My Hypothesis

These days, we're told what we must think. I'd prefer if we viewed the evolution of business in a way that was supported by data.

I tend to support three client bases.

• Traditional Catalog Businesses.
• Billion Dollar Plus Retail Companies You Know And Actively Shop At.
• E-Commerce Businesses, Usually Smaller E-Commerce Businesses.

Within each business model, I've analyze a lot of data. Hundreds of billions of dollars of transactions. I get to see how customers migrate across channels. I get to see how different age cohorts change behavior over time.

Each business model has different challenges. For each business model, I create a hypothesis that guides the project work I perform. The hypotheses are grounded in customer performance data.

Catalog Hypothesis:

• The Multi-Channel movement of the 2000s caused catalogers to align the online channel in an effort to support the catalog - catalogers were told that the customer wanted this to happen.
• When the online channel is aligned to support the catalog, customer acquisition efforts within the online channel suffer, because the website is leveraged to capture orders from co-op customers, not leveraged to acquire online customers via online marketing channels.
• When online customer acquisition efforts suffer, new names must be found, using the catalog as the primary marketing vehicle. 
• Catalogers love this dynamic.
• Catalog names can easily and cheaply be acquired via the co-ops.
• Co-ops spin the most responsive names to catalogers.
• Co-ops spun 55+ rural customers to catalogers.
• Catalogers altered the merchandise assortment to appeal to 55+ rural customers - not consciously, I suspect.
• The catalog merchandise assortment is no longer appealing to an under 40 customer base.
• As a consequence, catalogers will ride the Baby Boomer generation through retirement. It will become harder and harder to acquire customers via the co-ops, resulting in business challenges that won't be fully apparent for another five years, but are already manifesting themselves via lowered co-op response rates.
• Co-op response will be the canary in the coal mine. From what you are all telling me, it already is the canary in the coal mine.

Retail Hypothesis:

• Retail is not suffering from a lack of digitization, contrary to what you read.
• Retail is suffering from not being entertaining enough to pull a customer off of a comfortable seat to get into a car and drive to a store.
• Retail brands were terrible, absolutely terrible, at direct marketing, from 1995 - 2009. 
• As a result, e-commerce lagged in retail.
• Retailers became competent at e-commerce sometime around 2010.
• When retailers became competent at e-commerce, customers no longer had a need to get in a car and drive to a store - the retail website was sufficient to satisfy customer research needs.
• When traffic faded in stores (often caused by retailers with newly competent websites), retail brands responded by offering deep discounts and promotions.
• Retailers trained customers to expect deep discounts and promotions, further driving down traffic during full-price time periods, requiring more discounts and promotions to drive traffic, eroding profit and customer trust.
• Our industry mistakenly interpreted the drop in traffic as a competitive issue - we mistakenly assumed that in-store traffic was struggling because the store was not "digital enough" to compete with e-commerce. 
• Turns out that the opposite is true - retail lost traffic because the customer didn't have to go to a mall to perform research and/or discovery because of the digitization of the business - retail lost traffic because the e-commerce website was too effective - causing customers to not have to bother to drive to a store.
• In the next five years, retailers will invest billions to overhaul the supply chain, to integrate all channels, and to make shopping seamless.
• Retailers will not pay attention to what happened to catalogers when catalogers did the exact same thing 10 years ago.
• Retailers should pay close attention to what happened to catalogers when catalogers integrated the whole mess 10 years ago.
• In five years, shopping across channels will be easier, more convenient, and more seamless than ever before.
• In five years, comp store sales will continue to slide, because the retail industry will not address the root problem with retail.
• In five years, a handful of retail businesses will figure out that that there are three things that make retail fun - great merchandise - affordable prices - and an entertaining in-store experience.
• In other words, retailers will figure out that retail must be entertaining.
• Retail is going through the same transition that professional / college sports are going through. Professional / college sports can be experienced at home in front of a large TV with five or seven or nine speakers and a subwoofer. To get a customer to go to a stadium, the in-stadium experience must be exceptional. 
• To make the in-stadium experience exceptional, sports teams got taxpayers to subsidize their efforts - new stadiums!
• Retailers will not get taxpayers to subsidize their efforts.
• Retailers will figure out that a full digitization of the business (omnichannel) does not improve the "entertainment factor". Retailers will respond by making retail entertaining. This, not omnichannel, will be the fundamental change that kick-starts retail from the current "funk" it resides in.

E-Commerce Hypothesis:

• E-commerce-only brands benefited from twenty years of cannibalization - catalogers and retailers created demand that e-commerce-only brands fulfilled, via significant help from Google.
• The days of e-commerce cannibalizing catalogs ended with The Great Recession.
• Much of e-commerce growth in the past half-decade came from large retail brands that figured out how to sell directly to customers.
• In other words, most of the easy ways to grow via e-commerce have been exhausted.
• The internet has become an advertising platform controlled by a small number of entities.
• One of the ways to become both an advertising platform and to control e-commerce is to become a marketplace. Think eBay. Think Amazon. Then think of copycats like Sears, who essentially sell goods from other folks as a way to advertise Sears.
• Customers do not inherently like advertising.
• Let me take that back. Customers love advertising if it means they can watch the NY Giants for free, or The Big Bang Theory for free. Customers do not love advertising if it means that an ad telling you that you left a pair of socks in a shopping cart follow you around the web for the next week.
• Customers escaped Web 1.0 via Facebook and Twitter.
• As Facebook and Twitter further embrace advertising, customers will flee to yet-to-be-created platforms, which are always free at first.
• Commerce is usually one step ahead of advertising.
• As mobile grows, commerce will get figured out. When commerce is figured out, advertising will move in.
• In other words, e-commerce will be gutted from the inside, first by ads, then by mobile ... much in the same way that Yahoo! was gutted from the inside by Google, and then Facebook/Twitter.
• I'm saying that e-commerce growth will stall ... the very tactics that caused e-commerce to grow will manifest via mobile and will eat e-commerce.
• E-commerce folks will miss this trend, in the same way catalogers missed the first trend ten years ago.
• Hologram marketing will obliterate mobile, causing a subsequent shift from mobile to holograms (or whatever comes next). It's the way business works.
• E-commerce mavens will cling to their business model ... "customers who shop via both e-commerce and mobile are worth 11 times as much, proof that e-commerce works."

My Main Point:

• Regardless of channel or customer, the most important element of commerce is merchandise - having merchandise that customers love, at prices customers are willing to pay, sold via an entertaining environment that satisfies the customer. 

You're likely to disagree with me - so use your platform to argue for/against, leave a comment, or send me an email message (kevinh@minethatdata.com) outlining your hypothesis.