August 22, 2013

Mobile and the One Percent of Merchandise

In a typical Merchandise Forensics project, I find that about 8% of styles generate 50% of annual sales.

Let that one sink in for a moment ... 8% of styles generate 50% of annual sales.

There are two ways to interpret this.

  1. About 500 of 6,000 styles generate 50% of your annual sales. The success or failure of your business is based on your ability to cultivate 500 "winners".
  2. About 5,500 of 6,000 styles generate 50% of your annual sales. The success or failure of your business is based on your ability to find niche audiences that are willing to buy niche items that do not "scale", as the experts say.
We go through waves.
  • Through 1985 = Big Books, 60,000 styles featured, 1,000 winners.
  • 1985 - 1999 = Targeted Catalogs, 6,000 styles featured and 500 winners.
  • 2000 - 2013 = E-Commerce.  60,000 styles featured, 1,000 winners.
  • Future = Mobile.  6,000 styles and just 60 winners?
We don't know where tablets are headed ... are they the future, or are they the way we transition from a desktop to a true mobile device? I own a Samsung Galaxy Note II, it's big enough that I no longer use my iPad. Both can probably co-exist, but we don't know how both will evolve. One will likely win.

In an environment where the screen is small, the assortment must be appropriately small as well. This greatly limits what the merchant can present you, the humble user. What you'll see will be "targeted" and "relevant".

If we let the algorithms decide, there is a chance that Mobile will feature 6,000 styles and 500 winners - the algorithms would, theoretically, be able to decide who wants what and when the customer wants it.

Most of us aren't comfortable letting algorithms decide. We'll want to "optimize" the experience, trying to maximize short-term conversion. This, of course, is best done by featuring the best selling items. And with so little real estate, there won't be an opportunity to cultivate 500 winners from 6,000 styles.

It's more likely that our merchandise assortment will go the way of the economy - huge benefits for the 1% (of the merchandise assortment), scraps for all other items.

This will greatly increase the risk associated with merchandising the mobile experience. The merchant will either succeed wildly, or fail in spectacular fashion. The process of generating winners changes, necessarily. Today, you have home page real estate and landing pages and email campaigns - all allowing significant cross-shopping opportunities. Cross-shopping opportunities, in a mobile environment, sure seem reduced, don't you think?

The job of the merchant/marketer becomes much harder, and much riskier, in a mobile environment. One must figure out how to show a customer five items while at the same time informing the customer about five hundred items.  What a challenge!  A fun challenge, no doubt.

Those who figure this out will likely succeed.

Those who don't figure this out will observe that the merchandise assortment shifts to an ever-decreasing number of "winners" that comprise an ever-increasing share of total demand. That, ladies and gentlemen, is a very risky place to be - it's like being The Sharper Image where a quarter of your business comes from an ionizer - something goes wrong there, and the whole brand fails.

Why does the size of the "winning" merchandise assortment matter in a mobile world?

Well, repurchase rates are fueled by a broad assortment. In other words, if you have 6,000 styles, you might have a 40% repurchase rate.  The first 500 styles get you to a 20% repurchase rate, everything else fills in the gaps.

In a mobile world, where only a few items make it to "winning" status, the repurchase rate is artificially pushed down. And if repurchase rates are artificially pushed down, then there must be a significant increase in new customers to drive the business. The business model changes, requiring a different mindset.

Ok, enough of my thoughts.  Your thoughts?

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.

What Would You Do If You Owned A Gas Station?

The number of gas stations has been in decline for four decades, maybe longer. Those that stayed in business did stuff like Casey's Gene...