The past week has been one of the most interesting in recent memory.
Trade journalists breathlessly scoop up the page views by calling Cyber Monday a "record" (click here). Go back to 2006. EVERY YEAR since has been a record! E-commerce cannibalizes the living daylights out of retail, and folks celebrate a record ... that is until you add retail and e-commerce together. Notice that nobody publishes that figure. Cyber Monday articles are #fakenews, applied to marketers. Or they're like cat videos. You get the picture.
I received an email from an apparel brand this morning ... two days after Cyber Monday ... celebrating "Cyber Week" and "Overwhelming Response" that "Harmed Website Performance" ... their response? An additional 30% off the 60% promotion they ran on Cyber Monday.
Isn't that lovely? How would you like to be the idiot customer who suffered through sluggish website performance on Monday to earn 60% off, only to learn that she was a moron?
How about the customer who purchased at 20% off in late September, only to see discounts go to 30% off in mid-October and then 40% off in early November and 50% off on Black Friday and 60% off on Cyber Monday? How does that customer feel?
I read a quote that "the customer has been conditioned to only expect the deepest discounts and to not purchase until the deepest discounts are offered". Explain how a trade journalist partnering with the National Retail Federation helps members by breathlessly screaming at the public to expect 50% off plus free shipping in late November? It's good for page views. It's not good for profit for a retail brand. It is good for profit for the trade journalist.
Readers, you understand how gross margin works, right?
You buy an item from a vendor at $20 ... and you sell it for $50. You make $30 profit.
At 20% off, you sell the item for $40. You make $20 profit. You need to sell 50% more units to equalize profit.
At 30% off, you sell the item for $35. You make $15 profit. You need to sell 2x as many units to equalize profit.
At 40% off, you sell the item for $30. You make $10 profit. You need to sell 3x as many units to equalize profit.
At 50% off, you sell the item for $25. You make $5 profit. You need to sell 6x as many units to equalize profit.
At 60% off, you sell the item for $20. You make $0 profit. Good luck!
Your CFO understands the logic. Your CFO would never allow this to happen unless inventory levels were bloated and the brand had no choice but to give the merchandise away.
You've analyzed how customers who purchase at 50% off or 60% off subsequently behave, right? You know that these customers, on equal sales, generate less gross margin dollars in the future ... right?
There are so many moving parts this fall. I've analyzed many of them, many, many times.
Customer Acquisition - Catalogs: You already know that the co-ops are dying. You already know you must have a credible replacement in place by the end of 2017, or big trouble is on the horizon.
Customer Acquisition - Online: Online brands are hitting the customer acquisition wall. Google + Facebook leverage the supply-and-demand relationship to charge you more for less. You already know that you must have a credible replacement in place by the end of 2017, or big trouble is on the horizon.
New Merchandise: I've been talking about this for years, and most of you agree that new merchandise is critical to future success. I continue to see that 80% of my projects yield a new merchandise challenge. Without enough new items, existing items have to pull more weight. Unfortunately, existing items decay. Again, you already know this, and you know that you must have a credible new merchandise program in place by the end of 2017, or big trouble is on the horizon.
Lean Inventory: This fixes a lot of problems. Yes, you are going to sell out of stuff. Fast fashion folks sell out all the time. When you sell out, you don't need to be at 40% off, do you?
Urgency: Lean inventory leads to urgency. Here's a fascinating quote from an article about Gap and their Data/Design challenge (click here) ... ready?
- "The company is simply too large in the new normal where physical distribution has become a liability."
That's the most delicious quote of 2016. What does it mean? It means that the omnichannel thesis where some believed that "bricks 'n clicks" was "table stakes" was completely wrong. It means that stores are now a liability.
And more importantly, it means that the omnichannel thesis led to a complete lack of urgency on behalf of a customer. Why act now when the item is available in any store or online at any time? Discounts/promotions became the only way to create urgency, and discounts/promotions destroy a company over time.
You already know this, and you know that you must have a credible "urgency program" in place by the end of 2017, or big trouble is on the horizon.
Trusting Younger Professionals: At a conference this past spring, I presented the idea of having a team of 30-39ish professionals be accountable for elements of the business. Let's just say that the 50-59ish employees at the conference did not like this idea. At all. One told me "you cannot trust kids to run the business". I am continually told stories of decision-making processes that require eight layers of signoffs and must clear an Executive or the idea is dead.
Vendors have a term for what they want to see happen ... they call it "agility" or being "agile". Fast decisions. Decentralized decisions. Accountability. Risk. Reward.
You already know that a bloated org structure is bad, and that you must push decision making and strategy to younger employees. You already know that this program must be in place by the end of 2017, or big trouble is on the horizon.
Gross Margin: We already know that our objectives need to be centered on (at minimum) maximizing Gross Margin less Marketing Discounts/Promotions. You don't do this by offering 60% off plus free shipping. You already know this, and you know you must have a credible program in place to maximize gross margin dollars by the end of 2017, or big trouble is on the horizon.
I could write about this for the next ten days and not even scratch the surface.
You know what you need to do to fix your business. Almost all of you know what to do.
So are you going to listen to trade journalists who tell you to scale back your "emoji strategy" (yes, this was an article from Shop.org this week - #fakenews) ... or are you going to focus on the topics outlined here?
It's time to solve current business issues. Use 2017 as the rebuilding year that leads to a much improved 2018.