Kaley's Knits: Squeezing More Out of the Lemon

Let's briefly review what we already know:

1. Demand, on an annual basis, continues to grow at a modest rate.
2. The customer file began to collapse around August 1, 2012.
3. Existing buyer growth remains flat.
4. New customer acquisition began to collapse around July 1, 2012, and is down 7% from previous highs, suggesting that if this trend continues, we'll see new customer acquisition down about 13% on an annual basis by mid-2013.
5. Marketing spend is down in 2012, by about 10%.
6. Gross Margin is down to 53% of net sales in 2012, compared to 59% in 2011, and a high of 60% in 2009.
7. Orders per Buyer per Year began growing in June 2012.
8. Items per Order began to fall in October 2012.
9. Price per Item Purchased began a "race to the top" in the Fall of 2011.
10. Average Order Value is $13 higher today than two years ago.

A combination of Orders per Buyer per Year, Items per Order, and Price per Item Purchased yield Annual Demand per Buyer.

In July of 2011, the average twelve month buyer spent $102.25 per year.

In January of 2013, the average twelve month buyer spent $122.89 per year.

This metric has been increasing for eighteen months.  New customers fell off the cliff five months ago.  This tells us that new customer acquisition is not responsible for the change in this metric.

Clearly, Management is trying to "squeeze more out of the lemon".  A conscious decision was obviously made to get customers to spend more.  The focus of Kaley's Knits clearly shifted, in an 18 month window, from a balanced approach to one focused on trimming customer acquisition marketing dollars in favor of spending gross margin dollars on existing customers.

Why did I mention gross margin dollars?  Well, gross margin percentages are down from 59% in 2011 to 53% in 2012.  Discounts and promotions are frequently subtracted from the gross margin line.

Next time, we'll talk about the impact of this strategy on the total business.