## January 31, 2023

### Remember Last Week?

Last week I shared information about a larger-sized brand that many of you shop from, illustrating the subject lines used in their email marketing campaigns over a multi-week period (click here).

In my Category Development projects (click here for pricing), I run models based on the percentage of sales generated by a customer on items selling below their historical average price point. The equation might look something like this:

• Future Gross Margin Dollars = \$10.00 + 0.25*(Dollars Spent on Items At/Above Their Historical Average Price Point) + 0.20*(Dollars Spent on Items Below Their Historical Average Price Point).
Pretend you have a customer who spent \$100 last year on items at/above their historical average price point:  Future Gross Margin Dollars = \$10.00 + 0.25*(100) = \$35.

Pretend you have a customer who spent \$100 last year on items below their historical average price point:  Future Gross Margin Dollars = \$10.00 + 0.20*(\$100) = \$30.

Discount a lot this year, cost yourself \$5 profit next year.

This is the reason why I used the "above" / "below" designation. Some brands discount everything. Well, this still means that a \$49.99 item which usually sells at 30% off (\$34.99) can be sold at 60% off (\$19.99) meaning the \$19.99 item is sold below the historical average price point.

I realize there are business situations that require significant discounting. I'm trying to help you avoid problems where customers become trained to expect the discount, costing you profit. I want you to be more profitable.

## January 30, 2023

### Walmart

So yeah, Walmart is printing high margin money by asking "brands" to hawk Walmart customers through Walmart stores or all across the internet. It's a modern twist on the old-school catalog method of generating list revenue in the 80s and 90s by renting the twelve-month buyer file to competitors or frienemies.

Walmart's advertising solutions page is a marketing word salad designed to inspire middle managers to embrace the customer journey, paying \$\$\$ in the process to get the customer to "BUY SUPPLEMENTS" (click here).

Can I tell you a story?

I was at Walmart tonight, picking up prescriptions. As I sat on an unsteady plastic chair awaiting my fate, a gentleman somewhere around 70 years old waltzes over to me, smiling.

CUSTOMER:  Have you ever bought milk here?

KEVIN: No.

CUSTOMER:  Do you want to know a secret?

KEVIN: Ok.

CUSTOMER: This store sells milk for \$1.48 a gallon. I've shopped other Walmart stores in the West Valley. Milk is anywhere between \$3.48 and \$3.98 a gallon elsewhere. But here it is \$1.48. Why do you think that is? It's always the case. It cannot be a mistake. Somebody somewhere thinks this is the right thing to do.

KEVIN: Wow.

CUSTOMER: I drive fifteen miles just to come to this store to buy milk.

KEVIN: You what?

CUSTOMER: Yeah, fifteen miles. I have to. It's \$1.48 a gallon.

........... twelve minutes later, I'm still sitting on a wobbly plastic chair, and the customer walks up with one (1) gallon of milk:

CUSTOMER: What did I tell you?

KEVIN: It's \$1.48?

CUSTOMER: Exactly! And I don't get it.

........... five minutes later, I'm standing in line to buy my prescriptions ... here comes the milk man.

CUSTOMER (twirling the lone gallon of milk in his hand via the handle): A buck-forty-eight.

KEVIN (offers customer a thumbs-up).

Do you understand the moral of the story?

This guy, call him "milk man", drives 30 miles round trip to purchase one (1) gallon of milk. He spends \$4 in gas to save \$2.50 on milk. And he's happy about it.

Meanwhile, some marketing professional misinterprets this behavior as a sign of a seamless, frictionless omnichannel experience and sells the behavior to a middle manager who then targets string cheese to the customer. The customer gets meaningless ads, the middle manager feels strategic, and Walmart counts money.

So much of this omnichannel nonsense is actually price-fueled merchandise experiences. The behavior has nothing to do with channels, and has very little to do with marketing (unless you view pricing strategy as part of marketing ... or in this case, maybe a computer mistake).

But by using a language that marketers understand, Walmart aligns these "experiences" with the desires of a marketer desperate to sell string cheese "at scale", and prints money in the process.

The "milk man" doesn't care. He found milk fifteen miles from his home Walmart for just \$1.48 a gallon.

## January 29, 2023

### Bed Bath & Beyond

Did any of this ... any of this ... make a difference? The brand defaulted on January 13 (click here) and is cruising toward bankruptcy.

My goodness.

It does not matter if you reduce friction by cutting down the number of purchase steps from seven to three if the customer doesn't want to buy what you are selling.

It does not matter that you can buy online and pickup in a store if the customer does not want to buy the item in the first place.

It does not matter if you are digital-first if the customer does not want to buy the merchandise you offer.

It does not matter if you self-proclaim that you "established a digital-first, agile, creative customer experience organization" if the customer does not want to buy the merchandise you offer. What does the sentence fragment even mean? Be honest.

I've been harping on this for a decade, and some of you are likely tired of hearing me say it ... and the rest of you simply disagree with me ... but you HAVE to sell something that the customer wants to buy, or must buy to survive. Notice that the article doesn't say anything about what they sell ... the trade journalist and the PR person from Bed Bath & Beyond who got the article printed are assuming that the hurdle separating profitability and the customer was ... wait for it ... "omnichannel".

Wrong.

P.S.:  This is where I receive emails from omnichannel advocates. They'll say "A shift to omnichannel strategy happened too late. Had they done this a decade ago, who knows where they would be?" Yeah, who knows? Would they be limping to the finish line like Macy's? Would they be out of business like Circuit City, who pioneered "buy online and pickup in store"? I understand it is fun to sell eight-figure operational systems designed to allow the customer to bathe in an omnichannel bath of delight. But that's not why the customer purchases from you. Spend your time and energy selling something the customer wants to buy. And if you are in marketing, get to know every darn item your brand sells and how well every darn item performs ... then feature those winners in your marketing efforts (with nudges to try new products as well).

## January 26, 2023

### Judy / Jennifer / Jasmine

Eleven years ago I spoke at NEMOA about the importance of Judy / Jennifer / Jasmine as key shoppers within a traditional catalog brand (hint ... Judy was a Baby Boomer, Jennifer was Gen-X, and Jasmine was a Millenial).

The audience, evenly split between catalogers and vendors, absolutely groaned when I discussed Jennifer. They HATED her. Hated her. I recall one attendee telling me afterwards "I don't like anything about her. Shopping via email or social. Always online with a phone in her hand. She's not my customer."

She is now.

If you built your business from the 80s through the early 00s via Baby Boomers, your next logical pivot is to a generation you simply do not like. Analyze your assortment, and identify the products that Gen-X buys vs. the products that Baby Boomers buy. I've done this, and there is a difference.

Build your assortment around these items ... you'll see stylistic differences. You might not like the differences, but the differences represent your future.

In the next seven years Baby Boomers will completely leave the workforce. Their need for your products will not exist. If a Baby Boomer is your core customer, you will have no choice but to pivot.

P.S.: I get it - you're about to email me telling me why you hate this. You've been filling my email box for a decade-and-a-half telling me you hate this. Your dislike for changing demographics (and we're not even talking about addressing Millennials or Gen-Z) cannot be stopped. Demographics are going to change. Are you willing to change?

## January 25, 2023

### Kevin, You Don't Get It

We'll see the body of an email that looks like this ...

... and I get grumpy. Fed up. Tired of the non-stop discounting.

That's when you, the avid reader, elect to send me a message.

• "Kevin, you don't get it. This brand never intended to sell that item for \$100. Cost of goods are just \$30, so it is their intention to sell the item for anywhere between \$50 and \$70 and they're still making between \$20 and \$40 of profit. They're the smart ones, Kevin. You just don't get it."
Do you honestly think "I don't get it?"

Oh, I get it.

There are many different ways to sell something.

In this case, there are two really clear choices.
1. Convince the customer that what you sell is better than anything else so that the customer is willing to pay a premium, allowing you to maximize profit.
2. Gamify the system because you now that what you sell is average or lousy. Create a game. Attract customers who love games.
In (1) you end up with customers who are passionate about the products your brand sells.

In (2) you end up with customers who are passionate about games.

Which customer would you prefer?

I'll take customer (1) every day of the week.

I get it.

## January 24, 2023

### Using Email To ... Not ... Develop Categories

Can I show you the recent subject lines from a large e-commerce brand many of you shop from?

• Up to 75% off your order starts TODAY!
• You don't want to miss up to 75% off your order.
• Just tonight! Up to 80% sale and clearance.
• Ends today! Up to 75% off your order.
• Today's exclusive deal! Up to 75% off outerwear (plus take 40% off everything else).
• Savings are thawing! Up to 75% off coats, jackets.
• STARTING NOW! Up to 70% off your order.
• Tonight Only! Nightgowns from \$24.
• Save up to 70% off.
• Ends today! Up to 70% off your order
• Wow! 40%, 50%, or 60% off your order plus free shipping.
• Ends tomorrow! 40% to 60% off your order.
• Ends today! 40%, 50% or 60% off your order.
• Time's ticking! 40% to 60% off your order.
• Save up to 60% off your order!
• Ends tomorrow! Savings up to 60% off your order.
• Take an additional 60% off all other sale and clearance.
• Get it now! Extra 60% off sale & clearance + 30% off.
This brand is not developing categories.

This brand is ignoring merchants. You might think this brand has contempt for merchants given how little it cares about price integrity.

Companies who actively develop categories feature a category each week, for instance. Maybe it is Chino and Casual Pants week. Dive into the category. Teach the customer why you are the expert in this category. Are you gonna work with some mythical influencer? Here's a place to do just that. Have a plan.

Promote products, not percentages off.

## January 23, 2023

### Customer Acquisition Index

One of the tables in this version of the MineThatData Elite Program comes from our Category Development project. Here, we sum all sales in the past year from existing buyers, and we sum all sales from new buyers, then we calculate an index (Acquisition Sales / Existing Sales) / (Acquisition Total / Existing Total). This is all performed at a Merchandise Category level, and the table looks something like this:

There are brands that acquire customers across all categories at the same rate. These brands treat their customers as "one customer". This is a common scenario in the omnichannel thesis ... same merchandise in same channels promoted similarly in an allegedly seamless/frictionless manner.

The table above is not symbolic of the omnichannel thesis. This brand is marketing to customers and categories based on what is best for the customer and/or category. Outerwear has an index of 1.570 ... sales of outerwear to new customers are 57% higher than sales of outerwear are to existing customers. New customers prefer outerwear. Meanwhile, existing customers skew to Womens categories.

Either this brand migrates customers from Outerwear to Womens (this fact is verified or proven wrong in a Category Dynamics project), or the brand is essentially setting itself up for challenges because existing customers prefer fundamentally different merchandise than new customers prefer.

Either way, the Customer Acquisition Index (CAI) tells you what is happening.

What is happening with your customer base?

## January 22, 2023

### It's Time!

These four months go by awfully fast, don't they?

It's time for another round of the MineThatData Elite Program.

• Existing Clients = \$1,000.
• New Clients = \$1,800, then \$1,000 each run thereafter.

In this run, you'll get your normal menu of metrics - and a brief look at the merchandise categories that your new customers prefer ... a little bit of a sneak peak into Category Development work.

We set a record on our last run in October - we've never had more clients participate in the program. Let's see what we can do this time!

## January 19, 2023

### Ceramic Tire Dressing

We evaluated a tepid Macy's post on Instagram ("buy bedding because we placed a cute dog on the bed").

We evaluated a post from Duluth Trading Company ("but these pants because we believe in them and you are laborer who needs them"). Clearly there is a merchant/marketing partnership going on.

Then we get to Griot's Garage.

Now we're fully aligned with classic Direct Marketing. Griot's Garage cares so much about this one specific item that they let a copywriter show some passion. Read that text. They're proud of what they are selling.

This is the exact opposite of putting a dog on a bed and saying "buy bedding".

You'll know you are succeeding because you will see various items in various categories outperform others. You will see items (like this one) potentially generating far more new customers than other items, or potentially generating more loyal customers than others via repeat purchases.

When you see all categories performing similarly ... when you see all items within a category performing similarly, you know the company doesn't have a merchant/marketing partnership trying to develop categories and items within categories.

## January 18, 2023

### Better Development of a Category - Pants

Since I bring up Duluth Trading Company a lot, here's an Instagram Post.

Remember my Macy's example from yesterday? The brand marketers wanted you to buy bedding because a cute dog was sitting on a bed.

There are plenty of elements of brand marketing at play in this attempt at selling. They're clearly telling you who their target customer is, and the target customer isn't messing around with beakers in a laboratory. Then they tell you why this pair of pants matters. They're Developing their Pants category. The merchant loves the product (or they wouldn't tell you that they've registered trademarks for this product), and the marketer is clearly communicating the type of customer who will love this product.

In my work, it isn't difficult to see the merchant/marketing partnership at work. There will be specific products that sell well-above-average in specific channels. You'll learn that those items, within categories, are being developed by the fusion of a merchant who loves his/her products and a marketer who loves sharing the products with customers and prospects.

## January 17, 2023

### Brand Marketing vs. Direct Marketing vs. Category Development

Brand Marketers and Direct Marketers both want to sell something.

• The Brand Marketer wants to sell an aesthetic.
• The Direct Marketer wants to sell merchandise.
Category Development aligns more with Direct Marketing than Brand Marketing. Oh sure, Category Development aligns with Brand Marketing (think about Duluth Trading Company commercials for an example), but the goal in Category Development is to teach the customer that a product must be purchased, thereby building the Category as if it were almost an independent business.

Here's an Instagram post from Macy's. Does this align with Brand Marketing, or with Direct Marketing?

They're selling an aesthetic.

It's hard to develop a Category via brand marketing. It is possible to develop a "brand" this way, of course. Not likely, but possible.

If you want to Develop a Category (say, Bedding within Home) you'll likely need a merchant who loves what s/he is selling, partnered with a marketer who cares deeply about exposing the category to existing customers and prospects. Paired together with a marketing budget and a plan, the two work together to Develop the Category via exposure which leads to customers who buy the product.

What you see above is not part of Category Development.

## January 16, 2023

### Google Messes Up New Items Within A Category

In Category Development, it is common for Google to play a disproportionate role in what sells ... especially for brands with strong search programs.

Let's assume you have two items.

Item #1 has been a best seller for three years.

Item #2 is a new item you introduced here in January.

Which item is Google going to steer customers to? The algorithm will steer customers to the item it knows, it has indexed, and it has history of customers searching about.

This means your merchandising team and your marketing team have to do some heavy lifting ... the two teams MUST WORK TOGETHER to TEACH THE CUSTOMER why various new items within a category matter ... must inform the customer why these items are important. It's a team effort. Neither side can do the work alone.

In the 1990s your merchants sold via catalogs, so the format, the channel (catalogs) did the heavy lifting. Life was easy.

In 2023, life is hard. Instead of a tepid Instagram post saying "WE LOVE OUR NEW WIDGETS", try teaching your customer why the customer must have new widgets. Who is the merchandising expert who cannot stop talking about widgets? Who is the marketing expert who gets that message out in front of customers? How are these two working together to promote new items within a category? Discuss.

## January 15, 2023

### Order Starters

This analysis requires an assumption that may / may not be valid.

Say a customer puts three items in his/her shopping cart. Is the first item what "started" the order? We don't truly know, but if you assume the first item is the item the customer wanted and then added on other items, well, you have the basis for an order starter analysis.

You code each item based on the order the item was placed in the shopping cart. Then you analyze all items, averaging the "order" out ... eventually you will see that some items appear 1st or 2nd in a shopping cart and other items appear 2nd or 3rd in a shopping cart. The former item starts orders, the latter item complements orders.

Order starters eventually become the items that the marketer features ... which creates a problem because the order starters eventually appear to be order starters because of marketing strategy and not because they actually start orders.

But for the most part ... the analysis is enlightening. It's one you should perform. At some companies, you'll see womens apparel early in the order starting process and mens apparel later ... it tells you that the woman is buying for the man, for instance. You'll see other categories (stuff like Home, for instance) added on. You'll see those "Featured on TV" items at the top of the order starter process ... this tells you that marketing is playing a key role in the order starter process.

Perform the analysis - it's enlightening!

## January 12, 2023

### Evaluating Categories

I was in a meeting and the CEO raised a valid question:

• "We're a masculine, outdoor brand. Why are we selling Women's Dresses?"

• "Because the category is our best selling category."

Eventually the best selling category was discontinued, and the brand dealt with the collateral damage associated with the discontinuation of a category.

In 2023 we're going to evaluate our categories. What purpose does a category play in our assortment? If a category doesn't play a role, what could we do with the people and effort associated with making that category work?

## January 11, 2023

### Variable Expenses

I recall a decade ago when I was trying to sell a catalog optimization project to an existing client. This client worked with a vendor, and the client showed me the annual invoice from the vendor.

• \$120,000.
My cost was \$45,000. I asked the client why they pay this vendor \$10,000 a month when they could pay me \$45,000 once and be done and have essentially the same outcome. Their answer:
• "They just make everything easy so we don't have to think about it."

The vendor told me a comparable story.
• "We love the client. And it is easy, recurring revenue for us."

You have a good pairing when each side uses the word "easy" ... even if for very different reasons.

The \$10,000 a month was based on the size of the customer file ... in other words, it was a "variable expense". The expense grew when the customer file grew, the expense shrunk when the business contracted.

When it becomes difficult to acquire new customers, the ad budget goes first ... and that's a tough one, because you cut out the ad dollars and you cut back on sales/customers and that's the problem you are trying to avoid. So you go after fixed costs next ... stuff like your job, unproductive stores if you are Macy's, that kind of thing. You can only go so far with fixed costs.

That's when variable costs come into play.

If I had to predict, 2023 is going to be a year where variable costs are on the table. Are you tired of paying Shopify a percentage of everything you sell? That's a variable cost. How about your email service provider? That's a variable cost.

All of these expenses are going to be explored in detail in 2023.

## January 10, 2023

### An Example of a Customer Acquisition Strategy

When I get emails asking for examples of Customer Acquisition programs that meaningfully grew a brand (heck, defined a brand) I'll bring up Duluth Trading Company (click here).

That's when people start HOWLING at me.

"That's an advertising campaign, not a customer acquisition campaign." (hint - if you do advertising well, you get new customers ... duh!).

"I don't want to hear about a man needing underwear, their campaigns are stupid and relate to the lowest-common denominator. Be better, Kevin." (hint - they are speaking to their target audience, what kind of tepid speech do you use with your customer audience).

Here's the problem. The salad years are over. The days of putting together tepid creative and saying "Google, Facebook (and for catalogers the catalog co-ops), get me bulk names at a bulk price" are over. They were ending prior to COVID, then stores were shut down and customers "had" to buy from you and we were on the gravy train ... now we're picking up where we left off with additional difficulties.

I'm not saying you have to do what Duluth Trading Company did. I'm not saying you have to do what Progressive does with Dr. Rick.

I'm saying you have to do more than this:

## January 09, 2023

### What Is Happening To Brands With A 29% Repurchase/Rebuy Rate?

We don't talk about it often because it isn't a lot of fun to talk about. But the business models we built in the first twenty years of e-commerce are crumbling.

It's not that anybody is failing, per se. It's that the business models were built on an assumption that customer acquisition would be cheap and easy.

Let's assume your customer base has a 29% repurchase rate (29% of 2021 buyers purchased again in 2022). If those customers purchase, they spend \$200. Meanwhile, new/reactivated buyers spend \$130 each.

Pretend your business has 100 customers at the start of the year. Pretend your business will acquire 71 new customers. Pretend you spend \$3,000 a year on advertising. Pretend that 40% of sales flow-through to profit. Pretend that you have \$1,500 a year in fixed costs.

• 100 Customers * 29% Rebuy Rate * \$200 + 71 New/Reactivated * \$130 = \$15,030 sales.
• \$15,030 sales * 0.40 - \$3,000 ad cost - \$1,500 fixed costs = \$1,512 EBT, 100 customers.
That's a nice business ... 10% pre-tax profit.

Then your friends at Facebook stop delivering for you. Oh sure, you'll blame Apple, it's their fault they shut down a portion of the surveillance economy that helped you earn a bonus check. But we all know the truth. We know we should never, never, never have depended upon third parties for bulk new customers at a low cost. Never. Ever.

So you lose 30% of your new customers. You cut your ad budget by 10%, trying to optimize the situation. Here's your new p&l.

• 100 Customers * 29% Rebuy Rate * \$200 + 50 New/Reactivated * \$130 = \$12,300 sales.
• \$12,300 sales * 0.40 - \$2,700 ad cost - \$1,500 fixed costs = \$720 EBT, 79 customers.
Now you have a 6% pre-tax profit.

Worse, you only have 79 customers instead of 100. Let's run the situation forward another year.
• 79 Customers * 29% Rebuy Rate * \$200 + 50 New/Reactivated * \$130 = \$11,082 sales.
• \$11,082 sales * 0.40 - \$2,700 ad cost - \$1,500 fixed costs = \$233 EBT, 73 customers.
You're down to 2% pre-tax profit. And just 73 customers.

See what's happening?

Now, if you don't have a viable customer acquisition plan that doesn't cost and arm and a leg, you are heading down a path that isn't ... viable.

All because customer acquisition became harder.

This is what is happening to brands with a 29% rebuy rate.

You fix the p&l several ways.
1. You come up with an alternate customer acquisition program (I've been barking about this for seven years).
2. You change your merchandise assortment to encourage frequent repurchase or you find a way to generate recurring income (i.e. subscriptions).
3. You find a way to minimize variable costs (gonna be hard).
4. You find a way to trim fixed costs (works for awhile).
Obviously you cannot go down the (3) (4) path for long. And you don't want to go down the path of (1) because if you did you would have made changes back in 2015-2016.

This is what is happening to brands with a 29% rebuy rate.

P.S.:  This is where some of you tell me that you'll just increase your loyalty efforts, that you'll turn a 29% rebuy rate into a 39% rebuy rate or 49% rebuy rate. If that were true, what exactly stopped you from already doing that over the past twenty years? It's darn near impossible to move rebuy rates. How many of you had a captive customer audience who couldn't visit stores in 2020 and what happened to your rebuy rates during that time? That's a best case scenario (for e-commerce).

Which brings us back to (1)

## January 08, 2023

### Great Moments in Omnichannel History

More store closures from Macy's, who branded themselves nearly a decade ago as "America's Omnichannel Store" (click here). It's another Great Moment in Omnichannel History.

Retail goes through non-stop evolution. Small urban stores to large urban stores to suburban malls to big boxes to Target/Walmart to Dollar Stores, it always changes.

Over the next ten years, retail brands cannot have the enormous fixed costs of a store weighting them down. Cannot do it. Time tells us that we are going through an evolution ...

• Past:  Fixed costs covered by purchases at good gross margins.
• Recent Past:  Fixed costs covered by many purchases at low gross margins.
• Future? Minimized variable costs, minimal fixed costs, recurring income.
Think about recurring income ... in e-commerce you have subscription brands who accomplish the goal of keeping dollars flowing every month. Amazon keeps dollars flowing every month via Prime ... you pay annually and then by golly you better use Amazon to get your money's worth, right?

Fixed costs are going away. This trend has been happening for 25 years.

Variable costs covered by recurring income is the future. It's gonna be darn hard for anybody to survive long-term, retailer or e-commerce brand, with 29% annual rebuy rates and 1.5 purchases per year.

Maybe the fundamental change that happened in 2022 wasn't that it became very hard to acquire new customers. Maybe the fundamental change that carries into 2023 is the end of a fixed cost model paired with marginal rebuy rates (i.e. < 40%) requiring inexpensive customer acquisition.

## January 05, 2023

### Yeah, Open Some Stores!!

That's what you are reading these days ... the pundits enjoy lauding "digitally native" brands for opening stores. "It's proof positive that retail matters and that an omnichannel approach is a smart bet in a confusing customer landscape".

Alright.

If you've ever worked in retail, you know that when you open a store a cascading series of events happens, resulting in the store not performing at the level your reporting tells you it performs at.

Here's what happens, especially when you already have a store in a market.

Let's evaluate what happened.

1. When a new store was opened, the existing store suffered. Some customers from the existing store (actually, many customers) switched store preference, causing the existing store to perform considerably worse.
2. When a new store was opened, online sales declined. This is a common outcome in year one of a store opening. Customers who used to shop online find the new store convenient, and they switch allegiance. Again, this is a year one phenomenon. After year one, the store begins sending customers online at rates that cause online sales to increase. Your mileage will vary.

Before the store opening, the original store did \$1.6 million in sales.

After the store opens, the original store now does \$1.15 million in sales.

Oops.

Before the store opening, online sales were \$493,000.

After the store opening, online sales were \$343,000.

The new store does \$1,500,000 in sales ... it looks like a huge success, now outperforming the original sale. Somebody will say that a renovated store, with modern/clean presentation outperforms the tired old store. That somebody "might" be right. That somebody "likely" is wrong.

Look at incremental sales ... instead of generating \$1,500,000, the new store truly added \$900,000 in sales to the market. Not \$1,500,000. The store is 60% incremental, with 40% being cannibalized from other stores/online.

Your job is to run a p&l on the \$900,000 total, not the \$1,500,000 that is reported on your company dashboards. Hint - that's not going to be a pleasant exercise.

Pundits love it when you open stores.

Run a p&l on incremental sales to see if the pundits are right.

## January 04, 2023

### Barnes & Noble

The article talks about the use of co-op dollars ... situations where your product supplier pays you a fee in exchange for favorable placement of their product in your stores, online, or in print.

I had first-hand experience with co-op dollars at Nordstrom. We nuked our catalog program in 2005, replacing it with a print program that focused on store merchandise that was funded with co-op dollars. I recall that we set the price at \$29,000 a spread (two pages) ... enough to offset printing/paper/postage costs.

This decision caused a whole series of interesting outcomes.

Creative (look and feel of a spread) was controlled by the vendor/supplier. Making these things look cohesive was a mess. The vendor/supplier had ideas on "branding", resulting in one product on a page (instead of the 5-6 that optimized sales/profit). What one vendor/supplier thought was "brand appropriate" was completely different than what another vendor/supplier thought was "brand appropriate". As a result, the catalogs looked like garbage ... now, having said that, the marketing/creative folks thought the catalogs looked "great" compared to the high-density catalogs we previously sent with merchandise optimized for catalog performance.

Taking all of these co-op dollars resulted in catalogs that performed 60% to 80% worse (yeah, worse) on a sales-per-square-inch basis. Woo-boy. If you want to watch catalog professionals melt-down in real time, imagine them trying to convince anybody that this was a bad thing ... because outside of about eleven catalog professionals, everybody was happy with all of those co-op dollars funding everything. "We saved \$1.4 million, look at how that helps us exceed our budget goals" was something I heard weekly.

The analytically-minded professional might interject at this point and ask somebody to run a profit-and-loss statement. Good idea!

In this example, the normal catalog strategy generated \$100,000 more profit. There were plenty of cases where the opposite happened. Each strategy yielded the same amount of profit over time.

Let me tell ya, this was INFURIATING!!

Catalog professionals love analyzing and optimizing - the co-op strategy eliminated all of that. The catalogs were equally profitable, we were forced to mail 2,000,000 names to please vendors/suppliers, and vendors/suppliers paid for the ad-cost, eliminating all analysis. There were two things we could still do.

• Rank-Order customers from best to worst ... a task completed by our model/algorithm.
• Set up the A/B Test to measure incremental results (#boring). Our holdout group was 200,000 customers, which allowed us to analyze performance at levels below a typical customer segment. Rich analysis ... but we were analyzing garbage because productivity was down by 63%.

But again, why did anything matter when vendor/supplier co-op dollars funded the ad-cost, causing profit to be about equal?

My catalog circulation analysts and professionals quickly became disenchanted ... they left the company or moved to different departments to do anything that wasn't traditional catalog-analysis related. Our inventory people quit ... their square inch analyses were pointless given they weren't helping decide what went into the catalog and frequently weren't told what went into the catalog until it was too late to do anything about it. Some of our merchants left the company ... their jobs were essentially outsourced to vendors/suppliers and were largely assumed by retail merchants (and that was an acceptable outcome from an integration standpoint - if you believe in the failed omnichannel thesis, it was "proof" you were right).

And without all of the work required to truly analyze and optimize a catalog program, my job became irrelevant. I'd be ousted from my job within eighteen months ... and I can assure you that Nordstrom did just fine without me in the mix.

So the Barnes & Noble analysis above takes us full-circle ... we hear a story about treating the store like it is your store, maximizing productivity even if it means that each store is individualized and personalized as a consequence (i.e. deviating from the failed omnichannel thesis of same everything at every store and online), and not being beholden to your suppliers.

My opinion only - there are a lot of optimization experts in retail and e-commerce ... and these experts are dying for an opportunity to run their business independent of Digital Omnichannelism. All it takes is a good crisis to provide that opportunity.

## January 03, 2023

### Hillstrom's Startup Project

I've never published the fact that I perform work for startups. That probably wasn't the smartest thing I've done.

If you are a startup with < 5 years of customer transactions and < \$20,000,000 in annual sales, you qualify for a Hillstrom's Startup analysis! I will run a simplified Customer Dynamics / Category Dynamics project, focusing on where your rebuy rates will likely land, focusing on how much customers will ultimately spend, measuring if there are product categories that cause customers to have enhanced customer value. I will forecast where your business is headed, and give you insights into customer behavior that you won't find in any off-the-shelf analytics package or management consultant review of your business.

This project, for Startups only, is offered at the insanely low cost of just \$5,000. It's virtually free. What would stop you from contacting me right now? (kevinh@minethatdata.com).

## January 02, 2023

Last month I offered existing clients and blog readers an opportunity to test out the code for my new Category Development project work ... looking at the intersection of price increases, customer response, customer interaction with categories, impact of new merchandise on best customers, product preferences of new customers. Several clients took advantage of this offer.

I'll give you one more chance, albeit at a higher price (now that I've tested out the code and have a really good idea where this is headed). If you respond by Friday, January 6, I will execute the code against your customer base for just \$19,000. The price from January 7 forward will be \$29,000.

Also - look ahead to the future ... if you elect to have me run a Customer Development project and a Category Development project I will save you \$15,000. How about that?!

Contact me now (kevinh@minethatdata.com) to get your spot reserved immediately!!

## January 01, 2023

### Digital Omnichannelism

If this term becomes something, you'll refer back to this post.

Two articles got me thinking about my industry (here, and here).

Why does everything look sterile and ugly? Why does music not sound as lifelike as it used to sound?

Do the same concepts apply to retail? Let's look at a handful of home pages from Friday night. Tell me what you see.

It looks like three things are happening:
1. There is an industry-wide calendar that demands that every company promote clearance and sale items as we approach January 1.
2. There is a website commerce template that nearly everybody is using ... the same template. It's like somebody created a template in 2003 and the entire industry said "GOOD ENOUGH". I mean, is there a fundamental difference between North Face, REI, and Eddie Bauer? Did they share imagery at the same photo shoot to reduce costs? Of course that didn't happen. But you couldn't tell it from looking at their websites. All feature mountains over merchandise.
3. Merchandise ... the very thing the customer is purchasing ... is irrelevant. Yes, irrelevant. The discount is what matters. At least Saks cares about handbags. Patagonia is selling a story as their primary target of interest (and yes, I get it, that's what they do ... but it still means that merchandise is irrelevant). Where is the product at Nordstrom? J. Crew? Macy's?

Yeah, it looks like my industry suffers from the same issues as the authors in the two articles at the start of this post reference ... this is a boring, cold, templated, lifeless digital presentation. No creativity.

I know, you're about to yell at me that it is clearance/discount season, retail brands are "supposed" to do this.

No, they are not. They are under no obligation whatsoever to all do the same thing at the same time and look the same way. No.

If you believe they are "supposed" to do this, then you adhere to the concept of Digital Omnichannelism.

What the heck is "Digital Omnichannelism"?

Let's define the concept.

"Digital Omnichannelism" represents passion for a selling process that prioritizes digital strategy, digital analytics, price manipulation, same merchandise across all channels, social/surveillance, engagement, mobile, and seamless/frictionless integration of online/offline channels at the expense of merchandising excellence and creative brilliance.

Scrape the J. Crew site ... you'll see analytics from TikTok and Google and Facebook. That's Digital Omnichannelism. Somebody cares more about tracking the customer all across the infinite nature of the online experience than selling a Smocked Puff-Sleeve Cotton Poplin Top in Stewart Tartan. And if somebody does care about selling that item, they're selling it normally for \$79.99 but this week it is \$69.99 with \$34.50 off with discount code NEWYEAR. The goal is to track the customer journey, not to sell the item, and you get to track more journey if you offer the item at a lower price.

Yes, I'm exaggerating for effect.

Scape the Nordstrom website, and you'll see analytics from TikTok and Google and Yahoo (really?) and Snapchat and Pinterest and Facebook.

Scrape the Eddie Bauer website, and you'll see analytics from TikTok and Pinterest and Facebook and Snapchat.

Get the picture?

It's all the same.

Everything looks the same.

Everything is executed the same - with a skew to digital engagement via mobile and social surveillance.

Everybody is executing the same promotion with comparable discounts at the exact same time.

Digital Omnichannelism.

Pick your favorite retail and/or e-commerce brand ... it doesn't matter. 65% to 70% of their presentations look identical, the analytics tools surveilling the customer are nearly identical, the promotional calendars they adhere to are nearly identical. They're all employing Digital Omnichannelism.

Think I'm wrong? Here's Jared, a jeweler. Same.

Scrape their site and you'll see Google Analytics and Facebook there, among other vendors.

In fact, you'll just keep seeing the same (digital) vendors over and over again across every brand. You exist to benefit them.

Digital Omnichannelism.

I can't tell you how many times somebody told me in 2022 how upset they were that Apple destroyed their customer acquisition program. When Apple decided to cripple Facebook's surveillance program, the emails poured in. "Apple cost us 25% of our new customers, they're awful." Well, they are awful if you adhere to Digital Omnichannelism. Your customer doesn't think Apple is awful. Those who embrace Digital Omnichannelism feel betrayed when the ecosystem they built a business around betrays them.

On the right side of the spectrum, we have Digital Omnichannelism. "Right" in this context means "correct" ... if you ask trade journalists, vendors, conference organizers, industry consultants, research brands, and professionals with "portable" skills across retail and e-commerce.

On the opposite side of the spectrum, we have merchants and creative professionals. They have a passion for what they are selling. They want the liberty to present the merchandise the way they see fit. Digital Omnichannelism has no patience for this audience. Better to measure a 27 step journey that leads to a 3% conversion rate than to have a 4% conversion rate via one visit where the customer interacts with your brand, unprompted.

If you care about this industry, poke holes in my argument. Tell me why I am wrong. Here's my email address (kevinh@minethatdata.com). Find me on Twitter @minethatdata. Tell me why I am wrong. I'll publish well articulated arguments based on actual customer data.

### Good Vendor Employees Are Working All Around You

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