August 31, 2015

Netflix and Merchandise Forensics

You pay attention to stuff happening in other industries ... stuff that matters to you ... right?

Like Netflix losing movies like The Hunger Games? (click here).

There is a difference between giving your customers "The Hunger Games" and creating your own series for viewing on Netflix. It's akin to Nordstrom creating their own products, or selling Coach. Your own products are riskier, but if they work, they are much more profitable.

The quote about "exclusive to Netflix" is really key. There has to be merchandise that locks the customer in to Netflix, or eventually, Netflix becomes Blockbuster, right?

And you read the stuff about TV ratings falling because viewers are watching TV reruns on Netflix. That's another interesting merchandise dynamic ... Netflix doesn't control the merchandise there, either.

In television, it's called a "Golden Age" due to quality. There are likely to be over 400 new series introduced in the Fall 2015 - Spring 2016 season. New ones. New merchandise, if you will.

Every client I work with who is succeeding does so via knowing the right mix of new and existing merchandise. On average (there are exceptions - continuity programs come to mind), these businesses over-value the importance of new items, and are rewarded for their short-term investments with long-term success.

August 30, 2015

Reinventing Lands' End: A Discussion With "Catalog" Craig Paperman

Let's try a different approach when discussing the branding changes happening at Lands' End. We'll have a discussion with a fictional catalog marketing expert - a person named "Catalog" Craig Paperman. Heck, we can bring Craig back into the mix for other catalog-centric discussions. It might be fun.

Are you ready?

"Catalog" Craig Paperman: This might be the dumbest thing I've ever seen.

Kevin: What's that?

Craig: The new Lands' End catalog. What a flippin' disaster.

Kevin: Why is it a disaster?

Craig: Branding spreads? Low product density. Models thirty years younger than their core customer. It is as if they've lost their mind.

Kevin: Looks like the dog deflated the soccer ball.

Craig: It is the dumbest thing I have ever seen in cataloging. Guaranteed. Period.

Kevin: You're offended, aren't you?

Craig: I've been in catalog marketing for almost forty years. I wrote COBOL code to accept credit cards in 1980. Those were the days. I've seen every possible variant of a branding strategy invade catalog marketing. None of them work. None. Somebody who is fully disconnected from the real business of catalog marketing has a vision, they put their vision into practice, avoiding best practices in an effort to be "aspirational", and next thing you know sales drop by 20% and the Executive team is thrown out of the building and the former CEO is on CNBC telling pundits all the reasons why employees refused to change. "It's their fault".

Kevin: But they're saying you can still buy the same merchandise you've always loved. Just go online and buy it.

Craig: But the catalog IS Lands' End. It is who they are.

Kevin: It isn't.

Craig: It is!

Kevin: The catalog is who Lands' End was. Back in 1980. In the days of COBOL.

Craig: Oh stop it. Catalogs are a powerful tool in the omnichannel marketing mix.

Kevin: If catalogs are so valuable, then why did Lands' End, maybe one of the two or three greatest catalog marketers of all time, observe a sales decline (click here) in the past fifteen years and see their market capitalization cut in half, even though they kept mailing catalogs and they dove head-first into discounts and promotions and expanded into retail? They did everything pundits like you told them to do, and it backfired.

Craig: The economy didn't help.

Kevin: That economy helped Amazon. eBay. Newegg. Warby Parker. Zappos. 

Craig. Stop it.

Kevin: But you see my point?

Craig: Somewhere outside of Building 5 in Dodgeville, there is an Inventory Manager who is throwing up into a dumpster trying to figure out how to forecast sales from a branding strategy where one item is featured on a full page spread, worn by an angst-ridden thirty-one year old model suffering under the appalling pall of grey skies. How do you forecast that? Do you take 10% of last year's demand figure?

Kevin: I wouldn't want to be the marketing sales forecasting manager. If business doesn't meet expectations, it's going to be her fault.

Craig: The new CEO doesn't know anything about catalogs, and she doesn't know anything about classic adult apparel. She's out in front of her skis.

Kevin: Might she have skills that are more valuable than traditional catalog skills? Might her prior experiences be exactly what Lands' End needs at this point in time? Who are you to decide what Lands' End needs?

Craig: If she had half a brain, she'd never ruin a catalog by turning it into a festival of urban Millennial branding.

Kevin: But Lands' End has thousands of employees who know every aspect of catalog marketing inside-out, right?

Craig: Absolutely! They're the best.

Kevin: And yet, the very best minds in the industry couldn't grow the business in the past fifteen years. So what good was all of that knowledge?

Craig: Sears ruined them.

Kevin: Why is it always somebody else's fault? Is it possible that catalog experts struggle to deal with a world where more than half of all online traffic is from mobile devices?

Craig: I have clients where 15% of the orders are mailed to the call center with a check. I'm not sure where you get these mobile stats from.

Kevin: Please wait four to six weeks for delivery.

Craig: Look at the home page.

Kevin: There's not a lot of product there.

Craig: Who in the name of Dick Anderson is Cara, and why should I care about her?

Kevin: You care about her, because in the small print at the bottom of the image, it says "Vogue Market Stylist content is advertiser-sponsored and used solely for advertising purposes."

Craig: You mean I cannot find a squall jacket because I have to pay attention to a paid ad? On the home page?

Kevin: Use the search box, you'll find your squall jacket.

Craig: I am 62 years old. Cara and her advertiser-supported lifestyle have nothing to do with my desire to purchase a squall jacket.

Kevin: Use the search box. You'll arrive at a landing page that has what you are looking for (click here).

Craig: But this cuts to the heart of the problem. The CEO at Lands' End cares more about a paid ad featuring Cara than she cares about me, the long-time catalog shopper.

Kevin: In twenty years, you won't be buying from Lands' End. The CEO has to think about protecting the future health of the business, don't you think? She has to try to protect today while pivoting to the future. That's not an easy task. There isn't a Woodside Research Report titled "Eight Easy Ways To Pivot Out Of An Old Business Model".

Craig: I plan on buying from Lands' End when I am 89. Mock turtlenecks are very popular among octogenarians. Why not keep the business model, as-is, and simply try harder to be successful?

Kevin: You want the CEO of Lands' End to walk the business back to the path they were on two years ago, when it was easy for you to find your squall jacket, presented in a masculine tone?

Craig: Yes! Thank you.

Kevin: The very same strategy that led to fifteen years of flat growth and a 50% reduction in market capitalization?

Craig: Take a look at the Men's landing page. Do you see the old dude on the far right? That's me! That's the classic long-time, loyal Lands' End shopper. Do you see how they are pushing me right off the image? That's not just a metaphor. The CEO is actually pushing me off to the side.

Kevin: Oh come on!

Craig: I don't want to sit in a luxury box with three Millennial bros who are too busy sipping artisan micro-brews to care about what is going on around them. 

Kevin: That's not very nice.

Craig: I want a world where Garrison Keillor pads his retirement account with Lands' End advertising dollars while telling me a compelling story about Lutheran angst and hot dishes served in a fictional city in Minnesota. I sure don't want a world where Vogue pays Lands' End to have Cara lecture me about the latest fashion trends. It's been twenty-five years since Madonna told us to care about Vogue.

Kevin: So what is your solution? You've done a lot of complaining, but I don't hear a solution.

Craig: Get back to the basics. Classic merchandise targeted to the classic catalog customer.

Kevin: The strategy that caused sales to stall for fifteen consecutive years? That's what you want? The strategy that is causing most catalogers to struggle so badly that they're being rolled-up by private equity into holding companies that leverage fixed costs across brands while catering to a retired Baby Boomer? You want a world where, in ten years, five private equity firms own five thousand catalogers that all sell to the same 72 year old customer?

Craig: I just don't think you have to nuke a business.

Kevin: What is your solution?

Craig: This is the dumbest thing I've ever seen. It won't work.

Kevin: What is your solution?

Craig: Can you imagine the back-office conversations long-time employees are having? 

Kevin: What is your solution?

Craig: Gary Comer must be rolling over in his grave.

Kevin: If you are so upset, why not email the CEO - she freely offers her email address and wants feedback (

Craig: This must read like a comedy episode to the folks at L.L. Bean.

Kevin: So you don't want to actually give her your feedback, you'd rather just complain to me?

Craig: And you cannot possibly use a catalog to advertise all of your brilliant changes. That's silly. You are mailing the catalog to a 62 year old customer to tell the customer that you're going to appeal to a 37 year old customer in the future, while not communicating directly with the 37 year old future customer, and then you de-emphasize what the 62 year old wants to buy, causing sales to decline, and then you'll chew out the poor marketing sales forecasting manager because it's her fault the business didn't meet expectations. It's lunacy.

Kevin: What happens if the strategy works?

Craig: It won't.

Kevin: It could.

Craig: You know it won't work.

Kevin: But business as usual isn't working.

Craig: They've lost their minds.

Kevin: What is your solution?

Craig: I can't wait to hear everybody at NEMOA bash Lands' End. It's going to be a great conference.

Kevin: #OhBoy.

August 28, 2015

Ways To Listen To The Analytics Podcast - MineThatData Radio

If you are an Analyst or Manager looking to understand the intersection between Analytics and Executives, then my podcast is for you. Now, I'm not going to use the blog to publish updates going forward, so this is the place where you can find out how to listen to the podcast. And yes, there are many ways for you to find the content. Click on each bullet below for your preferred "channel", if you will:
The latest podcast features a discussion about Executives - I help the aspiring Analyst understand how Executives are motivated, why Executives sometimes don't listen to data-driven arguments, and I share how Analysts can get a leg-up on the competition in getting ideas heard and acted upon. Click here for the fourth episode.

August 27, 2015

Retail Interest Payments

Have you ever looked at the profit and loss statement of your favorite retail brand?

In the past five years, they've paid $2,200,000,000 (yes, 2.2 billion) in interest ... INTEREST!

Think of it this way ... every time you waltz into your favorite Macy's and spend $100, banks get to take $1.40 right off the top ... that's how the math works. Heck, with a gross margin in the 36% range, the math is even more extreme. When you spend $100, Macy's gets to keep $36 ... and then the banks take $1.40 off the top of the $36 that remain, or 4%.

That, my friends, is what is called a toll ... a self-imposed toll, no doubt.

I worked with a retailer that wanted to pay down debt - the CFO told the investment community of his intent - the investment community then communicated their intent - if the debt were paid down, the stock price would be taken down as well. Who is in charge of that business, you might ask yourself?

Here's another way that math is working against retailers. For retailers, most of the debt came from store expansion. More stores, more square footage. That's the way life worked from 1990 - 2010.

From 2016 - 2025, the math is likely to work in an opposite direction. As business continues to leak online, the lowest third of the retail portfolio become unprofitable. Stores are going to close - they already are closing. As stores close, sales decline. The debt, however, remains. So the online channel must grow at an ever-increasing rate to make up enough profit to cover the debt. And we all know that online sales cannot grow forever.

Hence, there's reason to be concerned.

Look at your favorite retailers. Look at their interest payments. Then look at their comp store sales increases/decreases. The future of the business is right there, buried within the story of the numbers.

August 26, 2015

Burning Man & Home Depot

Now, if you worship at the altar of personalization, then this is for you ... no, not the "Dear Kevin, Here Is 20% Off Because You Previously Bought Widgets" digital nonsense that some demand you adopt because some make money when you adopt their ethos.

No, this is merchandise personalization.

In an omnichannel world, you are told you must have the same products at the same prices across all channels. Sameness. You are told that "the customer" demands it.

In the real world, you run a local shop. You tailor the assortment to the audience in your local area, that's how you stay in business. What you do in Reno is different than what you do in Raleigh or what you do in Rochester. You do this because "your customer" demands it.

Think about how many customers you alienate by homogenizing your assortment across channels?

Authentic And Meaningful Relationships

Chief Merchant is hosting a webinar about how the Atlanta Falcons. One of the sentences is particularly meaningful ... "where brands are creating authentic and meaningful relationships." More on that in a moment.

Let's look at Atlanta's record the past two seasons:
  • 2013 = 4 wins, 12 losses.
  • 2014 = 6 wins, 10 losses.
In other words, the merchandise is failing. The team has won 31% of their games over the past two seasons ... following five consecutive highly successful, winning seasons. That's a difficult transition ... anybody who loves a sports team knows what this feels like (#notgood).

So, the case study ad suggests you'll learn how to connect the dots and get customers through the customer journey to the on-site experience. Heck, IBM & the Falcons may have done a great job using technology, right? Who knows? And Chief Marketer may put on a great webinar that is helpful. All could be true.

But there is a problem.

The process they are going to talk about, of course, ends with the realization that fans were not given a great experience, on two fronts.
  1. The team (merchandise) was horrible.
  2. Fake crowd noise (click here) was pumped into the stadium to make the experience seem more authentic and exciting. Atlanta was fined by the NFL and had draft choices taken away for the infraction. The in-game experience was astroturfed (i.e. faked).
The webinar offers the following premise:
  • From the text for the webinar: "Fans and your customers are moving from a series of disjointed brand experience “moments” and are starting to expect a completely integrated experience “system” – where brands are creating authentic and meaningful relationships."
The webinar uses the Atlanta Falcons as a case study of fulfilling an authentic and meaningful customer relationship - but the organization in the case study used technology to drive customers to an in-game experience where the Falcons created a non-authentic environment by faking crowd noise.

This is the stuff our industry partners ask us to believe in.

Focus on making sure that your customers love your merchandise.

August 25, 2015

When Marketing And Testing Interact - Panera Bread

This is always tough ... marketing wants to perform a marketing tactic, and somebody else wants to test a strategy (often the marketing team).

This image represents a marketing tactic ... use your mobile device (#mobilefirst) to order food ahead of time, and receive $5 off for choosing this tactic.

In a marketing world where you don't test anything, this is fine. The tactic works, or the tactic does not work.

In the real world, this tactic decomposes into a series of questions that somebody will want answered.
  1. Will a customer switch to mobile once awareness of the channel has been achieved?
  2. Does $5 off your purchase work as a tactic?
  3. Does mobile cannibalize sales from other marketing tactics?
  4. Does $5 off your purchase cannibalize sales from other marketing tactics?
  5. What is the interaction between mobile advertising and a $5 off promotion?
  6. Does the combined tactic work better on best customers, average customers, or new customers/prospects?
  7. Will a customer who uses a $5 off tactic pay full price using the mobile tactic in the future?
  8. Does $5 off diminish the likelihood of a customer paying full price in the future?
  9. What does it mean when a customer won't pay full price for a meal but will happily purchase with a $5 discount?
  10. Will a customer using the mobile device revert back to old habits, or will the customer switch to use of the mobile device in the future?
  11. Which combination of tactics is most profitable?
In the real world, there are at least these eleven questions, and probably many more questions to boot. These are the questions your Executive Team want you to answer. You know this, because these are the kind of questions they throw at you at high and unanticipated velocity when you present your findings.

Describe for me how you would answer the questions for your Executive Team. Use the comments section, or send me an email, and describe how you would address the intersection of marketing tactics, testing tactics, and Executive Questions.

August 24, 2015

When Merchandise And Data Driven Logic And Technology Meet

Two stories to enhance your Tuesday experience.

Story #1:  A check engine light comes on. The computer suggests that there is a problem with my Diesel Exhaust Fluid. That's curious, because 30 miles earlier, I drove the vehicle away after an oil change that included 2.5 gallons of Diesel Exhaust Fluid being added to a 4.0 +/- gallon tank. This vehicle has 4,100 miles on it ... so whew, it's covered under the warranty, right? So I take it to the dealer. The check engine code is read. Here's the discussion that follows.

Dealer: Mr. Hillstrom, you may have voided your warranty.

Kevin: Wut?

Dealer: Yes, the check engine code suggests you ran out of Diesel Exhaust Fluid.

Kevin: That didn't happen.

Dealer: It did.

Kevin: It didn't!

Dealer: Didn't somebody tell you that you had to fill the tank, often?

Kevin: Of course. That's why I had another dealership fill the tank during the oil change.

Dealer: And then you ran it dry!

Kevin: In 30 miles?

Dealer: That's what the data says. These computer chips record everything.

Kevin: Did the computer chip record when I filled the tank, and did it record how much fluid was put in the tank?

Dealer: Yes.

Kevin: What does the data say?

Dealer: It says you added 10 liters of DEF.

Kevin: And how big is the tank?

Dealer: It says it is a 16.5 liter tank.

Kevin: So the tank wasn't empty, was it?

Dealer: But the code says the tank is empty.

Kevin: We just ran through the logic. The tank wasn't empty.

Dealer: But the code wouldn't lie.

Kevin: Would the computer chip lie?

Dealer: No!

Kevin: Then why won't you believe what the computer chip is saying? Doesn't the same computer chip issue the check engine light and record the fluid level fill quantities?

Dealer: Because you ran the tank dry.

Kevin: Your own data says I didn't run it dry. 39% of the tank still had fluid in it.

Dealer: That's odd.

Kevin: That means I did not run it dry.

Dealer: But you had to.

Kevin: How many times do I have to tell you, your own data shows us that the tank was never empty, and then the tank was filled, and then the check engine light came on saying that the tank was empty, and you looked at the tank visually this morning, and the tank is full. So something is wrong with how the check engine code was generated.

Dealer: You could have added the fluid anytime after the check engine light came on.

Kevin: But you have data that proves I didn't do that.

Dealer: I have data that proves you ran the tank empty.

Later, the Dealer would tell me "you have to understand how complicated this stuff is ... we have to send the data to corporate, and their system is down today, so we cannot even get an answer for you ... and when we do get an answer for you, we have to have corporate pass codes back to us to reset everything ... it's just too complicated."

This is the problem with the nonsense of the "data driven" argument. In the real world, you can have all the data you want - and the data will contradict itself, often!! Now what do you do? The very same "#dashboard" shows that I ran the tank empty and it shows that it is impossible for me to run the tank empty. Think this happens with your data? It happens every day. And then your systems are down (#cloud) and you cannot even get access to your data. The key isn't to be "#datadriven", the key is to be smart enough to know how to deal with conflicting information. We've raised a generation of e-commerce experts who struggle mightily with conflicting information. Don't agree? Sit in an Executive Meeting sometime when there is conflicting information, and watch the sparks fly.

Story #2: Recall the image from the start of the blog post? That's a family, standing in front of me, trying to figure out how many pieces of Popcorn Chicken are in a 5.6 ounce container. They'd ask the question (how many pieces), and they'd get an answer (5.6 ounces). This went on for five minutes. Worse, one of the two adults in the image says to the other "I have no idea what this menu board means, all I want to do is order a chicken tender and I cannot figure out how to do that? Where is there a picture of a single chicken tender?'

I'm sure that there are Data Visualization experts at KFC (#dataviz) who are partnering with Norm McDonald to figure out how to visually illustrate the vast array of choices in a non-threatening, image-centric manner that de-emphasizes the expense of the purchase. 

We have an inability to present the information effectively. We have the customer (how many pieces) and the associate (5.6 ounces) speaking different languages. In other words, technology and language and data visualization stand in-between the customer and the merchandise, making it terribly hard for the customer to make the staggeringly simple choice of ordering a piece of pre-processed, breaded chicken.

Modern marketing has been broken down into pieces - manageable pieces that teams and/or ecosystems can tackle. The paid search guru gets to own 3% of the business. The #dataviz person gets to be in charge of the menu, without ever entering a store and listening to the struggles a customer deals with when trying to order. The dealer service rep has a data-integrated system across dealerships and corporate (#omnichannel #datadriven), and yet, the whole things falls apart when the information conflicts and the service rep and the customer are at odds over how to analyze and interpret the information.

We're focusing too much on technology - on bells and whistles and data-driven nonsense and integrated channels and focusing on, in general, pure nonsense. Of what good is that big visual menu if the customer cannot even identify the item s/he wants to purchase?

We need to focus on how customers interact with merchandise. In both cases above, the presentation of information got in the way of the customer and the merchandise. Maybe merchandise productivity is bad because of the omnichannel, data-driven nonsense we stick in-between the customer and the merchandise? It warrants some thought, don't you think?

August 23, 2015

There's Nothing That Harms Merchandise Productivity More Than Being 55% More Expensive Than Amazon For The Same Item

I am standing in a Camping World store ... in need of a small, portable grill for an upcoming trip.

Oh look, this little beauty is normally $99.99 ... but in store, it is on sale for $84.99. Cool! It's on sale. What's not to like?

A quick check of the website shows me this ... an online sale for $80.15 (click here). Even better. Except for one thing. When I navigate the myriad offers and upsell opportunities offered by Camping World, I learn that shipping will be $14.00.

So the item is cheaper in store.

But before I check out, I thought it wise to check what the price might be on Amazon. I mean, with my Prime Membership, I won't have to pay shipping, will I?

Ok, I'll tell you ... wait for it ... wait for it ... $54.99!

While standing next to the darn item in a Camping World store, I add the item to my Amazon cart, I check out, and that's that.

Explain for a moment how any semblance of omnichannel wizardry overcomes the pricing difference? Go ahead ... I'll sit here and wait for an explanation ... and wait ... and wait.

There's nothing that harms merchandise productivity more than being 55% more expensive than Amazon for the same item.

Can I say that again?
  • "There's nothing that harms merchandise productivity more than being 55% more expensive than Amazon for the same item."
That's a good quote.

But in an ecosystem where a customer can showroom the darn item, an even worse dynamic arises.

Here's the dynamic.
  • An 18-39 year old customer doesn't even bother to step into the store.
  • A 40-59 year old customer uses a smart phone and buys online.
  • A 60+ year old customer waltzes into the store and buys the item.
  • The merchandising team sees that various items seem to sell well ... the items that 60+ year old customers love, and elects to further promote items that 60+ year old customers love, further bonding the brand with customers age 60+.
  • Only the marketing tactics that appeal to a 60+ year old audience tend to work, in part because of the merchandising/pricing/demographic dynamic, further fueling the ecosystem.
Cataloger after cataloger tell me that they now cater to the aging Baby Boomer customer. And it sure is interesting to hear online brands talk about how mobile conversion rates "stink". Both happen, in part, as a consequence of the dynamic above.

Merchandise Forensics isn't just about identifying the items that "work". It's about aligning merchandise and marketing and demographics. When the alignment fails, an odd dynamic forms. In many ways, we're all dealing with a comparable dynamic to what is illustrated above.

August 20, 2015

Diminishing Returns

Back in the early 1990s, a large part of my job was dedicated to measuring the incremental value of additional advertising.

The relationship between advertising (x-axis) and demand generation (y-axis) looked very similar to the curve you see depicted in this image. You got a lot of benefit by contacting customers ... and then ... you got less incremental benefit ... and less ... and less. Eventually, you were advertising and were essentially generating almost no incremental value.

Many of you wonder why I demand that you focus, not on customer loyalty, but instead, on acquiring new customers at a low (no) cost. This graph is the reason.

Here's what happens ... you eventually reach a point where you do not generate a sufficient return on investment. As you approach that point (not go past it, mind you, but as you approach it), the incremental cost to convert the customer to another purchase is greater than the incremental cost required to acquire one additional buyer.

This is where it gets interesting ... because if you decide to shift your advertising dollars to customer acquisition, then you end up with more customers ... and that means you get to market to two good customers instead of one very good customer. Unless you are Nordstrom or Wal-Mart or Verizon or Amazon, you want two good customers more than you want one very good customer.

Modern attribution work makes it very difficult to see the law of diminishing returns in action. You can easily see it within paid search. You can easily see it within retargeting. You can easily see it within email marketing. It's terribly hard to see the law happening across an integration of all three disciplines.

Make sure your attribution vendor is illustrating the law of diminishing returns to you. The best attribution vendors will be able to recreate their version of the graph above - quite easily - within a few hours of your request.

August 19, 2015

Final Day To Get In On The MineThatData Elite Program At Half-Price - Act Now!!!

Contact me ( and get in, now ... in a few hours, the cost of membership doubles. Doubles! Your CFO won't like it when you get in at a price double what you'd have gotten by simply responding TODAY.

Here are the details of the program (click here) ... $1,000 just three times a year ... it's not like I am asking you to spend $100,000 for a web analytics solution. Heck, you know I am on to something when industry vendors start publicly talking about addressing merchandise productivity.

Remember the most coveted aspect of Elite Program participation?

Yes - this! You get the pick-axe lapel pin. Wear it proudly!!

You'll learn how your merchandise productivity is impacting your business. If you want my typical Merchandise Forensics framework (50 projects in the past three years), well, that's a separate project. This is more like your annual physical - you will know if your customers do not like your merchandise, and you will know how you stack up against other participants.

I have a lofty goal:

  • 200 Participants By Spring 2016.
We're off to a great start! Make the goal happen. Light those lights, as they used to say in the old-school telethons. Get in on the ground floor while the cost is inexpensive. Learn how your Merchandise Productivity and new+reactivated customer counts stack up against other participants. For $1,000 ... three times a year. It's practically free. As Glenn Glieber says, "I love free marketing!" What would stop you from participating? Be honest!

Why is Merchandise Productivity important?
  • 80% of my Merchandise Forensics projects strongly suggest that merchandise missteps, not channel strategy or marketing strategy, is the reason why a business is struggling.
  • A 10% increase in Merchandise Productivity allows the marketer to invest more, typically leading to a 15% increase in reactivation rates, new buyers counts, and retained buyers. The marketer looks great when Merchandise Productivity looks great. The marketer gets fired when Merchandise Productivity is bad.
  • Profit comes from Merchandise Productivity. Period. Ask Apple. When you understand Merchandise Productivity, you understand why you business isn't at 10% pre-tax profit, and you understand the productivity needed to get there.
  • Merchandise Productivity can be changed. When the marketer figures out what is going on, the marketer can partner with the Merchant ... the marketer can feature new items that have potential, fueling those items to best seller status. When more new items become best sellers, the future of the business is assured.
So this is it - get in now at $1,000 every three months. Tomorrow, the cost doubles, and on January 1, the cost is going to increase to $2,500 every three months. So you can still save money by joining prior to 1/1/2016.

Participate! Now!!

August 18, 2015

Channel Management - Makers & Takers

Have you read this one - from Buzzfeed of all places (click here)?

  • 1,000,000 Nordstrom Rack customers upgraded to first purchases at a Full Line Store and/or
I know, I know, I can hear the complaints now.
  • "Kevin, you used to work at Nordstrom, so you are biased."
The omnichannel movement is all about getting the same customer to use every channel.

Why not get many customers to use many channels, independent of each other?

Nordstrom Rack merchandise is not integrated with the Full Line Stores, is it?

Nordstrom Rack pricing is vastly different than than pricing at a Full Line Store, isn't it?

Nordstrom Rack customers are younger, while Nordstrom Full Line Store customers continue to age ... it's essentially not the same customer, is it?

So if 10% to 20% of the customer files overlap, then everybody wins.
  • Incremental purchases at an off-price channel.
  • A fraction of the customers upgrade, and are fed into the Full Line Store channel at minimal customer acquisition cost to the Full Line Store channel.
Where would Nordstrom retail growth be without Rack?

In classic channel management, you have two dynamics.
  • Makers - channels that create customers.
  • Takers - channels that take customer created by other channels.
From 1995 - 2005, cataloging created customers, the online channel was the "taker". Then, the online channel took all the customers, rendering cataloging a niche marketing channel tailored to customers age 60-89.

From 2002 - 2012, the online channel created customers (after taking them from catalogers, no less), then the retail channel was the "taker". This led to the theory that channels had to integrate, so that the online researcher would purchase in a store.

From 2012 - 2015, the dynamic reversed - you've seen this, too, you measure this stuff, right? Right?! Once the online channel reached a sufficient level of maturity and service potential, the dynamic reversed - the retail channel created customers, the online channel reverted back to taking customers from retail. This dynamic is really, really bad for retail, because the dynamic doesn't allow for comp store sales growth as customers are slowly taken by the online channel, causing fixed costs to de-leverage (i.e. causing finance folks to need to close stores).

From 2012 - 2015, e-commerce was the maker, creating customers. Mobile was the taker, taking customers cultivated by e-commerce and converting them to the newer channel. Again, we're all going to misinterpret this - we'll say we must integrate the e-commerce and mobile experience. That's a mis-read of a classic channel shift dynamic that we've observed for twenty years (catalogs vs. e-commerce) and failed to understand. Remember when everybody grumbled that mobile conversion rates were horrible? That's a complete mis-read of a shift in channel dynamics ... same thing happened when e-commerce conversion rates were 2% and catalog response rates were 7% ... we were simply measuring everything wrong ... on a monthly basis, response was comparable. In mobile, the best customers, the obsessive browsers, converted quickly (low conversion rates), and were measured poorly.

Channel dynamics are not constant. They continually evolve. They must be measured. Must be. If we listen to pundits and don't perform our own due diligence, we'll simply be at the mercy of vendors selling solutions. Times are changing. We need to create businesses where channels feed each other, constantly supplying new customers into the ecosystem, new customers that are then migrated along or are kept within a portion of the ecosystem.

August 17, 2015

A Stunning Quote About Macy's

Here's the stunning quote that you need to pay attention to:

  • Starboard chief Jeff Smith estimated the value of Macy's real estate at $21 billion last month -- and that's almost exactly what the entire company's market cap is today.
Do you understand what that means?
  • Their brand is worth $21,000,000,000.
  • The buildings they own are worth $21,000,000,000.
  • The merchandise they sell and their omnichannel strategy and their creative/marketing strategy and their customer service strategy is worth $0.

For the past five years, research brands, trade journalists, consultants, and vendors demanded that you adopt an omnichannel strategy or your business would be "dead". Repeatedly, they use Macy's as the poster child for success ... so much so that Macy's, in their SEC filings, proclaim that they are "America's Omnichannel Store".

Meanwhile, sales (which had been flat or largely tepid for years) are now in decline. Sales are declining. Declining. The value of everything they do is $0. The value of their real estate holdings represents 100% of the value of the company.

Now, can they reverse this trend? Absolutely! But look where the strategy led them. Are you following the omnichannel playbook? Where is it leading you?

Focus on merchandise excellence.

Focus on telling a spectacular story that customers want to learn more about.

Focus on entertaining your customer base. It's not good to bore customers.

Focus on aligning pricing tactics with your core audience.

Focus on finding new customers - never take your foot off of the new customer acquisition gas pedal.

Focus less on omnichannel strategies that benefit research brands, trade journalists, consultants and vendors.

Do what is right for your business.

Retail And Experiences

Let's briefly move to the world of sports - because in sports, we can draw parallels that make sense. We'll focus on the Seattle Mariners - a baseball team out here in the Pacific Northwest that has had three winning seasons in twelve years and zero playoff appearances in fourteen years ... FOURTEEN YEARS! None!

The team is perennially awful. The team, can we all agree, represents the merchandise. In St. Louis, the team is really, really good - as a result, they average over 43,000 fans per game, and at rather beefy ticket prices. No need to do much discounting when fans want to be in the stadium to see a winning team. But in Seattle, where the team is bad, attendance averages just a bit over 29,000 per game. 

Can we agree that the stadium (along with promotions like bobble-head days and fireworks after the game) represents the experience? In other words, a team can win, and winning is really important - but the stadium also makes a difference. The experience you have makes attending the game fun. Boston has a bad team but a great experience, hence, they have good attendance. Seattle has a bad team and a good experience, hence, they have below-average attendance. Tampa has an average team and a lousy stadium / experience, hence they have horrific attendance.

Does that make sense to you?

Look at the attendance list (click here). Eight of the top ten teams are winning a lot this year ... the other two teams have won a ton in recent years. So clearly, winning matters, a lot.

Now, if you aren't winning, you better darn well have a great customer experience. Look at the teams 11-20. Look at Milwaukee - a terrible team with a great in-game in-stadium experience. They've built a tradition and a tailgate experience that makes going to a game fun, win or lose. Sausage races? They have 'em (hint - cheer for the Chorizo). Their attendance, after controlling for the quality of the team (Merchandise), is really good.

Have a bad team and a bad experience? That doesn't work (look at Oakland).

Can we agree on the framework?
  1. Winning (Merchandise) matters most.
  2. Experience (Stadium) matters a lot.
  3. It's tough to make things work if you lack Winning and you lack a good Experience.
Ok, now let's move back to our world.
  1. Winning (Merchandise) matters most (ask JCP - click here - they add Sephora to stores & it comprises 12% of sales and helps generate a 4% comp increase).
  2. Experience (Fun, Entertainment) matters a lot.
  3. It's tough to make things work if you lack Merchandise and Fun.
Now, Macy's largely sells what everybody else sells, right? Heck, they sell just about everything available in apparel. So the merchandise may or may not be the issue - because Kohl's sells a lot of the same stuff and their results are tepid while Nordstrom sells a lot of the same stuff and full-price business isn't horrible at Nordstrom. If everybody is selling the same merchandise, then the experience is heightened, exaggerated, and disproportionately important.

Let's move to the experience. Is it fun to shop in a big old box-formatted store like Macy's? If you had three hours of free time, would you spend it having fun at Macy's, or would you invest your time in a more enjoyable experience elsewhere?

Be honest.

Now, the omnichannel thesis can work. Sure it can!

But sit back for a moment, and think about whether our application of the omnichannel thesis answers the right question. Which of the two questions below is the omnichannel thesis designed to answer?
  1. Are customers not shopping because channels are not aligned and because it is hard to do research in a mobile environment that leads to an in-store purchase?
  2. Are customers not shopping because retail is boring?
If the answer is (1), then the omnichannel thesis is the appropriate answer.

If the answer is (2), then omnichannel is feckless.

I am not confident that we are addressing the right question.

Your thoughts?

August 16, 2015

Three More Days To Get In At The Introductory Rate: The MineThatData Elite Program

You have three more days to get in on the introductory rate ($1,000 per season, three seasons, $3,000 per year). After 11:59pm PDT on Thursday, August 20, rates double. Get in now!!

Frequently Asked Questions:

Question: Why can't I get more for $1,000 than this? Where is the detail?
  • Think of this as being your annual physical. Your annual physical is inexpensive, you get checked over, and if there are any problems, you go see a specialist and the meter really begins to run. That's what I am doing here. I am measuring the overall health of your merchandise assortment. If I find that there are problems, then I recommend that you hire your favorite vendor, preferably me, to dig into the issues via a Merchandise Forensics project.
Question: Why does the cost double after an arbitrary date?
  • As you know from following me for nearly a decade, I offer the best prices on new products to my long-term client base and long-term subscriber base. Then, prices increase, and when a product is fully fleshed out, the price is increased again. Those who partner with me at the beginning of a process are rewarded.
Question: Are you planning on using straight averages or weighted averages for the competitive portion of the analysis?
  • I might do both. In the early stages, we might have a large business and nine small businesses, so the overall average will be misleading and the weighted average will be misleading. Once I have the initial roster for the first run in October, I may do both and share both with you.
Question: Can I see the competitive results and not pay and not send you data? I'd love to see the overall results, as would anybody.
  • No. That's called "getting something for free" or "taking advantage of others who are paying for a solution". Go talk to Woodside Research, let them set you up with a solution.
Question: Why use 2x buyers last year for your comp segment analysis? I think your definition is biased.
  • More than 50 Merchandise Forensics projects illustrate that the 2x-last-year definition is most effective at identifying merchandise trends. 1x buyers are infrequent and are influenced by new buyers. Loyal buyers are too highly influenced by discounts, promotions, and loyalty programs. A proper comp segment analysis needs to illustrate the impact of merchandise on your business. You are always free to run a comp segment analysis yourself, using your own data.
Question: Can you run a customized segment analysis just for my business? I'd prefer to see 5x buyers!
  • Probably not. You are welcome to speak to your in-house analyst and have your in-house analyst perform the work. Or, work with me on a Merchandise Forensics project. Now, having said that, the structure of the product may change over time, and may include more detail. I reserve the right to provide more insight over time, and will quite likely do so. If you get in on the introductory rate, you get to play a role in the evolution of the product, and you lock in on low pricing.
Question: Can I join your pilot group after August 20 and still get the low introductory rate?
  • No. How is that fair to the companies that followed the rules and jumped-in early?
Question: Let's say your analysis shows that I have a 5% drop in merchandise productivity on November 1. What do I do with that? How do I make the analysis actionable?
  • Use the analysis to prevent a 5% drop in merchandise productivity in November 2016. Where did the problem happen? On your best items? Specific merchandise categories? Within various price points? New items? Defective items? Items with high return rates? Items that are sold on Amazon? Proprietary items? Dig into your data, and figure out what you did wrong on or around November 1, and make sure it doesn't happen again. Or hire me for a Merchandise Forensics project, and I'll dig into your data for you.

Your Low-Cost Items

In most of my projects in the past nine months, the importance of having "something" at a low price repeats ... a recurring theme ...