Fixing Retail

When we read about fixing retail, the ideas and tactics have merit. You'll read about "entertainment" and you'll read about "the customer experience". Both are important, no doubt about it.

Neither solve any of at least five structural problems with retail.

• Shifting traffic that used to go into stores instead to the e-commerce channel.
• Amazon.
• Loss of ecosystem traffic via store closures and competitive challenges that result in less traffic in shopping centers.
• Boring merchandise. Who wants to buy a pair of Dockers when you can just go to Costco and buy something similar for 1/3rd the price along with 64oz of nacho cheese?
• Loss Gross Margins. Remember, gross margins fund EVERYTHING. Everything.

You have to solve each problem (above) if you want to fix retail. "Entertainment" and the "Customer Experience" barely solve one of the five problems.

If you are a retail expert (odds are you are or you wouldn't be reading this), tell me how you are going to simultaneously solve each of the five problems above?

I'll wait here for your solution ... go!

Retail Success ... and no E-Commerce!

Accounting for one out of every fourteen dollars in the UK (click here).

Do what is right for your business ... not what a pundit being paid by a vendor tells you to do.

Such a Fun Read!!

This one is fabulous (click here).

What Google and Facebook have done is this ... they've convinced feckless marketers to pay for interactions that, if the interactions disappeared, would result in orders anyway.

It's no different in the catalog industry, where boutique agencies prey on my client base via what are called "matchbacks", where you match all orders within "x" days and "y" criteria against those who received the catalog, and if the order matches via specified criteria the catalog gets credit. It's such a hopelessly WRONG methodology, one designed to protect industry vendors, paper reps, and printers. And everybody uses it, regardless. Heck, I've got hundreds of A/B tests at my disposal that prove that the methodology is hopelessly wrong and you share the results and STILL nobody cares.

Why is this the case?

In other words, why would a very smart individual willfully ignore facts? It's almost like our political situation, isn't it?

There are three phases in the evolution of this phenomenon.

1. The professional doesn't know the facts exist and trust failed metrics as facts.
2. The professional learns that facts exist and does not understand what the facts mean.
3. The professional knows what the facts mean and chooses to ignore them.

It's (3) that I'm always dealing with. Take the merchant who loves to put together 88 page catalogs. If you tell her that at least half of the orders "matched back" to the catalog will still happen anyway if the catalog is not mailed, you have a series of problems that the merchant has to deal with.

1. If the orders happen anyway, I probably have too many pages in the catalog.
2. If the orders happen anyway, I'm probably mailing the catalog to too many customers.
3. I love (1) and (2), therefore facts are taking away from me the thing I love doing.
4. Therefore, I'm not going to adhere to the facts. I will ignore the facts.
5. By ignoring the facts, I get to keep doing what I love to do.
6. And if I decide to accept the facts, then "what" do I do to replace what I've been doing? If I don't know what to do next, then I'm stuck.

It's been my experience that it is terribly hard to fight this dynamic. Nobody wants to stop doing what they love to do.


P.S.: There is a TON of profit to be had in eliminating catalog pages and catalog contacts to individual customers. So much profit that you'd be able to waste it acquiring new customers unprofitably with catalogs, protecting your future. Put your pride aside and move forward. You have a future, a promising future!!!!!

A Brief Merchandise Attribution Example

Think about Merchandise Attribution this way.

Say your company has five merchandise divisions.

• Mens
• Womens
• Kids
• Home
• Gifts

In 2018 each division generated the following sales levels.

• Mens = $10 million.
• Womens = $20 million.
• Kids = $5 million.
• Home = $5 million.
• Gifts = $5 million.
• Total Brand = $45 million.

Your Management Team decides to shut down the Home division. Projected sales through mid-November look like this, forecasted through the end of 2019.

• Mens = $10 million.
• Womens = $22 million.
• Kids = $5 million.
• Home = $0 million.
• Gifts = $5 million.
• Total Brand = $42 million.

Two questions:

1. How much of the Home Division's $5 million in annual sales was truly incremental to the brand.
2. How would you measure the incremental amount prior to shutting down the Home division at the end of 2018??

Discuss.

Merchandise Attribution

Let's tell a little story here.

Back in the stone ages of retail (1997) I worked at Eddie Bauer. We had a division in our stores called "Sport Shop".

If you walked into one of our stores, you'd first see the Sport Shop department ... a canoe handing from the ceiling, fishing lures, general manly outdoor merchandise and gear.

You'd watch a couple enter the store. The guy would look at the Sport Shop and stop dead in his tracks. The woman would walk right past the Sport Shop and head toward casual apparel or our tailored/professional line.

Well, this Sport Shop, when measured on a square footage basis, didn't pay the bills. It was a money loser ... a significant money loser.

Sport Shop was shuttered.

And then something fascinating happened.

Women's merchandise sales decreased a bit.

Men's merchandise sales decreased a lot. All of a sudden, we had a "mens problem".

In other words, what we really had was a Merchandise Attribution problem. The Sport Shop was the bait (play on words) for getting the man in the store, where the spouse frequently bought something for the man. Take the Sport Shop away, and you take the guy out of the picture, and then you reduce sales as a consequence.

Why bring this up?

Because in my projects I'm increasingly seeing "Merchandise Attribution" issues. A product category is discontinued, and as a result 2-3 other categories begin to struggle.

It's become obvious that almost nobody is studying Merchandise Attribution. It's a gaping hole that can and should be filled by the vendor community. It's entirely possible that this becomes an area of focus for me in 2020, paired with my Pricing work that has become so popular.

Show of hands ... how many of you are studying "Merchandise Attribution"????

A-Commerce

A quote from the Twitterati ...

Benedict Evans

@benedictevans

Idle observation: this year 60% of sales on Amazon will be made by third parties, where Amazon itself did not set the price.

It's time we separated terms.

• E-Commerce is the old-school stuff (20-25 years old) that most of our readers manage on a daily basis.
• A-Commerce is something altogether different ... it's the ecosystem Amazon created,

In E-Commerce, you theoretically have a direct relationship with your customer.

In A-Commerce, you are an intermediary stepping between Amazon and an Amazon Customer.

Either strategy can work ... but make no mistake, these are two fully separate marketing / business channels. Your ability to guide your business into the future is fully dependent upon understanding the distinction between the two channels.

How Many Styles is Too Many Styles?

Let's say you have a category, and you have just one style / product in that category.

Then you add a second style / product. Sales rarely double, correct?

But sales increase, so you add a third style. And a fourth. And so forth. Eventually you have 250 styles.

How many styles "should" you have?

It's a difficult question to answer. You have to take into account your inventory forecasting abilities, warehouse availability and costs, product development expense, you name it.

It's not difficult to figure out what happens as you grow. Take all of your merchandise categories, and build a relationship like we see above. A classic "law of diminishing returns" relationship emerges.

You can use the relationship to determine an "optimal assortment size" by category given constraints ... if you can only have 900 styles / products, you can theoretically parse them out by category to grow top-line sales. We used to do this at Eddie Bauer more than twenty years ago, so the concept isn't a new one. But it is one worth thinking about, correct?