November 30, 2017

Where Is A Catalog Brand Headed?

Once you pick a path, it's hard to get on the same path as other companies are on.

For catalogers, the fork in the road largely began in 2001. This is when the industry chose to "believe" ... McKinsey told us that multi-channel customers were something like eight times more valuable than single-channel customers. Coupled with the debacle, the trend was toward integrating everything ... not fundamentally different than the "eliminate silo" movement of the past few years.

The minute catalogers decided to integrate the online channel with paper, time forked ... online-only brands moved to integrate with online advertising, ultimately landing on Google/Facebook as the source of new customers. Algorithms decided which 40 year old customer would become a new customer. Greed (via Google/Facebook) is about to dry up the source of new customers.

Retailers forked in a comparable path, putting all their eggs in the "malls drive traffic, traffic converts to online, and then the customer spends more in retail and online" thesis ... known as omnichannel. When customers were trained to no longer enter malls, new customers dried up, and the whole thing cratered. By putting faith in malls instead of algorithms, the source of new customers dried up when customers sat at home researching products ... on Amazon.

Catalogers chose catalog co-ops as the source of new customers ... in the 2005 - 2010 timeframe this choice resulted in the death of list organizations and led to the death of diversity of names. Algorithms decided which 60 year old customer would become a new customer. Retirement is now about to dry up the source of new customers.

Meanwhile, Amazon created their own fork. Everybody disregarded Amazon (#theyrenotprofitable) until it was too late (2008). When the Great Recession created panic, Amazon amplified a new business model. It's too late to compete against Amazon. They won.

That's where we've been.

And we know our DNA has been set. We're not going to change our DNA overnight.

Our customers have expectations. Change actions too quick (think JCP from 4-5 years ago) and customers are alienated ... they leave ... that doesn't work.

So now it is time to pick a path.
  • Buy.
  • Sell.
  • Amazon.
  • Fork.
Let's think about each choice.

Buy:  My mix of annual income changes every year ... but one thing is constant ... the share of income coming from projects where somebody wants to acquire a catalog brand continues to grow. Between Private Equity and Catalog Holding Companies, the trend is moving toward consolidation. A standalone catalog brand possesses multiple merchandise categories ... those categories feed customers to each other ... customers who cross-shop categories fuel profitability. Consolidators will accomplish the same thing - each "brand" will act as a merchandise category, fueling sister-brands with inexpensive customers. We've talked about this for almost three years ... the trend only accelerates. This will create a thirst for more acquisitions ... because as individual catalog brands die, new ones must enter the Holding Company ecosystem to keep things afloat.

Sell:  One of the undeniable trends of 2017 is "fattening the file". It's common to see a company with negative merchandise productivity and positive customer acquisition counts. The company is outrunning the slow implosion of the business model by temporarily acquiring customers at high rates. This causes an outsider to perceive that the company is in "growth mode". And to any outsider not running a comp segment analysis, the company does appear to be in growth mode. By masking the real problems, the cataloger appears more valuable, and consequently fetches a better asking price. Pay attention to companies that grow via paid customer acquisition but not via merchandise productivity ... these may not be a good buy.

Amazon:  Many of you are already making the transition from being a "brand" to being an "Amazon Vendor". It's easy, potentially profitable, and you lose your brand personality in the process, if you care. It's like aligning your political beliefs with MSNBC or Fox News. Plenty of folks will give you best practices for being a seller on Amazon. It may be right for you. It may be the end of you. Study your options carefully. Always remember that the customer is loyal to Amazon.

Fork:  Here's where things get interesting ... building a new fork in the road. The standalone catalog brand that survives will likely build a new fork in the road. With DNA set (60+ year old customer and staff with the DNA to put paper in the mail and have the paper create an online order), actions will need to change to change customer expectations. And when customer expectations change, the DNA of a cataloger will change and the future will be set in motion. What are the actions that will change?
  • Meet the needs of a retiring customer ... needs that e-commerce / retail long abandoned.
  • Entertainment - become more like the sports industry.
  • Scarcity - limited inventory depth encourages the customer to act now.
  • Separate experiences for the 60+ year old paper-centric customer and the 45-59 year old semi-digital customer, with attention and detail focused on the 45-59 year old customer (who represents the future of the catalog ... not the future, but the future of the cataloger).
  • Financial rewards for the employees who deliver results in either the 60+ paper-centric arena or 50-59 year old semi-digital customer.
  • Optimize long-term merchandise/customer health.
  • Stop reliance upon Google + Facebook + Catalog Co-Ops.
  • Become the opposite of Amazon.
  • Choose great non-competitive partners.
  • Focus on customer acquisition of the 45-59 year old semi-digital customer assuming that paper doesn't exist.
  • Use the existing merchandise assortment as a bridge between 60+ and 45-59. Thoroughly analyze merchandising interests and browsing habits of the 45-59 audience and then personalize emails and landing pages and online advertising around the merchandise that the 45-59 year old desires.
  • First Three Month Program: So darn important ... get that customer to a second purchase quickly by not using discounts/promotions. If you read this and say "how the heck do I do that" then your DNA isn't congruent with what is coming.
My opinion only - this is where the catalog brand is headed if Acquisition / Being Acquired is not an option. If you're not part of a Catalog Holding Company, then I perceive this is what needs to happen.


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