do not address the core issues among employees.

The best "managers" know this. They create circumstances that foster team chemistry. 

It makes no difference how you structure online and store employees. It makes all the difference how gifted managers get people to get along and support each other.

This is what we need to talk about ... people ... not channels.

April 03, 2014

Omnichannel: La Gran Plaza

Give this ditty a read (click here).

How does the last paragraph begin?

  • "Hispanic-Oriented entertainment is a huge component ..."

Omnichannel is not going to be a sterile concept about using a retail store as a digital fulfillment center for a boring e-commerce website.


Retail must entertain. With way, way too much square footage and a modest amount of online competition, there's absolutely no reason for a customer to get in a car, drive somewhere, and be bored out of their minds by products that are readily available on a mobile device anywhere in the world!

Seriously. Think about the message. Jennifer gets in her car on a Saturday afternoon, drives twenty minutes to a local shopping center, finds parking, and makes her way to her favorite Ann Taylor store, where she quickly learns that the Modern Shrug she wanted (click here) is not available in her size. She invested an hour or more of her time to find out that her retail store didn't think highly enough of her to stock her size/color combination ... a size/color combination that was represented to her on the Ann Taylor website just two hours earlier. What is the omnichannel solution? Have a woefully under-compensated sales associate walk over with an iPad and offer to get the item shipped to the customer from another store, from the website, or to have the item available for pickup at another store?

Put yourself in Jennifer's shoes. That's not a solution, that's an irritation!

I know, I know, Ann Taylor should make sure that Jennifer knows on the website that the size/color combination is not available in her local store, so that Jennifer never gets in her car and visits the store in the first place. Yup - that's an operationally elegant solution - but think about it - it's a solution that keeps Jennifer out of the store, and ultimately, reduces store traffic, which reduces store buzz, which causes anybody in the mall to say that "there's absolutely nobody shopping in the Ann Taylor store, why should I bother to go in there?"

That's the cold, sterile path that the current iteration of omnichannel offers us.

At La Gran Plaza, customers are entertained.

We're going to have to figure out how to entertain customers. 

Omnichannel is easy, compared to figuring out how to entertain a customer enough to get the customer to get into a car and drive twenty minutes to a store.

We have to figure out how to entertain a customer.

Entertainment fuels engagement. Engagement is like free marketing. As Glenn Glieber might say ... "I love free marketing!"

April 02, 2014

Omnichannel: BaubleBar

Give this little ditty a read (click here), about BaubleBar opening up pop-up shops in Nordstrom stores.

I know, I know, I'm biased because I once worked at Nordstrom.

Our definition of what "omnichannel" is ... is way, way too narrow, isn't it? We're on the third step of a thousand step journey. So yes, omnichannel is real, don't get me wrong, but it is not what we're being told it is.

I'm hard on words like "omnichannel" and "engagement", largely because they are words that are defined to make consultants and vendors money. But the words are very real for our businesses, especially if we view the words in context.
  • Redefine "omnichannel" as "innovative selling".
  • Redefine "engagement" as "entertainment".
Back to BaubleBar. I talk about "innovative selling. Here's an example ... click on this link, where BaubleBar explains how, on Friday and Monday, they secretly mark down an item and you have the opportunity to subscribe via email to get clues delivered to your mailbox. That's a clever marketing tactic, isn't it? They created a reason for customers to visit the website twice a week. That's innovative selling. Opening pop-up shops in Nordstrom stores is also considered "innovative selling". Will it work? Who knows? At least they're willing to take a risk.

Engagement is a byproduct of innovation. If we innovate, then our customers interact with us. We shouldn't strive to manufacture engagement, we should strive to entertain our customers so that they spend money with us (important) and so they are willing to communicate with us and about us (engagement).