December 12, 2010

Dear Catalog CEOs: Product Development Matters

Dear Catalog CEOs:

When we focus on the success of a direct business, we like to think about things like channels and customers.

We almost never read about merchandise.  What a shame.

Last week, we talked about "Class Of" reporting, analyzing items that were "born" during a certain year.


In this example, take a look at how new items perform in the year they were born, and then look at how those items perform one year later.
  • 2005 New Items = $4,883 per item.  2006 Performance = $8,501 per item.
  • 2006 New Items = $7,650 per item.  2007 Performance = $12,243 per item.
  • 2007 New Items = $7,566 per item.  2008 Performance = $6,780 per item.
  • 2008 New Items = $7,275 per item.  2009 Performance = $8,070 per item.
  • 2009 New Items = $5,043 per item.  2010 Performance = $5,722 per item.
The relationship isn't perfect, obviously, but there is a 45% correlation in average performance, an R-squared of about 20%.  The results early in the cycle are clearly influenced by a dramatically inflated bubble-based economy.

There are two really important pieces of this puzzle.
  • New items must perform at an acceptable level.
  • There must be enough high-performing new items to drive future productivity.
Your turn:  Do you have the reporting in place to understand this important merchandise dynamic?