July 09, 2007

Multichannel Forensics at Red Envelope

Reading the comments of leadership at Red Envelope, you cannot help but believe that they conducted some sort of Multichannel Forensics analysis. That's a good thing, and I had nothing to do with it!!!

The comments suggest that Red Envelope is not acquiring enough new customers to fuel growth ... and the failure to acquire enough new customers means that the business is projecting lower sales in the next twelve months. This is the very essence of a Multichannel Forensics analysis ... identifying negative or positive business trends before they happen! Good job to the person(s) responsible for initiating this analysis!

Read these comments from Chairman John Pound:

"The negative trends that can be seen in our fourth quarter results reflect three core legacies of last year. They are: an uninspired and unfocused creative message (as manifested in both our catalogs and our web site); an unfocused and tired product assortment; and a shift in our marketing focus away from the critical necessity of customer acquisition".

"In particular, we expect that there will be a cumulative overhang from our lower customer acquisition rates that will affect the balance of this fiscal year, simply because we are drawing on a smaller and less motivated customer base relative to the Company's historical customer pool. We currently estimate that it will take two to four quarters to change direction as we rebuild the customer file. While it is difficult to quantify the impact at this time, we currently believe that for fiscal 2008, RedEnvelope's top line will be below that of fiscal 2007 just ended, and that the Company will experience negative net cash flows".

We will "more effectively drive demand through the web rather than primarily through our catalog distribution (as is currently the case, in spite of notionally being a web business".

We have "tapped our customer data to develop a rigorous understanding of our demographic and the dynamics of the business, we built a baseline financial and operating plan based on a bottoms-up analysis supported by the dynamics of our customer file".