December 03, 2006

Coldwater Creek: The Little Engine That Could

Coldwater Creek provides a great example of how management transitioned a catalog company into a retail company with an online channel, and a catalog advertising arm.

After reading comments from Coldwater Creek's third quarter "conference call", it is obvious management continues to transition this business model into one dominated by the retail channel. During the third quarter, retail sales grew by 48%, and now represents 65% of the total business. Online sales grew by 29% from last year, and now represent 67% of the sales within the direct channel. Catalog now represents just over 10% of the total business. Wow.

Over the past six years, management shifted their corporate strategy. As the company began to invest in stores, management began to tear apart the tradtional catalog marketing strategy. During the call, management stated that the catalog now primarily drives traffic to the stores, not to the catalog channel, not to the online channel. More important is the comment that the internet is independent, and has other ways of using marketing to drive sales to the online channel.

Once again, we learn that the multichannel environment is a big ecosystem, one with inter-dependencies, and interactions that pundits do not understand very well.

In the case of Coldwater Creek, a brand was built via the catalog channel. As management shifted the focus of the business from a catalog company to a multichannel company, several things occured. Customers transferred out of the catalog channel to the online and retail channels. Catalog advertising drove business to the retail channel more than the online channel. The online channel has marketing channels that it can leverage to drive its own business, independent of catalog marketing. Magazine advertising, coupled with discounts and promotions, drive business to Coldwater Creek stores. The catalog/telephone-channel has been reduced to about 10% of the total business.

Executives at multichannel retailers would be well-served to study the evolution of the Coldwater Creek business model. I'm not suggesting your business will evolve exactly like the business evolved at Coldwater Creek. But it will probably evolve in a way that is different than the pundits tell us it will evolve.

2 comments:

  1. Jim Turner8:49 AM

    Thanks for the inspiration Kevin. Great post.

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