September 23, 2009

Special Edition: Shop.org and Macy's

In case you didn't hear, Macy's announced at Shop.org that every dollar spent online influences $5.77 in stores.

Multichannel advocates from near and far raised their glasses in celebration. Or at least that's what appeared to happen. You tweeted me, asking for my thoughts, in some cases, asking me to refute the knowledge offered by Macy's. I'll oblige.

I was at Nordstrom in 2003 when we first estimated the dollar amount that our website drove to our full-line stores. It was in 2005 when we further validated this point, doubling our online marketing budget and killing our catalog business and growing online sales and growing comp store sales all at the same time, a feat that I thought would be nearly impossible, a career-changing outcome. It was in 2006 when we used Multichannel Forensics to demonstrate to the Executive team that when you acquire an online customer, the customer becomes a store customer and then becomes a loyal store customer, helping the multichannel leaders in the company use the information to fuel their multichannel integration initiatives.

So do not be surprised when you hear a statistic like this. This kind of stuff has been documented by companies for some time.

But do pay CLOSE ATTENTION to the language used.

One dollar online "influences" $5.77 in stores.

Unless the Shop.org blog is mis-stating something, the choice of the word "influence" is critically important.

There is a fundamental difference between "influence" and "proven to drive incremental profit". When I worked at Nordstrom, we knew how much incremental store volume would disappear if we shut down the website, and we knew how much store volume was simply tied to a customer visiting the website and browsing in the days prior to a retail purchase.

Both components are valuable.

Both metrics demonstrate the need to have a modern e-commerce website and quality online marketing efforts and retail marketing activities and store merchandising strategies and a social media experience.

But do not, for one minute, confuse what the word "influence" means. "Influence" does not result in profit.

Have you ever read a statement like "Our new mannequins influenced a hundred million dollars in sales?"

Have you ever read a statement like "Our new wooden hangers influenced two hundred million dollars in sales?"

Have you ever read a statement like "The copy on the price tag influenced three hundred million dollars in sales?"

Of course you haven't heard those statements. But without a doubt, the mannequins and wooden hangers and price tags influence sales, don't they? They don't cause sales, they do influence sales.

And then there's the story of debt.

Retail is a voracious beast that is fueled by debt. The e-commerce channel has no choice but to fuel retail, from the strategic viewpoint of a retail executive team.

Macy's is blessed with an almost hopeless $8,600,000,000 of long-term debt. Have you ever had to manage the crippling weight of $8.6 billion in long-term debt? Last year alone, interest expense was $588,000,000. That's $588 million dollars ... of interest expense.

During the past three years (including the two years prior to the collapse of the economy), Macy's lost $2,800,000,000 profit, and paid $1,600,000,000 in interest payments.

Think about that. How much damage could $1,600,000,000 of incremental online infrastructure investment and/or online marketing have done, both online and in stores? All of that money, instead, was sent to a bank.

So let's temper enthusiasm about the role of a website within a retail brand with a simple metric, a simple "KPI" to use the parlance of the day: During the past three and a half years, the success generated by a website that influences $5.77 of retail sales for every $1 online resulted in a total loss of nearly $2,900,000,000, and significant comp store sales decreases. If the website were truly driving such stellar incremental volume to the stores, wouldn't there be some positive motion in comp store sales results during this timeframe?

Without a doubt, e-commerce, and websites in general, significantly, dramatically influence sales. We have no choice but to offer the customer an outstanding experience. And Macy's deserves to crow about this metric, it's a wonderful finding, a validation of something that people instinctively knew but couldn't prove.

But do not, for one minute, assume that "influence" translates to profit. Or even comp store sales increases. You can invest a ton of money in a perfect online experience, please customers, and not see one penny in incremental sales increases in your retail stores.

Keep this information in mind when your favorite vendor calls you, asking you to invest in e-commerce solutions, using Macy's as a poster child for multichannel integration.

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