A Post-Mortem on 2016

Half of our readership thinks the world is coming to an end, half delights in draining the swamp of characters like the one depicted here.

Yup - it's the end of 2016.

We head into 2017 with clear stories resulting in an "obvious to-do list".


Amazon - A Long Term Problem

If Amazon is +/- 35% of e-commerce, then one might assume that Amazon is hurting the average traditional catalog business by 35%. Divide that out over the course of a decade, and it is a constant 3.5% drag on business. But by the same token, we've had twenty years to craft a response to Amazon. The fact we haven't crafted a response is telling. What's just as interesting is that on Black Friday / Cyber Monday, ten brands accounted for about half of e-commerce sales. So a handful of large retailers and Amazon are responsible for changing direct-to-consumer sales trends. These trends cannot be fought via omnichannel strategies (ask Macy's) or via being "more digital" or by selling at 40% off. We either beat Amazon or join Amazon or we go away. Any cataloger not developing a viable Point of View strategy to exist in spite of Amazon is going to eventually go away. By not doing anything, Amazon takes sales and the customer file rapidly ages ... a terrible combination.


Baby Boomer Retail = Crumbling

As the Baby Boomer generation retires, traditional Baby Boomer Retail retires with it. No amount of omnichannel strategy is going to stop what is coming. Retail has many healthy brands among customers age 15-39, as has always been the case. Think of it this way ... customers are like little ducklings that imprint upon a retail brand. Once that happens, it's hard for the duckling to value a Baby Boomer brand ... as it was hard for the Baby Boomer to embrace Kresges / Gimbels / Montgomery Wards. Couple that with price deflation driven by the evisceration of the middle class, and we've got a dilly of a pickle on our hands ... but one we could have seen coming from 20 miles away. No amount of omnichannel strategy will solve this problem. We're going to have to get really, really creative, aren't we? 


E-Commerce = Customer Acquisition Wall

We're on the verge of the first major wave of e-commerce innovation in the past decade. I continually observe customer acquisition challenges among e-commerce brands. And if you watch cable television, you see an absolute glut of e-commerce brands advertising ... on television ... a medium we were told five years ago was "dead". This can't happen unless new customer growth is stalling (and rest assured, it is stalling). This is why innovation is coming ... e-commerce companies are going to experiment with a ton of non-traditional non-digital strategies to grow.


Outsourcing Commodity Items

In the offline world, commodity items (Dockers) are outsourced to Macy's. In e-commerce, clever catalogers could easily outsource the commodity portion of their business to Amazon. I predict this trend will accelerate - with Amazon being the World's Largest Department Store. Why not put Amazon and their logistics to work for you? Stop competing. Start putting Amazon to work on your behalf. You could sell five million dollars on Amazon and give them 30% +/- for their cut, and then with a reasonable cost of goods structure you could make more money than by dumping the items in a catalog and paying 30% of net sales to the catalog ecosystem. Ultimately, we're paying third parties to help us. Pick your third parties carefully.


50% Off

This only happens when Marketing, Inventory Management, and Merchandising all fail simultaneously. It happens when you focus on ERP and Omnichannel systems instead of focusing on selling stuff the customer wants. Look at what happened to Neiman Marcus this fall for a cautionary tale. Look at what happened to Macy's ... focused on rolling up brands and integrating channels for a decade ... beloved by vendors / consultants / trade journalists ... not beloved by customers.


The Catalog Holding Company

We're about to see dramatic growth among Catalog Holding Companies. Weak catalogers cannot sustain a business on the back of a 64 year old rural customer. With the ten-year dominance of the co-ops ending now, strong catalog brands will acquire weak catalog brands with the goal of creating an "in-house co-op". As Catalog Holding Companies become large enough (i.e. 20-30 brands generating $50,000,000 each), every relevant catalog shopper will be housed by every relevant Catalog Holding Company. At that point, the current family of co-ops support independent catalogers - becoming in essence a Catalog Holding Company that outsources all fixed/variable costs to independent catalogers while harvesting 30% of cataloger profit in the process (think of a $30,000,000 cataloger that generates 5% pre-tax profit - they'll need +/- 100,000 new names a year at a 1% response rate, yielding 10,000,000 names rented at $0.06 each, paying co-ops $600,000 a year).


Google + Facebook + Amazon + Apple

Four gatekeepers for the next four years. But technology has taught us that online, brand dominance is fleeting. In the short-term, you either build a strong brand with a Unique Point of View, or you pay whatever these folks tell you to pay. Most of us will pay whatever these folks tell us to pay. Most of us should develop a strong brand with a Unique Point of View.


Optimism

Never in the history of marketing have there been more ways to be successful than at the end of 2016. In fact, it couldn't be easier for an individual human being to be successful. But the bounty of diversity offered by modern marketing makes it even harder for groups of people to move in a productive direction. If there is anything that The Election taught us, it is that the experts are frequently wrong, there are surprises around every corner, and there are many ways to achieve goals - positive and negative. I'm optimistic that many of you will find unique and positive ways to generate success in 2017.


Digital Is The Enemy Of Creativity

If you are a ten million dollar business, you can become a hundred million dollar business by "hacking digital". But if you are a hundred million dollar business, you need a heavy dose of creativity (or money) to get to a billion dollars. And if you are a billion dollar business, creativity becomes essential. But we've been taught that creativity is bad. We've been taught to leverage digital to become "efficient". We're now taught that customers want to have "authentic and engaging relationships with bots." Creativity is set to make a rally - it has to because we've over-optimized the digital side of business.


People

Also set to make a comeback. I recently spoke with an analytics professional who said he could "see the writing on the wall" ... he could see that technology was about to consume portions of his job. And that's been happening for decades. Regardless, each wave of technology consumes commodity functions while exposing people-skills as being even more important. People are about to become critically important ... you'll hear the opposite, but don't believe it. Focus your efforts on how you can help somebody else look good, and you'll go far.

Bowl Games

There are forty of them now, plus a championship game.

Many of the games feature lousy teams ... 6-6 teams play 5-7 teams. The bowl games pay each University a modest sum that is then re-distributed to the Conference the team belongs to, and in kind, each University is required to purchase thousands of tickets.

Not many fans attend most of these games ... the stadiums are 60% empty. Or worse.

A corporate sponsor hops on board and pays a few million dollars to make the whole thing work, hoping to gain enough exposure on ESPN and at the stadium to generate a return on investment.

In fact, a third of the games are confections of ESPN - created by and owned by the network to generate ad revenue for ESPN.

For most bowl games to survive, then, they must generate revenue outside of ticket sales. The ESPN-owned bowl game survives (in theory) because of television revenue, not ticket sales.

Which brings me to your business. If you are wrapping up a tidy Q4 filled with 40% off promotions, you are like the Bowl Games I mentioned earlier. You are using cheap tickets as your way to fill your stadium.

What are other ways to generate revenue, assuming nobody wants to sit in your stadium (i.e. nobody wants your merchandise even at 40% off)?

2017 Content

Think a bit about what you want to read about in 2017 - send me a message (kevinh@minethatdata.com) with your thoughts about content that aligns with the work I do.

Boxing Day

If you want to try something ... next year try this ...

1. Pick 10 future leaders.
2. Given them one year to determine marketing strategies that they get to employ only on December 26, 2017.
3. Let them implement their strategy only on December 26, 2017.
4. Measure the results and celebrate the wins - really honestly celebrate the wins.
5. Repeat the tradition annually.
6. Think carefully about those who did something unexpected, something that performed well. How does the tactic apply to the rest of the year?

P.S.: I seldom receive positive feedback when I share an idea like this. I understand all of the reasons why this idea should not be pursued.

P.P.S:  But why not try?

Speaking of Traditions

Merry Christmas - see you on the other side!

A Point of View

You can't watch an obscure program on an obscure channel without seeing a television commercial for a catalog, retail, or e-commerce brand.

Especially those e-commerce and online startups. Uber vs. Lyft. Weren't we told that television was dead?

Advertising, of course, requires a Unique Point of View.

The L.L. Bean television screen shot conveys outdoor imagery.

Visit the Ann Taylor website, and what message is conveyed?

Now look at what Duluth Trading Company stands for - look at their Unique Point of View.

Notice that they are discounting - 20% off plus free shipping. But that's 10% of the message you see on the screen. It's 70% of the message Ann Taylor shares on the screen.

Our 2017 business initiatives require a strong Point of View. A strong Point of View is the foundation supporting the remainder of business initiatives.

Video Fraud

I repeatedly encourage you to develop your own Unique Point of View coupled with Low Cost Customer Acquisition Programs.

There's a reason I do this.

Forbes & CNBC and others are reporting of a Russian Bot determined to fraud the living daylights out of your video marketing efforts.

Another version of the story (click here).

A third version of the story is here (click please).

I am so tired of seeing vendors and bad actors rip you off at every turn. You've been conditioned to trust "channels" above everything else - and channels have not led to sales increases and can result in a siphoning of your dollars ... your dollars ... dollars that could go to pay you a raise instead of being sent to criminals.

I am even more tired that it doesn't seem like half of our readership cares.

We all desperately need a Unique Point of View coupled with Low Cost Customer Acquisition Programs. Desperately. We need a way to get around those who try to rip us off. I realize you disagree with me. That's fine. But do you see the need? Or not?

If you disagree with the thesis (Unique Point of View + Low Cost Customer Acquisition Programs), send me an email message (kevinh@minethatdata.com) and describe why faith in marketing channels is a better path to success.

That Won't Work For Us

This is a slide from my Point of View / Customer Acquisition presentation from last year ... an online mattress brand published an e-book as part of their digital marketing strategy.

When I share stuff like this (and in the most recent iteration of the presentation, there are more than 150+ examples), there is a very common response.

Common Response:  "Kevin, that's really neat, but that won't work for us. We're unique, we're different. Please share a specific example that is guaranteed to work specifically for our brand, doesn't cost much, and scales nicely. Kthx."

2017 Tactic:  Let's assume that every example somebody provides "won't work" for your brand. Ok. Could we try something different in 2017? Instead of trying to save the whole business, could we try to save 1% of the business? In other words, why not pick a small product line, and see if different tactics could be tried to specifically grow that one product line?

By doing this, you eliminate the "that won't work for us". You are only trying to save 1% of the business.

Try 20 different ideas on 20 different 1% slices of the business, and you might find two that work. And if two work? Then try those two ideas on 10% of the business. And if 1 of the 2 ideas works on 10% of the business? Now you have something!

We keep looking for "all-or-nothing" solutions.

Was e-commerce an "all-or-nothing" solution in 1995?

Was email an "all-or-nothing" solution in 1999?

Was search an "all-or-nothing" solution in 2002?

Was social an "all-or-nothing" solution in 2008?

Was mobile an "all-or-nothing" solution in 2012?

Let's re-introduce creativity in 2017 - start small, try to fix 1% of your business.

Sound like a plan?

Join Me at VT/NH Marketing Group on March 30

Alright folks, it's time for you to light-those-lights (for those of you who enjoy 1970s televised telethon moments) and sign up to attend the VT/NH Marketing Group session on March 30!!

Click here for additional details. Do it now ... because the thing will sell out again and you'll wish you were there and won't be and then what??

I am going to try something different this year. Instead of a presentation, I am going to host a business simulation. Somewhere between ten and twenty teams are going to compete for a Coveted MineThatData Pickaxe ... the team generating the most sales and most profit win the coveted prize. Following the business simulation, we'll talk about the metrics that you wish you had access to in order to better run your business. We'll conclude with a discussion about metrics in general.

This is an experience you won't get an any other conference ... you pay almost nothing, you absolutely get something. How do you beat that??

Sign up right now - let's sell this thing out before Christmas!!

New Music

I'm driving my car, heading to the vet. I hear this song, from the Chainsmokers (click here).

It's been played more than 859,000,000 times on YouTube alone ... and the song didn't exist in mid-summer. The song is your classic "reactivation" story ... boy and girl are estranged for four years until a random meeting at a hotel bar. Kinda like you and your 37-48 month online buyer segment.

This is an example of a "winning" new song ... it's new merchandise, and the public is gobbling it up.

The Chainsmokers have been nominated for three Grammy awards.

• Best New Artist.
• Best Dance Recording for "Don't Let Me Down" featuring Daya.
• Best Pop Duo / Group Performance for "Closer" featuring Halsey.

Yes, there's an award for the Best New Artist.

There is a whole big whoppin' system out there for new music. You discover new music via Spotify or Radio, you create playlists on Spotify or YouTube, Spotify has playlists so that you know the new music that is popular, YouTube displays counts of plays so that you know that something is popular.

Then you have radio and 23 minutes of commercials per hour. If you think about radio in terms of specialty catalogs or vertical sister-websites, then things make even more sense. In Seattle alone ...

• New Music on 92.5 and 93.3.
• New Music and Recent Music on 106.1.
• New Music, Recent Music, Older Songs on 101.5.
• Adult Contemporary on 106.9.
• New Music and Alternative on 107.7.
• Classic Rock on 102.5 and 98.9 and 99.9.
• 70s and 80s and 90s on 95.7 and 96.5.
• Country Music on 94.1 and 100.7.
• Old-School & R&B on 103.7.
• Countless Others, Too.

But think about this ... there is a process in Pop Music ... new stuff is generally played on 92.5 and 93.3 and 106.1 ... then is passed along to 101.5 and 106.1 and 106.9 ... and then oldies (i.e. long-term winners) are played on 95.7 and 96.5. Not much new stuff going on in Classic Rock, so those stations appeal to older Baby Boomers (sort of like how catalogers appeal to older Baby Boomers).

Ok, this brings me to your business.

What is the graduation process you employ for new merchandise?

What is the award you give for Best New Merchandise?

Do you have a ranking of Best New Merchandise that you publish, so that your customer base knows what they should buy? Is it published via email? Facebook? Twitter? Instagram? Who is your version of a "D.J." who has passion for New Merchandise, who creates a great customer experience that brings customers back over and over?

2017 begins in a few weeks.

Why not designate one person as New Merchandise Evangelist?

Why not let that person go crazy talking about and promoting New Merchandise? And no, I am not talking about the catalog. I am talking about everything but the catalog. I'm not talking about a dot on the catalog that says "New Merchandise".

I am talking about one person who is the public face of New Merchandise. Somebody with a Personality. Somebody Creative. Somebody who is out in the digital (and offline non-catalog) world talking about New Merchandise every single day.

Every Single Day.

Who is that person in your company?

New Merchandise and a Rebuilding Project

What's depicted here is step one. This is the lazy, easy thing to do ... and most people do it. Cross it off the list.

When I started my blog, folks were angry that I posted every day. "You can't do that." What do you mean that I can't do that? I'm doing just that ... every day! "No, that's not what you are supposed to do, that's not a best practice."

A year later, the feedback changed ... "how do you keep coming up with ideas for new content?"

I learned that if I didn't produce new content, you didn't read.

And I learned that if I didn't mix-in some odd stuff (like the Gliebers Dresses series or Catalog Craig Paperman), you were bored silly.

So I had to always give something new to you, the studio audience. And I had to mix things up. And I had to entertain you.

Do you think the same thing applies to your business?

Pick one Merchant or Marketer ... and designate that person the NEW MERCHANDISE EVANGELIST. Every Single Day, this person leverages passion for new items to communicate why the customer must purchase new items.

• Every Friday, this person "owns" email marketing, telling stories about new items, selling selling selling selling selling!
• Every Single Day, this person "owns" Tumblr + Twitter + Facebook + Instagram + Snapchat, communicating stories behind/supporting new items, telling every single passionate customer WHY the customer has to align with new merchandise.

This process needs to be repeated Every Single Day for the next five years - no compromises - none whatsoever.

In fact, this should be the New Merchandise Theme of 2017.

• Every Single Day.

How hard is it to do this?

If you cannot find one person who has this level of passion for new merchandise, then why should you expect your customer base to care about new merchandise?

Every Single Day, my friends.

Every Single Day.

Discounts / Promotions In A Rebuilding Project

Tell people on Twitter that discounts and promotions are bad for business, and you'll get the reaction of the lady featured here. Don't you find it fascinating that vendors who don't even bother to publicly post their prices for public consumption demand that you offer discounts and promotions to "tickle the buying bone of today's fickle customer"?

When I've analyzed the long-term impact of discounts/promotions on a business, there is a consistent trend. The relationship tends to be "quadratic" in nature.

• No discounts/promotions = Healthy Business.
• Very modest and infrequent discounts/promotions = Healthiest Business, but one that is "riskier" to manage due to the temptation to follow discounts/promotions down the rat hole.
• Constant discounts/promotions = Unhealthy Business.

Across my projects, there tends to be a quadratic-style relationship between level of discounting (annually) and pre-tax profit ... your mileage will vary.

Notice that the most profitable businesses have just a teeny-tiny modest amount of discounting. These companies tend to run specials on key items coupled with liquidation of poor-selling items. These companies tend to offer discounts/promotions on specific items at infrequent intervals. These companies seldom run continuous discounts/promotions, and these companies almost never take 40% off of everything, much less for three consecutive months at a time.

I know, I know, you are about to point to JCP as the shining beacon in the "YOU MUST DISCOUNT OR LOSE 30% OF YOUR BUSINESS" thesis.

Discount-centric brands get caught in a trap that is terribly hard to get out of.

Think about it this way ... let's say that you retain 50% of last year's customer file (which is a silly-high rate ... my overall client average is 37%). After three years of discounting, only 12.5% of your customer file remembers what it was like to buy at full price, and, these customers have been tainted by the stink of discounting for three years.

What happens if you take drugs away from a drug addict?

What happens if you take discounts/promotions away from a customer who only purchases when discounts/promotions are offered?

Once you go down the discount/promotion rabbit hole, you are going to have a hard time working your way back. The process takes about three years, and most important, you must work your way back to full price at a measured pace while absorbing sales declines. If you aren't willing to absorb sales declines, then gravity pins you deep in the discount/promotion rabbit hole.

In a rebuilding project, your discounts/promotions shift from "we're filled with panic - please take 40% off" to "take 30% off key items" to "15% off on existing items and pay full price for new items because they're new and exciting". Discounts and promotions support events (think Nordstrom Anniversary Sale) instead of supporting inventory management practices.

As you plan your rebuilding project for 2017, think carefully about how you apply discounts/promotions to your business. If 2016 was awful, it's gonna be awfully hard to pull way back. If 2016 was great, strongly consider discounts/promotions that align with events or key items. And if at all possible, try selling at full price and absorb the sales hit. Model what happens if you are selling at full price and sales decline by 25%. Do you generate more gross margin dollars? If so, you have something to think about, don't you?

How Paid Search Demand Indicates A Need For A Business Rebuild

You measure the percentage of orders coming from paid search - by stage in the customer life cycle, right? Right?!!

When a business is cruising along and is performing well, here's what you typically see.

• 1st Order = 25% of orders from paid search.
• 2nd Order = 12% of orders from paid search.
• 3rd - 5th Orders = 6% of orders from paid search.
• 6th - 10th Orders = 3% of orders from paid search.
• 11th+ Order = 1% of orders from paid search.

As brand loyalty increases, the need for a customer to sit out on Google comparison shopping decreases.

When a business needs to be rebuilt, this is what you typically see.

• 1st Order = 25% of orders from paid search.
• 2nd Order = 17% of orders from paid search.
• 3rd - 5th Orders = 16% of orders from paid search.
• 6th - 10th Orders = 15% of orders from paid search.
• 11th+ Order = 14% of orders from paid search.

When your loyal customers are comparison shopping on Google before being redirected to your site (at your expense), your business needs to be rebuilt. It means that your loyal customers do not trust your value proposition.

Same thing with Affiliates and Facebook and Pinterest and Snapchat. If your loyal customers need a third-party to direct themselves your way, your business needs to be rebuilt. 

How Do I Know When Email Marketing Needs To Be Rebuilt?

This one is easy!

There are several metrics to look at.

First, I like to look at the number of customers who clicked through at least one promotional email campaign in the past year. Here's an example.

• 2016 = 449,384
• 2015 = 467,198
• 2014 = 490,559

Easy to see - fewer and fewer customers are purchasing from email marketing campaigns. Do you calculate this metric?

Then, I look at customers who clicked through at least two email marketing campaigns.

• 2016 = 270,394
• 2015 = 280,493
• 2014 = 270,169

Oh oh. We see a different trend. For me, the number of customers purchasing from 2+ promotional campaigns per year is a big deal ... the number needs to increase year-over-year. It's easy to astro-turf one click a year ... it's harder to get 2+ clicks per year.

Then, I look at customers who clicked through at least twelve email marketing campaigns per year.

• 2016 = 60,381
• 2015 = 58,994
• 2014 = 55,005

Ok, now we have a story. The email marketing team is "over-optimizing" the file ... resorting to tactics that appeal to the best email subscribers. The infrequent portion of the file ... the vast majority of the file mind you, does not like the strategy and is beginning to ignore it. But the top of the file loves it.

Two more tables - I like to look at $ per email. How much demand is attributed to each campaign?

• 2016 = $0.174
• 2015 = $0.169
• 2014 = $0.165

You can make an argument that emails are more productive - and are more productive because the best email subscribers are responding.

The final table evaluates gross margin dollars less marketing promotions, per email delivered. This usually reveals success/failure.

• 2016 = $0.053
• 2015 = $0.061
• 2014 = $0.071

That's a big story.

Once we back out cost of goods and marketing promotions, we can see that we are astro-turfing productivity with discounts, promotions, and low prices.

In this example (and this happens all the time), the email marketing team is trashing the value of "the brand". The campaigns increasingly speak to a subset of the customer file, and are less "relevant" to the majority of the customer file. When customers purchase because of email marketing, the customer is spending more but generating less profit - a sure sign that discounts / promotions / low-prices are being leveraged to make opens/clicks/conversions look good. And sure, opens/clicks/conversions will look good, but the bottom line is all that matters, and the email marketing team is hurting the bottom line.

I see this story repeated - often. When I see it, I know that the email marketing program needs to be rebuilt from the bottom-up. Plug this need into the seven initiatives below, and get busy.

"Festivus" Wins The Data-Driven Christmas Messaging Derby

Angela Plompkin couldn't believe her eyes. And yet, the seasoned data scientist knew she had no choice but to honor the results of her data-driven approach.

"I've been preaching how brands must adhere to a data-driven approach to marketing. It isn't fun when the tables are turned and you cannot overturn a data-driven thesis with gut instinct simply because you've been selling the opposite message for the better part of a decade."

Plompkin (the Chief Data Scientist at Woodside Research) was tasked with identification of the "best" Christmas messaging strategy that "brands" could employ to maximize customer engagement. She explained what happened next.

"We employed deep learning algorithms, because let's face it, machine learning is so 2015. Coupled with factorial test designs, we should have been able to identify the best Christmas marketing message after controlling for external factors. What we identified, of course, was sheer data-driven nonsense that we had no choice but to share publicly, because we demand that all brands adhere to a data-driven approach to marketing. We practice what we preach."

It turns out that consumers do not want to engage with traditional Chirstmas messaging.

"Within hours of launching the project, our deep learning algorithms latched on to the fact that customers enthusiastically engaged with the unadorned aluminum pole that serves as the anchor of the Festivus narrative as described in the twenty-year old episode of Seinfeld. Conservative, Liberal, Athiest, it didn't matter. The neural network spiraled out of control as the machine learned that consumers unabashedly embraced the Festivus narrative."

Needless to say, project sponsors were not pleased with the results. Plompkin elaborated.

"We attempted many different strategies, including advertising a Baby Jesus in popular swaddling clothes sold at Baby Gap. None of the messages resonated with users on social media. Heck, some consumers joined the Festivus conversation and actively shared their own Feats of Strength. People really enjoyed the Airing of Grievances. It's almost like social media was designed to amplify the Airing of Grievances. Our algorithms detected the Festivus signal, and would not let go of it. Eventually, we were boxed into testing a limited number of engaging messages regarding potential Festivus Miracles. I'm stunned that a machine could learn to so easily disrupt and re-direct a popular narrative."

Plompkin angrily defended her data-driven marketing narrative, in spite of the results.

"Look, if the best way to honor the birth of our Lord and Savior is to offer a customer 50% off plus free shipping after engaging with the customer about a Festivus Miracle involving Mr. Kruger, then so be it. That's what a data-driven approach to engagement fused with deep learning algorithms teaches us, and I for one will not compromise my data-driven values no matter the result. We've told our client base that brands who refuse to adhere to a data-driven strategy will die. I may not like how medicine tastes. But medicine is designed to restore my health, so likewise data-driven tactics will restore brands to health. It's time to abandon a Christmas narrative or a Holiday narrative, period. The data tells us we must immediately capitalize on the Festivus narrative if we want brands to win the engagement battle."

Plompkin was unavailable for further content after having to explain to her co-workers that the department Secret Santa celebration was being replaced by mandatory donations to The Human Fund.

For more information on Festivus, click here.

Black Friday 2024 Changed Everything At Macy's

Tippy Tarlington remembers the moment when everything changed.

"We were sitting in a Black Friday promotional meeting, and two things struck me as odd. First, I was the only Macy's employee in the meeting - heck, I was the only human in the room - everybody else was a bot who worked for a vendor supporting our marketing efforts ... and second, I couldn't figure out how to make money replicating the 85% off promotion from Black Friday 2023." said Tarlington, the Vice President of Strategy at Macy's.

"And then it hit me ... we would give away our merchandise for free, and make money on sponsored content."

At first, Tarlington was daunted by the scale of effort required to pull off this herculean task.

"But then it came to me ... we needed to thoroughly integrate all channels. It all started with our hoverseat strategy - using self-driving cars that eject passengers at their destination via a hoverseat. Self-driving cars were programmed to stop at Macy's, transport the customer into the store via hoverseat ejection, and then it was our job to make in-store magic happen."

The magic, as one might surmise, came from sponsored content.

"We figured out that we could put a veritable plethora of holographic images, videos, and text-based content in front of the customer as the hoverseat transported the customer to a random stack of Dockers pants. A video from The Weather Channel about global warming, a response from the alt-right about a pending mini-ice-age, we simply did not care. Either piece of highly engaging, relevant, personalized content drives the customer to a portion of our assortment to satisfy weather-based needs. The content is highly relevant to the consumer, but is utterly irrelevant to Macy's as long as our invoices are paid."

Sponsored content coupled with a hoverchair strategy yielded conversion rates close to 45%, according to Tarlington.

"It's really fascinating. You can convert a lot of customers when you offer merchandise at 100% off, and content providers are more than happy to foot the bill if it means that engaged eyeballs are tracked and marketed to at all moments. Frankly, I was surprised conversion rates didn't hit 100%, but there's no pleasing consumers in today's highly competitive environment."

Tarlington closed the deal with skeptical content providers by freely giving away all customer data associated with the transaction. As we talked, Tarlington sat back in her chair, and with the enthusiasm of a highly paid executive, Tarlington said ... "We're giving away all of the merchandise, why not give away all of the data? As long as the invoices are paid, our profits won't fade. Hey, maybe we need to put that quote on the walls of all conference rooms at Macy's, amirite?"

Wall St. of course, is skeptical. In a quarter-to-quarter environment, Wall St. wonders what Macy's can do to increase sales in a 100% off environment? Tarlington was quick to respond to the critics.

"We believe we can run 120% off promotions for Black Friday 2025. What could be more tempting than offering the customer $10 cash to purchase a $50 item at 100% off? And as long as content providers are happy to pay for eyeballs, there should be no shortage of money to go around to support what is likely to become a negative interest retail environment."

When asked if a first-mover advantage could crumble should all retailers go down the same path, driving down prices paid by content providers, Tarlington's face turned pale.

"Are you telling me that we might condition the customer to expect free merchandise and then not be able to offer free merchandise because content providers won't pay us enough? Is that what you are suggesting? Because I am not playing chess here, I'm just following the money. I love earning bonuses for short-term sales gains, because you don't have to think five steps ahead. Should I be thinking five steps ahead? Geez. Talk about taking the fun out of marketing strategy."

Start Your Rebuild By Obtaining Facts

You might think that 2016 isn't representative of a "normal year".

You might be right.

That's why you look at multi-year trends.

Look at what is going on with this business, via the 2x comp segment framework I've been talking about for the past four years.

• In this case, the "Election" probably hurt October/November comps. So we openly acknowledge the fact. But then we move on.
• 8 of 12 months in 2015 had negative comps.
• 10 of 12 months in 2016 had negative comps - toss out "Election" months, and 8 of 10 months in 2016 had negative comps.

So when we look at the data objectively, we see a business that after removing Oct/Nov "Election" impact posted negative monthly comps in 16 of the past 22 months.

In other words, this business was dying for nearly two years. This business need to be rebuilt, period. Look at the facts below.

• 16 of the past 22 non-Election months had negative comps.
• Excluding "Election" months, Nov/Dec/Jan posted positives in 7 of 8 months over the past three years.
• Outside of "Election" months, Feb-Oct yielded positives in 4 of 26 months.

Outside of Christmas, this business is broken.

This is a common story.

Worse - go analyze gross margin dollars less marketing discounts/promos in Feb-Oct and Nov-Jan ... for so many companies, growth in Nov/Dec/Jan is fueled by 40% off to 60% off promotions, destroying profitability.

When you see a business with metrics that look like this, you see a business in dire need of being rebuilt. Focus on the initiatives below, and get busy!

Rebuilding In 2017

You remember this slide from six weeks ago, right? I spent three weeks talking about rebuilding a business. I converted sales and profit numbers into NFL-style Won-Lost records.

Have you ever noticed that few folks rebuild something that is successful?

In sports, teams hit rock bottom - and are then rebuilt from the bottom up. It is not common (though it happens - ask the Cleveland Cavaliers) for the Coach or GM to be fired while the team is winning. And isn't it interesting that you'll have teams, say the Carolina Panthers, who are in the Super Bowl one year and then struggle the next? It's almost like the seeds of a rebuild are apparent, but are not observed ... blinded by the glow of winning. Or the seeds of a rebuild happen moments after the peak of a prior rebuilding project.

Look at the Macy's table above. In 2011, the business peaked at an 8-8 record (just .500). Then, as Macy's was lauded by the press for being an omnichannel success story, the business went 8-8, 7-9, 7-9, 6-10 last year, and is trending toward 5-11 this year. It should come as no surprise that a ton of people were let go and stores were closed.

Run your financial reporting through my won/lost equation (contact me for your own worksheet so you can perform the calculation - kevinh@minethatdata.com). What do you observe?

It's entirely possible that it is time to rebuild your business. Use business initiatives like the ones below as the foundation of your rebuilding process.

An Open Letter To My Catalog Friends

Dear Catalog Friends:

You read what Bill wrote on Sunday - click here if you didn't. That's not me saying it, that's somebody you know and trust.

Do you remember what I wrote about, close to a year ago? If not, click here. In fact, for the past decade, I've literally been begging you to diversify your customer acquisition portfolio. Last year, I gave this presentation with more than a hundred customer acquisition ideas - the presentation was viewed more than 18,000 times (click here). After the presentation, many catalogers told me that the ideas "would not work" for them - because in part catalogers are "unique" and "special".

So if having a Unique Point of View coupled with a Low Cost Customer Acquisition Program won't work for you ... and the co-ops are no longer working for you ... well ... you've got a problem, don't you?

Catalog Holding Companies (Potpourri Group / Colony Brands / Plow & Hearth / Bluestem Brands / Universal Screen Arts / Many, Many Others) have a minor advantage - they can prospect off of sister file lists. You're going to see a lot more of this, going forward. Why pay somebody $0.06 a name a dozen times a year when a comparable name is available on a sister file list?

Their strategy solves a short-term problem while weakening the non-Catalog-Holding-Company position. But again, this is a short-term solution.

Do you remember 2000 - 2005? As failed "multi-channel" initiatives dominated, a story slowly gained momentum, a story not covered by anybody. List brands - the folks you'd pay to help you horse trade names with competing brands - were being decimated by the co-ops. All of a sudden, you looked up, and Millard & Mokrynski and others were gone ... just like that. Ironically, that was it for cataloger health (as an industry). The brains all walked out the door, and algorithms rapidly aged cataloger customer files, which in turn rapidly aged cataloger merchandise offerings, which in turn alienated online conversion among customers < age 50.

That was the transition from lists to algorithms (co-ops). It began in the early 90s, and it took just shy of fifteen years for the revolution to occur.

The same transition is happening today, and it is happening in plain sight but few see it. We are transitioning from algorithms (co-ops) to artificial intelligence (Google + Facebook + Amazon). Google and Facebook have been around for shy of fifteen years (Amazon longer), and the revolution has happened.

AI (artificial intelligence) is smarter than the algorithms the co-ops use. AI technology gobbled up data on all individuals, just like the co-ops had all households in their algorithm. Co-ops accept transactions from brands on an as-needed basis. Google and Facebook infer interest in real-time.

When we transitioned from lists to algorithms, many catalogers suffered ... many were slow to respond to the kind of customers offered by the co-ops ... those brands were gobbled up by Catalog Holding Companies.

Now we are transitioning from algorithms to artificial intelligence.

I've been begging you to craft a Unique Point of View coupled with a Low Cost Customer Acquisition Program. Think Duluth Trading Company (and I get it, you hate thinking about them, you hate their "humor", and they're not located in New England so they "don't count"). Why do you think I'm begging you to craft a Unique Point of View coupled with a Low Cost Customer Acquisition Program?

• A Unique Point of View allows you to use Artificial Intelligence to your advantage. Google + Social work in your favor, rather than you paying AI to get access to customers who have no interest in your merchandise assortment.

I've worked with more than 200 brands since founding MineThatData nearly a decade ago. I get to see what works and what doesn't work. This is the reason I'm begging you to craft a Unique Point of View coupled with a Low Cost Customer Acquisition Program.

A cataloger cannot win the transition from algorithms to artificial intelligence without a Unique Point of View coupled with a Low Cost Customer Acquisition Program. Within the confines of a Catalog Holding Company, the cataloger can stave off the transition for awhile. Please don't be caught off guard by the transition from algorithms to artificial intelligence - like so many catalogers were caught off guard by the transition from lists to algorithms.

P.S.: Some of you are going to tell me that Google + Social + Mobile + Amazon "don't work" or "don't scale", and you will be right. That's how you will know that you are not prepared to deal with the shift from algorithms to artificial intelligence. That's how you will know that you need a Unique Point of View coupled with a Low Cost Customer Acquisition Program.

P.P.S:  To my catalog friends - I believe in you. You have every tool at your disposal to move your business forward. Some of you have successfully managed 40+ years of change. This is just another step in a long evolutionary process.

P.P.P.S:  Agree or disagree? Send me your thoughts (kevinh@minethatdata.com) and I will publish your comments later this week.