June 14, 2022

They Don't Work In Lock-Step

Alright, it's becoming clear I have to focus more on merchandise tactics and analysis, because those are the questions that are coming into the Global Headquarters at MineThatData.

There's a misconception out there ... when business is bad, some business leaders believe there is a smoking gun that can be readily fixed ... if some math person would just write some code and identify the problem. It's always fun to have an EVP making $475,000 a year with a $400,000 annual bonus not know why business is failing but expect a 24 year old to write sixty lines of code and solve the problem.

Sometimes there are feedback loops. Sometimes it isn't easy to identify the problem. Sometimes you have to realize that there is some cause-and-effect going on.

Case in point. This brand is failing. In the graph below, I plot year-over-year change in sales for new merchandise, and I plot year-over-year change in new/reactivated customers. These are two metrics that do a good job of deciphering what is going on, and are "predictive" in that problems in these metrics today yield problems in the business tomorrow. Here's the graph.


Each month is coded in the database, with "60" being recent and "36" being two years ago. That's your x-axis.

Let's look at change in sales of New Merchandise first (the orange line). Two years ago sales, year-over-year, were positive. Customers liked what was being offered. And then, somebody on the merchandising team decided to muck everything up. At month=43 sales of new items crashed, and they have not recovered in the seventeen months since. This often happens when new merchandising/product leadership take over, but in this case, I know that the brand made a conscious choice to focus heavily on the long-term best selling items. It's a conscious choice that also turned out to be a bad choice, because when you don't develop new items today your sales decline tomorrow.

Meanwhile, the blue line is the year-over-year change in new/reactivated customers. At about month=42 the trend turned positive. New/Reactivated customers thrived for about nine months, before turning negative and thus creating a problem for this brand.

Two leading indicators of future sales success ... new items ... new/reactivated customers ... both trending negative.

Now, in this case, the brand had six months of lousy merchandise performance (due to new item failures), so the CFO decided to tell the marketing department to cut back on marketing spend ... and guess what? That was also a bad decision!

The metrics don't move in lock-step ... but there is cause and effect. Management decided to focus on long-term winning items while de-emphasizing new items, causing the business to struggle, causing the CFO to tell marketing to spend less, causing fewer new/reactivated customers, setting up a horrible second half of 2022.

Yup - humans caused the problem. The people running the business caused the problem. If they want the business fixed, they need to look in the mirror.


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