February 17, 2019

It's Your Fault!!

The transition from analytics to business can be a rather spicy endeavor.

Back in January 1998, I changed jobs. No longer was I an analytics dork with a greaseboard full of requested queries in prioritized order ("Please tell us how many customers who responded to our Family & Friends offer also purchased denim, priority is 9 of 10, k thx") ... nooooo ... I was now a dork who thought I could actually run something. And Management listened to me! Just like that, I was the Director of Circulation. Pay raise. A team of a dozen people.

We had quarterly meetings with the Leadership of our catalog (and budding online) division. Business was AWFUL. I spent the first three months in my job figuring out how to liquidate merchandise in any possible way without "damaging the brand". On the surface, you'd think that was possible. In reality, the reason you are trying to liquidate without damaging the brand is because the brand has been damaged by lousy merchandise.

Eddie Bauer loved planning. LOVED. IT. A month into my job and I'm planning Spring-Summer 1999 (it was February 1998). This means I had to use current-day performance to predict business performance fifteen months out.

Oh oh.

Current performance was awful. 

This meant I forecasted future performance would be ... wait for it ... wait for it ... awful!

Naive, I waltzed into this meeting and presented my catalog/online division plan for Spring/Summer 1999 (in February 1998). I expected this team of thirty business leaders to adore my vision, respect my precise forecasting ability, and embrace my immaculate spreadsheet calculations.

About five minutes later I peered up from under the table. The team ran out of bottles to throw at me, so things died down a bit. If there was a single three-word sentiment that encapsulated the barrage, it was this:
  • "It's your fault."
Yes, blame for business that would not yet transpire for fifteen months was my fault!

The Chief Merchandising Officer was particularly offended with my wizardry. "Our assortment next Spring will be trend-right and brand-appropriate. How could you torpedo us like this?"

The next comment came from our CEO.
  • "Kevin, what are YOU going to do to fix the business? What is the sales lift you are willing to sign up for??"
Strong hint - I was never going to sign up for a sales lift, given bad trends. But I might sign up for increases based off of improved merchandising, if somebody could demonstrate to me that the productivity of the merchandise had improved.

That's where the concept of Merchandise Productivity was born.

The reason my plan for Spring/Summer 1999 was so awful wasn't because I was sinking the business into oblivion (at least I don't think it was) ... it was because customers hated our merchandise and the last thing I was going to do was forecast a 15% sales rebound and then have inventory bought to my level of optimism and then have to liquidate all over again without "damaging the brand".

I had three months before the next big meeting. In this time, I had to come up with a formula that allowed each team to "sign up" for the sales lift they promised. And I had to do this in a fair way without causing false gains that would result in more liquidation opportunities.

Step 1:  Our Inventory Director (not the merchants) would optimize the page count for each division within a catalog. If we had 48 pages of Mens, and Mens only deserved 40 pages, she authored 40 pages. I then calculated the productivity of 40 good pages vs. 40 good pages and 8 awful pages. Let's say this resulted in a 10% increase in demand per thousand pages circulated. The 10% increase was what the MERCHANDISING TEAM signed up for. Mind you - not one merchant did anything to cause this ... but we had to come up with a way to fix the business without expecting the merchandise to ever improve.

Step 2:  When the Inventory Director achieved a 10% increase in demand per thousand pages circulated, I was able to circulate deeper. So I'd do just that ... I'd mail more catalogs. The incremental gain in demand from the additional catalogs mailed was attributed to MARKETING PRODUCTIVITY ... even though we didn't change marketing strategy one bit!! This frequently caused a +/- 5% demand gain.

Step 3:  Going into the next meeting, we assigned the gains that each of us "signed up" for:
  • Merchandising = +10%.
  • Marketing = +5%.
  • Creative = 0%.
Again, there's no change in merchandising strategy, there's no change in marketing strategy, there's no change in creative strategy. There's the Inventory Director manipulating pages to make catalogs more productive, and there's the Circulation Director mailing more catalogs because crappy merchandise isn't allowed in the catalog so I can mail deeper.

This made the thirty-ish Leaders in the room very, very happy. Marketing and Merchandising were doing something to fix the business.

The business was never fixed. True merchandise productivity was flat or even fell marginally in 1999. Sales barely grew.

But ... BUT ... we bought inventory to just shy of our plan ... and we didn't allow the customer (especially unproductive customers) to see the garbage that wasn't selling. In fact, we took 3,000,000 in 200 page circulation and 3,000,000 in 64 page prospect catalog circulation and converted it into 1,500,000 in 180 page circulation and 5,000,000 in 64 page prospect circulation (I don't remember the exact numbers, so don't hold me to this) ... and that change in "productivity mix" caused us to be a lot more profitable on comparable sales volume.

Tack on a $3 "handling fee" (which you could never get away with in 2019 ... but in 1999 that added a lot of pure profit) and we had a record year for profit in 1999 ... and the Merchants and Marketers were happy because the productivity gains they "signed up for" were realized.

That's business, folks. Business isn't "4 Tips For Success". It's identifying ways to navigate various factions while still doing what is right for the company. 

You have it in your to be clever as well. Use your creativity in a positive manner!

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