May 06, 2012

Dear Catalog CEOs: Store Distance and Mobile

Dear Catalog CEOs:

There's a reason why cataloging evolved to a 55+, rural-based business model.

Let's say you live three miles from your nearest Pottery Barn store.  You receive a Cuddledown of Maine catalog in your mailbox on a Monday.  Interesting items, interesting prices.  But you also live three miles from your nearest Pottery Barn store.

Until 2011, retail always beat online, online always beat catalogs, leaving catalogs to cater to an older, rural audience.

If you worked for a retail brand, and you analyzed tests, you knew that a few things were "true".
  • If a customer lived 0-5 miles from one of your stores, catalogs had marginal utility, and emails were more likely to drive volume into stores than to your website.
  • If a customer lived 6-10 miles from one of your stores, catalogs inspired some customers to visit stores and some customers to visit your website.  Emails were equally likely to drive volume to stores or to your website.
  • If a customer lived 11-25 miles from one of your stores, you were in multi-channel heaven!  Just about everything worked.
  • If a customer lived 26-50 miles from one of your stores, the story shifted.  Catalogs drove customers online, while websites were much less effective at getting customers to get into a car and shop at a store.  The website became the anchor of the business for customers 26-50 miles from a store.
  • If a customer lived 51+ miles from one of your stores, the story shifted again.  Catalogs fueled the relationship, as rural customers embraced tradition, routine, comfort, and habit, all offered in catalogs.
Until 2011, retail mulched direct marketing.

Then mobile entered the picture.

Mobile doesn't compete with cataloging, be honest!  The 27 year old Jasmine that is using a mobile device is not trading a catalog order for a mobile order.

E-commerce doesn't really compete with retail, if it did, retail would have posted giant, negative comps from 2000 - 2010.  No, e-commerce destroyed catalog marketing, it didn't do much damage to retail.

However, mobile is set to destroy retail as we know it.

No, mobile isn't going to cannibalize 40% of retail sales.

Mobile only has to cannibalize 3-5% of retail sales, over the next 3-5 years, to exact a harsh penalty on a debt-ridden channel.  Retail demands that comp store sales increase enough to offset inflationary pressures.  Without such increases, retailers cannot cover debt obligations and fixed costs.

Entire retail brands will crumble under the pressure of minor comp store sales declines and huge debt obligations.

As this transition happens, companies will take drastic measures to protect the profit and loss statement.  Retailers will spend less on search marketing.  They will cut back on catalog circulation.  They'll do this indiscriminately.

This yields an opportunity for the cataloger ... Jasmine's generation uses mobile to knock out a portion of the retail infrastructure ... retailers respond by trimming marketing to Judy and Jennifer (mistake) to keep the business solvent in the short term ... Judy turns to catalogs ... Jennifer turns to e-commerce ... Jasmine continues to embrace mobile.

Mobile, and the impact that mobile/Jasmine could have on retail, have the potential to prop-up catalog marketing a bit over the next five years.  Pay close attention to mobile trends.  Pay close attention to who uses mobile devices in your business.  Code each zip code in your database for proximity to retail, and then measure the productivity (and channel preference) of those zip codes over time.

And contact me for help with all of this ... because it is about to get very interesting!

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