Drilling Down A Bit On The Problem

Yesterday we talked about a brand that had stalled ... from about $57 million four years ago to $53 million today.

And yet, our 30,000 foot view of the Class Of Report didn't really illustrate a glaring problem. Sure, prices had increased, but there wasn't a merchandise class where new items appeared to be failing and there didn't seem to be a huge issue with existing items being discontinued.

Let's drill down a bit. Now we're at around 18,000 feet ... that's where the jet stream does a lot of work. Can we see anything by looking at new/existing items and items selling at/above vs. below their historical average price point? Click on the image to enlarge it.

Ok, we're starting to get somewhere. Remember, this is still at a total-brand level. Individual categories will reveal more mysteries.

Let's go to the bottom of the table, to the section titled "New vs. Existing". Here we compare new/existing items selling at/above their historical average, or below their historical average price point. When items are selling below their historical average price point, items are being discounted ... either via lower prices, or via marketing promotions that destroy pricing integrity and margins in one fell swoop.

New Items Selling At/Above Their Historical Average Price Point:

• 37-48 Months Ago =   $9.1 million.
• 25-36 Months Ago = $10.4 million.
• 13-24 Months Ago =   $8.8 million.
• 00-12 Months Ago =   $7.9 million.

Well, that's no bueno. After peaking two years ago, demand is on a straight downward trajectory.

How about new items selling below their historical average price point? 

• 37-48 Months Ago =   $2.3 million.
• 25-36 Months Ago =   $2.1 million.
• 13-24 Months Ago =   $2.3 million.
• 00-12 Months Ago =   $3.1 million.

Ah ... HA!  We have a story.

New items are not meeting expectations, so the brand is discounting and/or liquidating to move stuff.

The problem is worse with new items ... but the problem happens with existing items as well, just at a slightly different cadence.

Existing Items Selling At/Above Their Average Historical Price Point:

• 37-48 Months Ago = $32.8 million.
• 25-36 Months Ago = $31.9 million.
• 13-24 Months Ago = $31.7 million.
• 00-12 Months Ago = $28.8 million.

The problem starts 25-36 months ago (when new items performed best), but was stable the year after ... only in the past year did the problem really manifest itself.

Existing Items Selling Below Their Average Historical Price Point:

• 37-48 Months Ago = $12.6 million.
• 25-36 Months Ago = $10.6 million.
• 13-24 Months Ago = $11.5 million.
• 00-12 Months Ago = $13.0 million.

25-36 months ago there was minimal discounting/promotions. 13-24 months ago there was a modest increase. In the past year, yup, here we go!

It's been my experience that these issues are typically merchandise-centric, but when I see both new/existing items being discounted I at least have to research new customer issues and measure comp segment performance.

It's also been my experience that the problems are not "global" ... several merchandise categories are causing a problem, and it is common for the marketer to slap on a 40% off promotion across-the-board as a global response to a local problem, further amplifying the problem.