November 20, 2013

Dear Catalog CEOs: It Turned Out Different

Dear Catalog CEOs:

Thumb through the Internet Retailer Top 500 some day - just for giggles. Among the top 30 in the IR Top 500:
  • Only 3 Are Web-Only: Amazon, Netflix, Newegg. Interestingly, Amazon represents something like 25% of all e-commerce. Geez.
  • A whopping 17 are retail brands: Staples, Wal-Mart, Sears, Office Depot, Best Buy, OfficeMax, Macy's, Grainger, Costco, Target, Gap, Victoria's Secret, Williams Sonoma, Kohl's, Barnes 'n Noble, Nordstrom, Toys 'R' Us.
From 30 to 100, somewhere north of 35% of the businesses are classified as web only.

From 101 to 200, about 30% of the businesses are classified as web only ... with annual sales of about $150,000,000 ... totaling $15.0 billion ... about 25% of what Amazon does.

From 201 to 300, about 35% of the businesses are classified as web only ... with annual sales of about $75,000,000 ... totaling $7.5 billion ... about 12% of what Amazon does.

From 301 to 400, about 40% of the businesses are classified as web only ... with annual sales of around $37,000,000 ... totaling $3.7 billion ... about 6% of what Amazon does.

From 401 to 500, about 55% of the businesses are classified as web only ... with annual sales of around $25,000,000 ... totaling $2.5 billion ... about 3% of what Amazon does.

From 501 to 1,000, about 58% of the businesses are classified as web only ...with annual sales averaging $7,500,000 ... totaling $3.5 billion ... about 5% of what Amazon does.

This should cause us to pause, to think.
  • Amazon did $61 billion last year.
  • Companies 2-10 did $50 billion last year.
  • Companies 11-100 did roughly $110 billion last year, +/-.
  • Companies 101-1000 did $32 billion last year.
The "1%" in e-commerce generate more than 40% of e-commerce volume.

My goodness.

You were promised that "multichannel" would cause you to be successful. Remember all that mindless hype? Vendors, trade journalists, bloggers, consultants, they all told you that a combination of your catalog and e-commerce was unbeatable.

Wrong.

Those folks, with no skin in the game, sold us a story. 

While we focused on being multichannel, retailers transitioned their catalog business to e-commerce (like when I worked at Nordstrom), or they increased sales by 10% by adding a direct marketing channel that was previously (and foolishly) missing.

And Amazon, following a decidedly non-multichannel model, became e-commerce, mulching all of us in the process.

It turned out different than the experts told us it would turn out. 

There's the 1%, and then the rest of us.

The majority of e-commerce brands, as illustrated above, became niche players unable to crack the $30,000,000 barrier. There's something magical about that $30,000,000 level ... it's where the easy work ends, it's where the spending begins. And there's only so much you can spend in classic e-commerce (paid search, retargeting, affiliates, um, uh, hmm) before you have to branch out and try something different (or generate improved merchandise productivity).

So everything we were told was wrong. The average e-commerce business fills a niche. Retailers finally started a direct marketing channel, and because of sheer volume and brand equity, sucked the life out of direct marketing. And Amazon won the battle. Online, there's always one winner.

Where does this leave us?

Well, we've always been niche focused. No, not L.L. Bean, but if you are Cuddledown of Maine, you were never going to hit a billion dollars in sales.

And because of our lust for a multichannel model, because we overstated our matchbacks in order to keep mailing catalogs, we found our niche.

Our niche, of course, is 55+ rural customers who love being romanced via paper.

A pivot to a 28 year old shopper will require pain, coupled with a low probability of success.

A pivot to a 44 year old shopper is possible, but requires taking Amazon head-on. Good luck.

It's time to start giving serious thought to what the future looks like. The "multichannel" strategy of the past decade didn't work. Where do we go from here?