As the kids would say, this is "prolly TL:DR" ... but I'm going to go there anyway.
Something is coming, folks. It's like a weather forecast that verifies across multiple initial conditions across different models.
Here's something I wrote nearly three years ago ... this was the last time went into this topic in-depth ... it's called the co-op feedback loop (click here). In the article, I complained about co-op performance going back to 2012-2013.
Notice the end of the bullet points ... I talked about how the Amazon / Google / Facebook ecosystem would be obliterated by mobile. This didn't happen the way I suggested it would happen ... instead, mobile amplified that ecosystem and cut e-commerce brands off from new customers. Today, if you want a new customer in e-commerce, your choices are Amazon / Google / Facebook, and you will pay a lot for the right to poach customers out of their ecosystem. Didn't evolve the way I thought it would, and it is costing standalone e-commerce brands who can no longer easily find new customers - pushing them to be purchased. There's a reason so many e-commerce companies are selling out right now.
But that's in e-commerce.
Today, I'm talking about catalog brands ... the companies that back in 2010 when I attended Internet Retailer the owner of Internet Retailer said were "like the Confederate soldiers who didn't know that the Civil War was over". Notice that Internet Retailer sold out as well ... now part of a conglomerate where you pay 4x as much for the same content. Snarky commentary about catalogers who helped pay his bills leading to a fat checkbook. See how that works? Internet Retailer sold themselves at a time just before Amazon would obliterate e-commerce. Timing.
Why talk about catalogers today?
Buying and Selling: Private Equity folks looking to buy ... Owners looking to sell. It's in the air. Seriously ... half of my inquiries right now are from people wanting to do one of two things.
- Buy a Catalog Brand.
- Sell a Catalog Brand.
Fifty percent, folks. This hasn't happened in the 10+ years I've run my own business.
Many of the discussions come down to the co-op feedback loop.
- Those who want to buy a Catalog Brand want to know if the company has a credible low-cost / no-cost customer acquisition program.
- Those who want to sell a Catalog Brand want to know how to implement a credible low-cost / no-cost customer acquisition program or make the co-ops work 40% better immediately.
Isn't that interesting?
The catalog co-op feedback look accelerated an industry already on the ropes.
- The Amazon / Google / Facebook ecosystem cut off names < age 45 from the co-op database. The names may still be there, but the transactions aren't, and that is fatal for the co-ops.
- Catalogers, who accepted the co-ops as the primary source of new names 10-15 years ago, did not develop new sources of new customers.
- Catalogers bludgeoned the 6,000,000 - 8,000,000 viable catalog names available via the co-ops, crushing productivity in the process.
- With lower productivity, catalogers could only extend the lifetime value window (hurting profit) or cut circulation (hurting new customer counts). Both happened.
- Because the co-ops hyper-optimized against the 6,000,000 - 8,000,000 viable catalog names, catalogers (indirectly) learned that these names have specific merchandise preferences ... hint - they're the preferences of the Baby Boomer generation.
- Catalogers optimized the merchandise assortment based on what co-op customers liked.
- The optimized merchandise assortment was not appealing to the Google / Facebook / Amazon ecosystem. Consequently, customers < age 45 bounced when arriving at a catalog brand website.
- The result: Catalog brands are fundamentally disconnected from customers < age 45, because of the unanticipated outcomes of the co-op feedback loop.
This is the reason that half of the catalog brands I evaluate are "sick". The cataloger cannot find enough new customers, and paid sources (Google + Facebook + Amazon) yield names that are not interested in a merchandise assortment skewed to a customer age 60+.
This brings us to an interesting question ...
- "It is time to sell?"
The answer is almost always "no", and for good reason.
- "You don't sell your brand for pennies on the dollar."
In other words, we're headed into Fall 2017 with a unique dynamic.
- "It is time to get our businesses healthy, so that when it is time to sell, we sell for top-dollar."
For many of us, it's time to craft an exit strategy (professionally for some, too). Some of our businesses are too sick to be purchased for a fair price. We need to restore the business to health, and we need to demonstrate that we can find new customers at low-cost / no-cost outside of the co-op / Google / Amazon / Facebook ecosystem.
This will be a topic this Fall ... restoring the patient to full health so that when the Private Equity folks call, they call knowing they're going to pay a fair price for your brand.
You can do this!!!!! You can restore your business to health. It's not a hopeless situation. We're talking simple basics, folks. Look at Hollister ... three straight quarters of growth by adhering to the basics. Focus on what matters.
When you need help evaluating your business prior to Private Equity inquiries, you will contact me (firstname.lastname@example.org), ok?