July 22, 2007

Coldwater Creek. Wow.

Sometimes you take a look at the financial documents provided by Coldwater Creek, and you are amazed at the transformation of what was once a humble little cataloger located in Northern Idaho.

According to management, retail is now the primary growth vehicle for this business. Already boasting 255 stores in 146 markets, the retailer expects to grow to up to 500 stores within five years.

For people like me, steeped in a traditional cataloging background, the transition out of "traditional" cataloging has been fascinating to watch. The brand will spend an amazing $32,000,000 in national magazine ads in 2007, and even tested television ads in late 2006. The catalog investment is shifting as well. Instead of investing in traditional catalogs that drive sales through a telephone channel, Coldwater Creek is instead mailing more catalogs designed to drive sales to stores --- circulating the catalogs to store markets.

Coldwater Creek also boasts an e-mail list of 3.2 million names, an amazing number for a business selling just over a billion dollars of merchandise per year.

Coldwater Creek also announced a new loyalty program, targeted to the best 250,000 households --- designed to improve retention and increase spend per household.

Pay attention to SG&A --- increasing at a faster rate than sales, due in part to national branding programs, increased store employee expenses and increased catalog circulation.

As Direct Marketers, we need to keep an eye on Coldwater Creek. They are choosing a traditional path toward growth, one not altogether different than what Sears or Montgomery Wards utilized eighty years ago, or the route that Eddie Bauer took in the late 80s and early 90s. It's a fascinating and intoxicating route to riches, as the brand determines the 'saturation point' --- the point where retail stores no longer contribute significant incremental sales. To date, saturation is not a consideration ... comp store sales have increased by more than sixteen percent during the first quarter of the past two years.

When that saturation point happens (and it will happen, ask Gap), life becomes very interesting. Increased saturation drives down comp store sales at existing stores. Furthermore, online growth stagnates, as the new stores do not contribute enough new customers to fuel online increases. A brand needs to have a magical group of business leaders to recognize this inflection point a couple of years before it actually happens.

But for now, the meteoric increase in sales at Coldwater Creek is worth praising. Sales (and stock price) reflect the fact that management saw how the world was changing (stores/online), and shifted investment toward this new reality in a timely manner.

6 comments:

  1. Very interesting company which I did some BI work with a couple of years ago. Their catalog did a incredible job of creating an emotional involvement with their customers, who in turn were well defined to age, interests, and needs. Execution was consistent throughout the fulfillment cycles and they showed real stickiness. All of this came out of some research I did at that time, which was also when they started really opening stores.

    I suspect based on what I have seen since that they have not been able to carry that emotional energy they had with the direct customer to the stores. The SG&A shows the huge investment they have made in getting the right locations, the right layouts, lighting, and merchandising with an informed staff. But when I go in the stores I don't see the original demographic and some real clearance issues. The decision to go with a slightly different product mix has not helped.

    Their loyalty program shows some promise but unless volume increases there won't be enough events to either drive customers or data to support. Reaching out to the direct shopper base to steer into the physical location also looks like it is stalling.

    Nice company and very much admire their marketing and merchandising complex to execution. But the stores have the feeling of a dead-end to them at the moment.

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  2. It's hard for a specialty apparel retailer to stand out in the retail channel, isn't it?

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  3. Anonymous4:29 PM

    Hi Kevin,
    I take issue with your last comment. Actually it is harder for a traditional mall department store to standout among specialty and discounters, even though they are best suited for the multi-channel world. Nordstroms the obvious exception, although really that only happened in last 10 years that it grew into a true department store, adding home and electronics, luggage, etc. (Coincidental to your tenure there...hmmm...)
    Seriously, though...Sears/Macys/Penneys/all the store Macys' absorbed are and have been failing due as much to Bed Bath and Beyond, Best Buy, Things Remembered, as to discounters like Walmart and Target.

    So if you were CEO of Sears or Macys or Penneys---what would you do?
    Oh, and to tie to a different topic I'd love to see you do---how would you save the failing Macy's brand? What seemed like the grand multichannel experiment(even added internet warehouse, improved catalog division, national marketing) has fallen apart to the point the only life you find in the Chicago State Street store are the fruit flies, while their 2nd quarter sales report said declines were seen across the country.

    Love to see you play "If I were CEO..." with these three. Thanks.

    K

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  4. I can assure you I had very little to do with the success that happened in Nordstrom stores!

    I don't think I'm qualified to speak to the "What would I do if I were Macy's" question. There's a slurry of challenges that all happened simultaneously to them that are unique to their 'brand'.

    I can say that, given a finite amount of resources, there's only so much that a business can afford to focus on. If you're busy converting stores/brands to Macy's, then that is where effort resides. I can say that the business leaders at Nordstrom didn't have those kind of distractions --- they could focus on merchandising, and the visual presentation of the merchandise.

    The combination of must-have merchandise, in-store experience, pricing, customer service and visual merchandising mean an awful lot in retail. When you talk about Sears, Penney, Macy's, Specialty Apparel Retail, and others, you ultimately grade each brand on these factors.

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  5. Anonymous8:01 PM

    Kevin,
    First off, you are a very humble person. I will leave it at that.
    As for qualifications to speak about retail world, and play ceo, and your opinion as shown in your posts on Eddie Bauer and Coldwater, are very well thought out. I suspect you have your reasons why you dodged and I respect that.
    You mention store factors and specific areas of retail experience that exis primarily in the retail channel.
    Can I ask though, that in your tenure at Nordstrom did the Westin home experience begin in a store, a catalog or on the web?
    Does a strong catalog/web presence provide the testing ground for the stores, or vice versa? Which in your opinion worked best?
    Thanks!
    K

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  6. Westin Home was a store-based deal, from what I recall.

    A strong catalog/web presence can be a good indicator of store performance.

    But you have to do a reasonable job of modeling the relationship. Web customers are often concentrated in suburban areas, catalog customers in rural areas. The proper adjustments need to be made for urban/suburban/rural relationships, and for the number of miles that a zip code is from an existing store.

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