April 23, 2014

Stirrup Pants

I've never gone into a lot of the back-story about why we killed a traditional catalog business at Nordstrom.

Rest assured, one of the main reasons the catalog was killed was a classic omnichannel merchandising challenge that few experts want to talk about.

Catalogers perform what is called a "square inch analysis". They look at all demand generated by an item, in the catalog, and a portion of the online demand, then they divide the results by the total number of square inches of merchandise put in the mail.
  • Example: 1,000,000 circulation. An item is featured on 1/4th of a page. The item generates $12,500 demand. Demand per Thousand Pages Circulated = ($12,500 * 1,000) / (1,000,000 * 0.25) = $50.00.
  • Example: 1,000,000 circulation. An item is featured on 1/10th of a page. The item generates $7,000 demand. Demand per Thousand Pages Circulated = ($7,000 * 1,000) / (1,000,000 * 0.10) = $70.00.
When you perform a square inch analysis, you quickly observe that catalogs cause customers to purchase specific items. If you are a smart merchant, you run the items that exhibit a high demand per thousand pages circulated - you'd be an idiot not do to this.

Here's where the whole omnichannel argument falls apart.
  • Stores attract a specific audience with specific needs (entertainment / social).
  • Online marketing attracts a specific audience with specific needs (merchandise needed now).
  • Email marketing attracts a specific audience with specific needs (discounts/promos).
  • Mobile marketing attracts a specific audience with specific needs (information needed now).
  • Catalog marketing attracts a specific audience with specific needs.
At Nordstrom, the catalog customer loved stirrup pants, and loved elastic waist products. At Nordstrom, the retail customer had zero interest in this merchandise.

In order to maximize the productivity of the catalog, you needed to feature more stirrup pants, and more elastic waist products - and you needed to feature that merchandise at the front of the catalog.

In order to maximize the productivity of a store, you stayed miles away from stirrup pants. Worse, the catalog customer would return the stirrup pants to the store, hurting comp store sales in the store, disappointing the customer in the process (no stirrup pants in the store).

A decision was made. Nordstrom would kill the catalog. In other words, the catalog had no place in a marketing mix where the catalog customer pushed the catalog in a direction in-congruent with the direction of the brand.

We eventually mailed catalogs, with each page featuring products chosen by retail vendors. The productivity of these catalogs was 20% of the productivity of a standalone catalog designed to drive sales. 

In a Merchandise Forensics project, you're going to run across channel conflicts. Each channel has a specific need, a purpose, and that purpose must be capitalized upon for success within that channel.

Omnichannel experts want you to homogenize each channel, so that each channel is reflective of the brand. This may be exactly what you have to do, it's what Nordstrom did and it sure worked for them. But you have to understand the tradeoffs. For too many of my clients, the tradeoffs result in a dramatic drop in profitability, especially if the catalog fostered a customer audience that is now 60+ years old.