July 13, 2011

The Nordstrom Catalog Experiment of 2004 - 2006: When The Catalog Argument Is Right

Yesterday, we covered flaws in the catalog argument, comments I fielded from the catalog industry when we killed the catalog division at Nordstrom.  Today, we review arguments that proved to be true.

True = Frequency Is Important:  One of the consequences of not having a catalog is that you lose a way to communicate with the customer.  We significantly ramped-up our e-mail contact frequency, in order to make up lost sales and to continue communicating with the customer.  That being said, advertising frequency does play a role in encouraging additional purchases and increased customer retention.  Annual retention rates decreased, maybe by 20% or more, without print in the mail.

True = The Culture Changes:  When you eliminate a catalog division, you change the internal pecking order among employees.  The catalog merchant suddenly has a set of skills that aren't as respected as they used to be, the person responsible for creating landing pages suddenly has skills that are in demand by folks who are desperate for ways to drive sales.  If you have a one hour meeting, and now there's no catalog to talk about in that meeting, well, you do find a way to fill the time with other channels, and that spurs a new style of creativity that yields unpredictable outcomes.  You go through a painful 18 month process where you are essentially re-defining how things get done.


True = The Rats Scatter:  I had employees head for the exits, proclaiming that "Kevin's ship is sinking because he's a catalog person" on their way out the door.  Do I look like I'm doing alright today?  I'll tell you this, you quickly find out who has your back at work when your channel is eliminated.  Many employees love channels more than your company, this will become clear when you make significant changes to your strategy.


True = Planning Changes:  So many folks plan a season by starting with the catalogs that will exist, then planning the merchandise that goes on each spread, then forecasting circulation depth and demand, then planning all other channels in an "integrated" manner.  Well, there's nothing integrated about that, is there?  That's a catalog-centric planning strategy.  Take the catalog out of the picture, and you have a whole new way of looking at your business!  Suddenly, merchandise becomes really important.  Suddenly, you need to create events/reasons for customers to purchase, reasons that are not catalog-centric.  Creativity returns to your business, folks.


True = The Vibe Disappears:  When you mail a catalog every three weeks, there's a cadence that runs your life ... you live for the in-home week, you thirst for information, you wonder if the books are being delivered or if the merchandise stinks, you try to project the book to completion and then think of the ramifications of the book being above/below plan on the rest of the year.  You use book performance to drive liquidation strategy.  You use book performance to drive customer file reporting that drives future circulation depth and strategy.  Well, when that cadence is gone, oh boy, the vibe disappears.  Your sales spikes disappear.  Your business acts a lot more like a retail business than a catalog business.  You find something else to live for.


True = Traffic Matters:  In the catalog world, circulation depth determines traffic.  Without the catalog, well, what causes traffic?  Good question!  Circulation and response rates are replaced by traffic and conversion rates, and the accountability shifts.  All of a sudden, the web analysts is getting important questions, and is required to provide answers, because you can't blame the catalog for traffic increases/decreases anymore.  You shift your mindset, you shift your cause-and-effect thinking.  Honestly, you become more open-minded about business when you don't have a catalog to give credit to or place blame on.


True = The Merchandise Assortment Shifts:  The old-school catalog customer drives the assortment, because her demand is most easily measured and attributed back to the catalog.  Take the catalog away, and you change the demographics of the customer buying merchandise, and that causes the productivity of some items to change, and that fuels changes in future merchandise assortments.  In eighteen months, you've taken your merchandising assortment in a different direction.


True = It's Harder To Forecast Inventory:  The honest truth is that an e-commerce business is very similar to a retail business, from an inventory management standpoint.  In retail, when that stack of 50 shirts is gone, it is gone, and you don't know if you could have sold 53 shirts or 83 shirts or 1,113 shirts.  So you have to have more of a gut feel, you're less metrics-oriented.  In catalog, you capture lost sales, and lost sales help you forecast inventory next year.  In other words, the retail inventory expert is more adept at handling e-commerce than is the catalog expert, once the catalog is gone.


True = You Grow, Professionally:  My experiences in the non-catalog environment shapes the work I do for clients today.  When clients suggest that the catalog is a "must have" or "is the brand", I know how to proceed, because I've been there, I've felt that way myself, and I've seen what it is like to not have the catalog there anymore.  You most certainly grow as a professional, you are removed from your comfort zone.  If you are an e-commerce professional, your turn is coming ... mobile has the potential to transform your world in the way that e-commerce transformed catalog marketing.

That last point is the most important one.

E-commerce leaders are going to be put through their paces in the next five years, should mobile become a commerce force.  Catalogs are to e-commerce as e-commerce is to mobile.  E-commerce wonks will deal with a new generation of leaders, leaders that bring a new generation of tools and analytics and workflow processing tailored to the mobile channel.  History repeats itself.

5 comments:

  1. True = It's Harder To Forecast Inventory?? FALSE!

    Kevin I have to disagree! With good analysis of online behaviour a much better forecast of lost demand can be made. When you analyse data from a product centric view you can see the number of views a product got, the level of stock when it was viewed, the type of campaign that generated the product view, the number of times it was added to cart and then number finally checked out. And that  is just the start before segmentation, time between visits etc. Are added.  With such rich data it is not hard to do a much better forecast, it's just people don't try, they accept the status quo.

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  2. Oh boy.

    In theory, what you're describing is correct, and it is correct from an analytics-centric point of view.

    One needs to put themselves in the seat of an inventory manager, an individual who is looking at standard reports from an in-house inventory reporting program written in 1999 to understand why it is harder to forecast inventory.

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  3. Theory? I agree about the 1999 system, but the buying & merchandising teams in the online world do have access to much better data - but they don't always choose to use because the old system is king, but they do have it and I see some are using it now.

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  4. I've read several of your posts about your shift from a dependence on catalogs to a fairly abrupt dependence on the Internet for Nordstrom.

    But I wonder if this would have happened if you had been a pure cataloger without a strong retail presence?

    You probably already addressed this somewhere else, but I missed it.

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  5. Hi Ted, this question is the number one question I get, and it was addressed earlier in the series.

    If you lined up ten classic direct marketers, nine would tell me that my experience was in some way wrong and not applicable to anybody else, simply because I worked for a retail business with a 100 year heritage.

    One in ten classic direct marketers would conduct mail/holdout tests. Simple mail/holdout tests hold the answer to this question.

    I have catalog clients that could shut down their catalog advertising program today and be perfectly healthy. Their customers are loyal to the brand, and are willing to shop other channels without the need for catalogs.

    I have catalog clients that could shut down their catalog advertising program today and be out of business in one month. These businesses host an audience of 55+ rural customers, and are largely dependent on catalogs to generate demand.

    The secret, of course, is to measure the organic percentage via mail/holdout tests ... to identify the percentage of demand that happens when catalog marketing is taken away.

    This is what we did at Nordstrom, we executed the tests.

    In other words, this isn't a retail issue. This is a classic direct marketing mail/holdout testing issue that most classic direct marketers fail to consider.

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