March 28, 2011

Tuesday Mailbag: L.L. Bean, J. Jill, and More

Here's our mailbag ... these are questions from fictional readers that real readers should be asking.

Craig in Ephrata asks:  What's up with J. Jill being sold again?

Kevin:  My opinion only ... you don't ever want to work for an apparel retailer that is treated by financial institutions like an equity traded on the open market.  It's hard for a leadership team to have a passion for merchandise and customers when the business is being flipped every couple of years.  It can take a half-decade to reinvent customer passion around the merchandise assortment, ask J. Crew for details, that process is seldom congruent with the incessant sale of a brand to financial institutions.

Ralph in Cannon Beach asks: L.L. Bean will offer free shipping, all day, every day, going forward.  I don't think my business could ever afford to do this.  Will they back away from free shipping in the future?

Kevin:  In November and December, almost everybody offers free shipping, and it "works".  It works, of course, because the control group ($14.95 shipping) is so uncompetitive that the lift free shipping provides pays for itself.  The interesting thing, to me, is what happens in the future when nearly everybody has some sort of free shipping strategy outside of the Nov/Dec window.  When everybody offers some version of free shipping, the "lift" associated with free shipping largely disappears.  This means that the profitability of the offer disappears.  Free shipping will have to be funded by "something".  It is my opinion that catalogers, in particular, will fund free shipping with a significant reduction in "mailing waste".  A smart cataloger will mail a customer thirteen times a year instead of twenty-three times a year, funding free shipping with the ad-cost savings while protecting 95% of the sales.  The net-net of this relationship will be a positive.

Amelia in Nashville asks:  Did I see that Groupon is now losing market share?  I thought this was the business model of the future?  What's going on?

Kevin:  A couple of things.  First, never confuse market share and net sales.  If a market triples in size, and you go from owning 100% of the market to 50% of the market, your business grew.  Second, the pundits don't know a whole lot, how could they know a lot?  Three years ago, Groupon didn't exist, so how could a pundit know how the "space" was going to evolve?  Thought leaders offered strongly worded opinions based on a limited dataset that offered virtually no ability to forecast the future accurately.  We have no idea how group buying or "social commerce" will evolve.  Enjoy the ride!

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