March 19, 2020

The Math Behind Business Coming Back

Let's say that this virus issue causes your business to lose 40% of your top-line volume for two months ... and this is possible, especially if you are retail brand.

While devastating for two months, there is math that offers subsequent hope.

I first saw this working at Lands' End in 1991 - 1992. With business not spectacular, we had huge gluts of customers who did not repurchase when business was bad. When business returned to normal we actually experienced gains in 1993 simply because larger gluts of customers repurchased at the same rate they were expected to repurchase at, causing a modest sales rebound.

In the example above, business is down 40% for months 1-2, when the customer has a recency of 1 month or 2 months. You lose 48 purchasers in the first month. You lose 32 purchasers in the second month ... you are 80 customers behind after two months.

This leaves you with a glut of 792 non-purchasers entering month three under normal conditions ... under crisis conditions, you have 872 non-purchasers. Even with normal repurchase patterns over the next ten months you have more customers in your cohort, causing more repurchasers.
  • After Two Months you are down 80 repurchasers.
  • After Twelve Months you are down 51 repurchasers.
In other words, you regain 37% of the customers you lost during the two-month catastrophe.

Many customers come back ... as long as merchandise productivity returns to normal.

That's the key to this ... merchandise productivity must return to normal.

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