October 26, 2017

Hillstrom's Optimizer: Moving The Catalog Brand Into The Future

Recall our base case.

And then we shut down the catalog division ... and the simulation clearly showed what a stupid idea that was!!

So the strategy isn't to shut things down. Nope.

The strategy is to slowly move into the future. Reduce catalog slowly, increase online marketing slowly, and optimize online marketing channels. Reduce fixed costs slowly as you slowly shut down the catalog division.

This doesn't mean that sales will grow. You're taking a five-year process to rebuild the business, and that's a bumpy process ... but one that can be nicely profitable. Take a look.

I reduced catalog marketing by 20% / 40% / 55% / 70% / 80% as time progressed. This caused a reduction in fixed costs as the process of producing catalogs becomes less labor-intensive and is more automated toward existing creative and existing/winning items and fewer pages, requiring fewer people.

Yes, sales decrease. This is something we already knew would happen.

But profit stabilizes, and cumulative profit is better than in our base case.

So moving into the future requires strategy and vision. It requires a plan ... a multi-year plan. It requires sticking with the same marketing team and the same merchandising team for multiple years, supporting them through sales declines and profit bumps. It requires tolerating sub-optimization in online channels while tolerating gradual declines in old-school channels. It requires patience.

In other words, moving into the future requires a plan that modern business leaders don't generally accept. Do you and your team have the courage to transform a business over a five-year period of time?

P.S.:  Got two minutes? Try something!

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