August 28, 2019

Overstock.com

If you want to read something truly interesting to send you into the long Labor Day Weekend, read this (click here). But start with this (click here) for context. And then if you want to go deeper into the rabbit hole, try this.


That is all. Thank you.

We dig into pricing data starting next week, so get ready!!

August 25, 2019

Looks Like Merchandise Category 07 Is A Problem

In a lot of my projects in 2019 there is a "lurking merchandise problem". In other words, it's a problem that isn't easy to identify on the surface. 

But a simple modeling technique identifies problems.

Take all customers who purchased 13-24 months ago, and for that year sum up their annual spend in the 13-24 month timeframe by merchandise category.

Then create a dependent variable for total company spend in the past 0-12 months.

Regress 13-24 month variables against 0-12 month spend (after cleaning up outliers, of course).

Merchandise categories with smaller-than-average coefficents are categories that dissuade customers to repurchase.

Merchandise categories with larger-than-average coefficents are categories that encourage customers to repurchase.

This is an old technique ... we ran this stuff at Lands' End in the early 1990s (yes, I said 1990s ... early 1990s) and learned that Home purchases dissuaded subsequent orders (because the customer needed Home items less often than the customer needed a mock turtleneck).

It's common to find a merchandising team that expands into a category that dissuades future customer loyalty. And your merchandising team probably doesn't have an analyst running regressions against the customer file, so how could they possibly know that their decision was a bad one?

If you don't have the resources to do important work like this, give me a holler (kevinh@minethatdata.com) and I'll do it for you.

August 21, 2019

Retail

Yeah, that's a lousy picture. Too bad.

Today is essay day. If you don't want to read something long, stop here.

I spend a lot of time on Twitter criticizing retail ... not actual retail brands necessarily, but the "thought leadership" regarding retail.

Were you in retail in the late 1990s? I was. Business wasn't great as we approached the year 2000. And once we entered a recession, the online world crumbled. Remember the online world pre-2000? It was the wild west.

When the online world crumbled, Retail Executives had an opportunity ... they would "reign-in" those crazy online wombats who were doing whatever the heck they wanted to do. I was in the meeting, I heard every possible flavor of this sentiment.

At Nordstrom, my team measured the impact of email marketing. In the first half-decade of the 2000s we'd send multiple messages to customers, personalized by customer merchandise preference. I'm stunned how few people do this today. It's free money.

Anyway, we'd always get a lot of feedback (even though we weren't responsible for the creative or the messaging).
  • Your email campaigns are too online-centric.
My team would test store-based messaging. We learned the following:
  • An online-centric message caused customers to spend a lot online, and a small amount in-store.
  • A store-centric message caused customers to spend some online, some in store, but overall, the customer spent significantly less in total than if the customer received the online-centric message.
We had the data. What were we supposed to do? We had to be data-driven, right?

So our messaging evolved to the point where it was mostly online-centric. That style of messaging performed best.

Fast forward to 2019, and the messaging is still digital-centric. Go visit Mailcharts and look for yourself. Nordstrom had a recent campaign that encouraged the customer to buy online and pickup in a store or to shop online right now. Those are the two choices offered. Never mind that 75% of their sales likely happen in a store, the messaging tells the customer to only visit a store to pick up an online order or to sit at home and click.

A typical retail brand sends 150-350 email campaigns per year ... and the majority of those messages are digitally-focused. For twenty years, we've trained customers to ignore stores. And guess what? Customers listened to us!!

In the 2005-2010 timeframe retail purchased began to be cannibalized by a fully functional online channel. You have to remember that most retail brands didn't have a viable catalog channel, so they had to build e-commerce from scratch. Once retail brand e-commerce performed at a credible level, customers began to shift, aided by 150-350 email campaigns per year demanding that the customer shift behavior.

You probably run your own channel-based simulations, so you probably already know what I'm about to share with you. Here's how channel-based dynamics destroyed retail.

Ready?

Ok, you have a customer who used to be a pure retail shopper, and that customer spent $300 a year. But you had to send the customer 150-350 digital messages per year demanding that the customer shop online instead. And your messaging worked! The customer finally shifted. Now instead of spending $300 a year, the customer spends $330 a year (not the 8x amount of $2,400 a year that vendors, trade journalists, and research brands told us the customer would spend ... their lies amplified the problem, but that's a topic for another day), spending $250 in a store and $80 online.

Did you get what just happened there? The customer went from spending $300 in a store to spending $250 in a store.

Now, this drop in spend is barely noticeable when e-commerce is 4% of annual sales.

But this drop in spend becomes noticeable in two key ways as e-commerce approaches 10% of annual sales.

First, you get the 16% hit on sales across 10% of your customer base, meaning that your comp store sales drop by 1.6%. Strong hint ... Wall St. hates that.

But second, and far more important, is the fact that most retailers participate in a "shared traffic model". In other words, when Macy's brings a thousand customers into a mall, Ann Taylor benefits because 125 of those customers visit Ann Taylor as well. But when Macy's tells the customer to not visit a Macy's store, the Macy's customer listens ... instead of 1,000 customers entering Macy's maybe just 800 visit Macy's, which means that 100 instead of 125 Macy's customers visit Ann Taylor ... which means that Ann Taylor experiences a sales decline because Macy's executes digital messaging.

Now imagine what happens when every retail brand in a mall executes digital messaging, causing every brand to get less volume in a store, causing less traffic across the board???

Everybody loses. Everybody applying a "shared traffic" model gets less traffic, causing everybody to generate less in-store sales volume.

Do you think anybody decides that this trend could be reversed by simply having a great store experience coupled with a ton of customer re-education? Nah. Not really. Instead, retailers employ the poison pill ... they offer deep discounts to buy in a store. 40% off. 50% off. All this does is cause a quarter or more of the store portfolio to become less profitable, to the point where the CFO gets interested and starts "asking questions" ... questions like "why do we keep an unprofitable store open when we could just take in all the orders online and close the store???"

That, of course, is a lousy question to ask people who don't have a simulation environment that allows the CFO to get an accurate answer to her question. Instead, stores just close.

What happens when a store closes?

Remember that $330 that the customer spends, with $250 in a store and $80 online? Well, 70% of the retail spend disappears. $75 remains ... and if there are stores nearby those stores capture the majority of the volume ... otherwise the online channel "might" capture the sales. Let's assume the online channel captures all $75. Here's the story.
  • Store-Only used to cause $300 spend.
  • Omnichannel model caused $330 of annual spend.
  • Online-Only now causes customer to spend $75 + $80 = $155 of annual spend.
The customer instantly becomes less loyal. This doesn't become apparent until a year or two later when the customer exhibits reduced loyalty and the financials don't work and the CFO starts digging into the problem again, asking uncomfortable questions like "why isn't the customer buying online and what do we do to increase sales once again??" By that time, it's too late, the damage has been done ... digital strategy took a customer who used to spend $300 in a store and turned the customer into one who spends $155 online.

If you don't believe this is the case, go ask anybody working for a retail brand who operates a simulation environment what happens ... I'll sit here and wait, ok?

...

...

Welcome back!

This is what we've done to retail. We did it. All of us.

The critic in the audience will tell me that my logic fails to resonate because Walmart and Target and Best Buy are doing ok. The critic fails to remember that those brands do not operate in a "shared traffic environment" like mall-based retailers operate in. It's the "shared traffic" component of retail that amplifies the problem. When Ann Taylor tells the customer to shop online the customer doesn't go to the mall and consequently doesn't visit J. Jill, thereby hurting J. Jill.

Out on Twitter all sorts of opinion-based gurus, thought leaders, vendors, research brands, and trade journalists have ideas for fixing retail. The latest piece of nonsense coming from this audience is a term called "phygital". Google the term. Have a bag ready next to you to vomit in should you become nauseated by the thought of merging digital and online experiences to generate a seamless retail panacea. "Phygital" is the rebranding of the term "Omnichannel", which was the rebranding of the term "Multichannel" which, well, you get the picture. It's a failed thesis, and it's a thesis that makes vendors & pundits & thought leaders & research brands & trade journalists a lot of cheddar.

If you adhere to a "phygital" thesis, you might believe that marrying digital and in-store experiences is good for the customer. You might be right ... you might achieve the $300 to $330 a year gain I mentioned earlier. However, you haven't solve the "shared traffic" problem, have you?

That's the problem that has to be solved.

Shared traffic.

We need ALL retail brands to de-emphasize the digital side of the business and instead prioritize getting the customer to get in a car and drive 12 miles to a store.

I know, that's practically impossible, isn't it?

The job of a retail marketer becomes not fundamentally different than the job of the Athletic Director at the University of Illinois. Imagine trying to get people to attend an Illinois football game when the team (merchandise) isn't very good and the game is available on television for free (just like your merchandise is available online)???



This is what the future of retail looks like ... we have to figure out how to get people out of their homes, into a vehicle or into mass transportation, and then have to provide a compelling in-store experience ... or we end up like a college football stadium that is half-empty with a losing team getting pummeled 42-7.

"Phygital" doesn't accomplish this, does it?

The first retail marketer who figures out how to redirect traffic from the online channel to stores is going to become famous.

Questions? I'm at kevinh@minethatdata.com.



August 19, 2019

Pay 'em!!!

Two weeks ago I shared this image, created via one of my "bifurcation" projects.

The image was part of a series outlining how old-school catalog brands possess a customer base that is splitting into two pieces ... traditional catalogs shoppers who can actually support "more" mailings (yes, more) ... and everybody else who should receive considerably fewer mailings.

There are two comments I receive when I share this feedback. The two comments sometimes happen at the same time.
  1. I don't want to mail more catalogs.
  2. I don't want to mail fewer catalogs.
I realize it's not fun to have an outsider tell you how you could make more profit. You are pummeled with outsiders telling you what to do, and frequently, the outsiders are wrong.

I also realize that way, waaaaaaaaay too many of you do not get rewarded when you make your company more profit. You work for a $50,000,000 brand that makes $2.5 million profit per year and you listen to me and you increase profitability by a half-million dollars and you don't get anything for it ... nothing ... no bonus, you get your typical cost-of-living increase ... and you watch as the digital folks climb the corporate ladder. I get it, that's not fun, and there's no financial incentive to do the right thing.

When I work on these projects with the Private Equity folks, there's a lot of financial incentive to do the right thing.

When I work on these projects with the CEO or CFO, there's a lot of financial incentive to do the right thing.

But for so many of you, there isn't a financial incentive to do the right thing. And that's sad.

Maybe the CEOs/CFOs who are reading this could change that????


August 18, 2019

Wanna See What Video Looks Like?

Courtesy of Fast Company, we learn about Trader Joe's YouTube Channel (click here).

This isn't difficult to do. It requires a modicum of creativity ... and because we've ROI'd creativity out of our businesses in a lust for digital efficiency, you might think this is hard to do.

It's not.

Go do something.

August 12, 2019

Stitch Fix Just Tells You What They Do

This is going to scoot way above the preferred mathematical levels of most readers, and that's fine. The reason for sharing this is that folks wonder why their $40,000,000 business isn't growing while Stitch Fix went from zero to a billion in sales in no time at all ... now granted, Stitch Fix needs humans with taste and they need cute merch ... but they also leverage math. And they tell you what they're doing ... almost daring you to copy them.

It's all there for you (or for you to get Cohere One or Belardi/Wong to do for you) ... just copy them ... you keep asking me for best practices, well, go get your favorite catalog agency to copy this for you. Just ask them.

Here's the link (click here).

August 11, 2019

Bifurcation and Shopify all in One Article

I talk frequently about catalog bifurcation ... and many readers leverage the Shopify platform. Well, you can read about the topic of bifurcation and you can read about Shopify (and Walmart and Amazon) in this article (click here).

August 07, 2019

Everybody Else

Look at everybody else ... the bottom half of the file ... there's barely any catalog profit available mailing them.

That's the future ... it's what e-commerce brands who embrace catalogs learn quickly. It's the future for catalog brands as well. You're not going to mail the vast majority of your customer file much anymore.

You may not agree with what I'm saying. That's fine. Work with your favorite agency, analyze your best "catalog" customers, and tell me what you learn, ok?

August 05, 2019

I Know, You Don't Believe Me

In this example, the best customers do the following:

(a) They spend $360 a year BECAUSE of catalog marketing (and another $200 organically without catalogs, but that's a story for another day).

(b) They receive 22.1 catalogs per year.

(c) With a profit factor of 45% and $0.70 ad cost per catalog, the customer generates $145.70 in annual profit.

A lot of you use a "rule of thumb". You add productivity at 50% to see if another mailing will work or not.

So in this case, let's do that. Except we'll add productivity at 33%.
  • $360 / 22.1 catalogs = $16.29 per catalog.
  • 33% productivity = $16.29 * 0.33 = $5.38.
  • $5.38 per book * 0.45 - $0.70 = $1.72 profit.
Let's try adding the contact at 15% productivity.

  • $360 / 22.1 catalogs = $16.29 per catalog.
  • 15% productivity = $16.29 * 0.15 = $2.44.
  • $2.44 per book * 0.45 - $0.70 = $0.40 profit.
Do you see where I'm coming from?

Run your customer data through a sim and see what the sim tells you.

You're getting this help for free ... go do something with it, ok?????


August 04, 2019

More?

In the past three years, the simulations all show the same story ... the very best "catalog" customers are not being contacted enough.

Look at the data in this graph ... going from left to right we have increasing 12-month buyer customer quality (i.e. best customers are on the right).

The very best customers (big blue arrow) are worth an order of magnitude more than the next-best customer segment. They get just one more catalog, but are worth SIXTY (60) additional dollars of profit.

These customers should get more catalogs. Period.

Not just one or two ... quite possibly twenty (20) more catalogs per year.

It requires a complete re-thinking about how you construct a contact strategy.

It requires a complete re-thinking about how you score your customer base so that only the best "catalog" customers are treated this way.

It requires that you or your favorite agency (Cohere One, Belardi/Wong etc.) create a simulation environment so that you can plainly see how this is happening.

It requires your printer to help you develop 16-32 page dynamic catalog content (DCC) mailings with a personalized merchandise assortment.

It requires you to mail all of the remaining customers FEWER catalogs.

In other words, the process of Bifurcation is tearing the traditional 9-18 contacts per year strategy apart.
  • Old thinking = 9-18 contacts per year, with various segmentation strategies to "target" various customers.
  • Modern thinking = 30-45ish contacts per year for a small number of customers, 0-4 contacts for nearly everybody else.
I've got the data.

I've built the sims.

This is where things are headed.

I'm telling you this ... for free.

Go do something with the information, ok??

The Vice President

My first job out of college was at a seed company in Central Iowa (Garst Seed Company). I had a poster hung on the interior of my cubicle. ...