December 28, 2016

A Post-Mortem on 2016

Half of our readership thinks the world is coming to an end, half delights in draining the swamp of characters like the one depicted here.

Yup - it's the end of 2016.

We head into 2017 with clear stories resulting in an "obvious to-do list".


Amazon - A Long Term Problem

If Amazon is +/- 35% of e-commerce, then one might assume that Amazon is hurting the average traditional catalog business by 35%. Divide that out over the course of a decade, and it is a constant 3.5% drag on business. But by the same token, we've had twenty years to craft a response to Amazon. The fact we haven't crafted a response is telling. What's just as interesting is that on Black Friday / Cyber Monday, ten brands accounted for about half of e-commerce sales. So a handful of large retailers and Amazon are responsible for changing direct-to-consumer sales trends. These trends cannot be fought via omnichannel strategies (ask Macy's) or via being "more digital" or by selling at 40% off. We either beat Amazon or join Amazon or we go away. Any cataloger not developing a viable Point of View strategy to exist in spite of Amazon is going to eventually go away. By not doing anything, Amazon takes sales and the customer file rapidly ages ... a terrible combination.


Baby Boomer Retail = Crumbling

As the Baby Boomer generation retires, traditional Baby Boomer Retail retires with it. No amount of omnichannel strategy is going to stop what is coming. Retail has many healthy brands among customers age 15-39, as has always been the case. Think of it this way ... customers are like little ducklings that imprint upon a retail brand. Once that happens, it's hard for the duckling to value a Baby Boomer brand ... as it was hard for the Baby Boomer to embrace Kresges / Gimbels / Montgomery Wards. Couple that with price deflation driven by the evisceration of the middle class, and we've got a dilly of a pickle on our hands ... but one we could have seen coming from 20 miles away. No amount of omnichannel strategy will solve this problem. We're going to have to get really, really creative, aren't we? 


E-Commerce = Customer Acquisition Wall

We're on the verge of the first major wave of e-commerce innovation in the past decade. I continually observe customer acquisition challenges among e-commerce brands. And if you watch cable television, you see an absolute glut of e-commerce brands advertising ... on television ... a medium we were told five years ago was "dead". This can't happen unless new customer growth is stalling (and rest assured, it is stalling). This is why innovation is coming ... e-commerce companies are going to experiment with a ton of non-traditional non-digital strategies to grow.


Outsourcing Commodity Items

In the offline world, commodity items (Dockers) are outsourced to Macy's. In e-commerce, clever catalogers could easily outsource the commodity portion of their business to Amazon. I predict this trend will accelerate - with Amazon being the World's Largest Department Store. Why not put Amazon and their logistics to work for you? Stop competing. Start putting Amazon to work on your behalf. You could sell five million dollars on Amazon and give them 30% +/- for their cut, and then with a reasonable cost of goods structure you could make more money than by dumping the items in a catalog and paying 30% of net sales to the catalog ecosystem. Ultimately, we're paying third parties to help us. Pick your third parties carefully.


50% Off

This only happens when Marketing, Inventory Management, and Merchandising all fail simultaneously. It happens when you focus on ERP and Omnichannel systems instead of focusing on selling stuff the customer wants. Look at what happened to Neiman Marcus this fall for a cautionary tale. Look at what happened to Macy's ... focused on rolling up brands and integrating channels for a decade ... beloved by vendors / consultants / trade journalists ... not beloved by customers.


The Catalog Holding Company

We're about to see dramatic growth among Catalog Holding Companies. Weak catalogers cannot sustain a business on the back of a 64 year old rural customer. With the ten-year dominance of the co-ops ending now, strong catalog brands will acquire weak catalog brands with the goal of creating an "in-house co-op". As Catalog Holding Companies become large enough (i.e. 20-30 brands generating $50,000,000 each), every relevant catalog shopper will be housed by every relevant Catalog Holding Company. At that point, the current family of co-ops support independent catalogers - becoming in essence a Catalog Holding Company that outsources all fixed/variable costs to independent catalogers while harvesting 30% of cataloger profit in the process (think of a $30,000,000 cataloger that generates 5% pre-tax profit - they'll need +/- 100,000 new names a year at a 1% response rate, yielding 10,000,000 names rented at $0.06 each, paying co-ops $600,000 a year).


Google + Facebook + Amazon + Apple

Four gatekeepers for the next four years. But technology has taught us that online, brand dominance is fleeting. In the short-term, you either build a strong brand with a Unique Point of View, or you pay whatever these folks tell you to pay. Most of us will pay whatever these folks tell us to pay. Most of us should develop a strong brand with a Unique Point of View.


Optimism

Never in the history of marketing have there been more ways to be successful than at the end of 2016. In fact, it couldn't be easier for an individual human being to be successful. But the bounty of diversity offered by modern marketing makes it even harder for groups of people to move in a productive direction. If there is anything that The Election taught us, it is that the experts are frequently wrong, there are surprises around every corner, and there are many ways to achieve goals - positive and negative. I'm optimistic that many of you will find unique and positive ways to generate success in 2017.


Digital Is The Enemy Of Creativity

If you are a ten million dollar business, you can become a hundred million dollar business by "hacking digital". But if you are a hundred million dollar business, you need a heavy dose of creativity (or money) to get to a billion dollars. And if you are a billion dollar business, creativity becomes essential. But we've been taught that creativity is bad. We've been taught to leverage digital to become "efficient". We're now taught that customers want to have "authentic and engaging relationships with bots." Creativity is set to make a rally - it has to because we've over-optimized the digital side of business.


People

Also set to make a comeback. I recently spoke with an analytics professional who said he could "see the writing on the wall" ... he could see that technology was about to consume portions of his job. And that's been happening for decades. Regardless, each wave of technology consumes commodity functions while exposing people-skills as being even more important. People are about to become critically important ... you'll hear the opposite, but don't believe it. Focus your efforts on how you can help somebody else look good, and you'll go far.