The Easiest And Most Actionable Table You'll Produce This Month

This is not a hard table to create.

Identify the first year an item was offered to customers. Then, measure sales for that item by year. Each row in the table represents the first year the item was offered.

Read the "intersection" cells in the table ... items introduced in 2011 and how they sold in 2011, then items introduced in 2012 and how they sold in 2012, you get the picture, right?

• 2011 New Items = $6.4 million.
• 2012 New Items = $7.2 million.
• 2013 New Items = $7.7 million.
• 2014 New Items = $5.9 million.
• 2015 New Items = $3.8 million.

What did this business do?

Well, this business killed growth, didn't it?

New items mean everything to a business. It is far more likely that your business is failing because your merchandising team failed to properly manage new items than it is that you are not embracing a digital omnichannel strategy. 

You manage an ecosystem. Ecosystems need new life, or they die. You need new merchandise, or your business is going to struggle.

80% of my Merchandise Forensics projects outline this specific problem, FYI. It's a big deal. You can run this table in under fifteen minutes and figure out if this is a problem. What is stopping you from creating this table?

Oh, I Didn't Realize Things Were That Interconnected

You've got five minutes to kill, so why not give this video a quick viewing (click here).

What did you learn?

Well, when wolves were re-introduced at Yellowstone, just about everything about Yellowstone changed. Rivers changed shapes, the distribution of species changed, where species (like deer) lived changed. The height of trees changed, for crying out loud. Everything changed. By re-introducing one species.

Don't you think this happens in e-commerce as well? Or more specifically, your business?

Right now, you're being told to be #omnichannel. Yup, you're told you must "do everything" or your business will die. The vendors and consultants and trade journalists are essentially telling you to fix the rivers yourself, to fix the height of the trees yourself, to move the deer to other areas of Yellowstone, to introduce beavers and badgers and bald eagles - they're asking you, specifically, to do everything (paying them $$$ in the process, right?).

Might it be wiser to simply re-introduce the wolves?

In the video, wolves are to the ecosystem as merchandise is to your business.

I can't tell you how often marketers get frustrated with me when I talk about merchandise. Merchandise is the reason you buy something. If McDonald's served angus burgers with sawdust in them, you wouldn't use their drive-through channel to buy 'em, would you? But they reintroduce the darn McRib sandwich (chomp) and customers use the drive-through to buy 'em (and then those customers are labeled #omnichannel, and marketers will credit the drive-through for increasing customer value).

Merchandise means everything. I know, I know, you don't want to hear this message. It doesn't mean that your job as an affiliate manager or circulation manager or email targeter is any more/less important, it just reinforces the role you play in selling merchandise.

Everything in your business is interconnected. When I worked at Nordstrom, there was a reason Cosmetics and Womens Shoes were on the ground floor ... those departments were the wolves.

But My Omnichannel Strategies Should Work, Shouldn't They?

Here's what seems to be happening.

If your customer is Judy (age 54-69), and you are a catalog-centric brand, then your version of "omnichannel" is using a catalog as the center of your universe. The catalog is almost more important than the merchandise you sell! All of your marketing programs are spokes, the catalog is the hub. Your Tuesday email campaign features merchandise that was offered in last week's catalog in-home window. Paid Search campaigns are designed to coddle customers who are driven to internet via a catalog. Your relationship with the co-ops, "data brokers" as you now know them from the 60 Minutes story, leaves you with a pool of customers who both love shopping via catalogs, and love merchandise targeted to a 54-69 year old customer. Omnichannel, as long as it fits within this context (a 54-69 year old customer sourced through the co-ops who has a Baby Boomer product preference) can work in the short-term.

If the customer is Jennifer (age 38-53), then the story changes. The elephant in the room is Amazon, a company that offers merchandise specifically targeted to Jennifer's lifestyle (low price, good service, rapid delivery, free delivery with Prime, few mistakes, high convenience). Here, the omnichannel narrative flips. The cataloger, catering to the 54-69 year old, executes omnichannel strategies that, in theory, should appeal to Jennifer. However, the tactics (emails, catalogs, paid search, social, mobile, free shipping or cheap shipping, slower shipping) drive Jennifer to Amazon. Amazon is going to be cheaper than you are. Amazon is going to ship faster than you are. Amazon is going to be more convenient than you are. You spend marketing dollars, Amazon reaps the return on investment of your marketing dollars. This creates a perverse dynamic, in that some of your marketing dollars fuel Amazon's success, while the marketing dollars that cater to Judy create your success - causing the co-ops to send you more names like Judy, which causes the merchandise that Judy likes to sell better, which causes your merchants to respond to this feedback loop by offering even more merchandise that Judy likes, which causes Jennifer to like your merchandise assortment less, causing Jennifer to simply choose Amazon when she has a need.

Make sense?

The problem gets worse by the time we get to Jasmine (age 22-39). The co-op / Amazon / Merchandise feedback loop that involves Judy / Jennifer creates a whole set of challenges for Jasmine. First, Jasmine could care less about the catalog being the hub of a marketing plan. If something is important to Jasmine, it will find her, in the same way that none of us watch the same news programs but the important news finds us anyway. Jasmine, however, is turned off by the typical cataloger merchandise assortment ... "that stuff is for old people" is a common lament I hear from Jasmine. When I spoke in London, I mentioned "Boden", and was told by a member of Jasmine's generation that "nobody even thinks about them". And that's a popular UK cataloger! For Jasmine, the co-op / merchandise feedback loop results in a merchandise assortment that is fundamentally distasteful. Most important, Jasmine won't buy from a cataloger because the cataloger's merchandise/story is not relevant to her.

Omnichannel strategies work (in the short-term, and "work" is a relative term) for Judy, because the merchandise is aligned with Judy's interests.

Omnichannel strategies don't work well for Jennifer, because the merchandise is somewhat misaligned, and when pricing is cheaper and products are shipped more conveniently through Amazon, Jennifer chooses Amazon (or Staples.com or eBay or Overstock.com or Nordstrom.com or Kohl's.com), causing catalogers to spend marketing dollars to chase the customer away from the cataloger. That's not an efficient way to spend money!

Omnichannel strategies cannot work with Jasmine, because the merchandise is fundamentally mis-aligned with Jasmine's lifestyle. Why use 37 marketing channels to drive Jasmine to merchandise that she could care less about? We spend and spend and spend and spend, and then offer Jasmine something she has no interest in. Omnichannel!!

In my contact strategy projects, I frequently recommend mailing more catalogs to Judy. Yes, more! I'm talking increases from 20 a year to 30 a year. Happens all the time. Judy's needs are being under-served by the vast majority of marketers. Modern marketers have given up on Judy. Catalogers have a short-term opportunity here, but it comes with a price - Judy will be retiring soon.

In my contact strategy projects, I frequently recommend mailing Jennifer only 3 times a year. Yes, 3 times a year. Why invest all that money driving Jennifer to Amazon, when you already have a website (that Jennifer is choosing not to visit), and mail/holdout tests prove that Jennifer will spend 50% to 70% of her money without ever receiving a single catalog?

In my contact strategy projects, I frequently recommend mailing Jasmine only 1 time a year. The merchandise alignment issues with Jasmine are too great to overcome. Catalogers would be better served by creating separate brands for Jasmine, featuring merchandise that Jasmine likes, via marketing channels that are part of Jasmine's lifestyle.

Yes, your omnichannel strategies should work.

But your omnichannel strategies cannot work if the merchandise is aimed at Judy - you simply drive Jennifer to Amazon, and you are not relevant to Jasmine.

That's what seems to be happening. It's the dynamic that causes omnichannel strategies to fail, repeatedly. It's the dynamic that causes catalogers to shrink circulation by 40% over the past seven years. It's part of the dynamic that helps Amazon grow ever-stronger. It helps explain why so few 22-37 year-olds shop the websites of catalog brands.

It can all be fixed with a merchandise-centric view of the world. Not a channel-centric view of the world, but a merchandise-centric view of the world.

Thoughts?

Where It Hurts Most - Lapsed Buyers

I frequently share thoughts about new merchandise.

Yup, that stuff. The stuff we largely ignored for the past half-decade.

Many of you keep telling me that you can no longer "reactivate" older customers.

Here's what happens, folks.

Let's say that you have a 10% drop in merchandise productivity, over time, fueled by a failure to generate enough new, "winning" items.

Among your best customers, you continue to mail catalogs, plenty of catalogs. As a result, you only suffer the 10% merchandise productivity hit.

Marginal customers, however, that's a whole different story. These folks might generate $2.00 per book, at a 40% profit factor, with a book cost of $0.75 each.

• $2.00 * 0.40 - $0.75 = $0.05 profit.

Now, you have a 10% merchandise productivity hit. The profit and loss statement fundamentally changes.

• $1.80 * 0.40 - $0.75 = ($0.03) ... a loss.

You cannot mail the customer at a loss.

So you don't mail the customer.

And you lose out on the $1.80 the customer would have spent.

As a result, best customers experience a 10% productivity drop.

But marginal customers experience a 50% productivity drop - you stop mailing these customers, causing only the organic portion of the demand equation to come through.

Just like that, marginal customer spending is cut in half.

And it's because of the cascading effects of merchandising problems, specifically, a failure to generate enough new items over time.

In this case (I see it every day), it's not the catalog business model that is dying - it's the business that is dying!

The Message

Take a look at this image ... see if you can count how many sale signs appear just in this one image.

Yes, you're right, there's more than twenty (20) red sale signs in this one image alone. Imagine being part of the visual merchandising team ... the #omnichannel color palette includes, well, um, uh, Red!

What about this business?

Think of the size of the audience that prefers merchandise within a Sears store.

Think of the size of the audience that prefers merchandise within an Anime World store.

Obviously, discounting is not required to draw a profitable audience, is it?

Think of the #omnichannel message you're sending to the customer ... what do 20+ red signs in a narrow field of vision communicate?

A Frequent Root Cause Of Problems

 You see some quirky stuff when you work on a Merchandise Forensics project:

For instance, it is very common to observe businesses that stopped investing in new products, coming out of the recession around 2010. I get it, I do. The world was coming to an end, and you didn't want to invest, you wanted to conserve cash.

This is what it looks like when we don't invest in new products. This is a "comp segment" analysis, where we focus on customers who purchased exactly two times in the past year, measuring subsequent year spend:

This is what I see - all the time. We're doing this to ourselves. Look at the "New Item Spend" column. Comp customers really started tanking on new items, beginning in 2010. New item spend dropped from $20.50 to $19 to $17 to $15 to $13. For a period of time, the drop in new item productivity was offset by existing items ... as the businesses offered fewer and fewer new items, customers shifted more and more into existing items, driving up existing item productivity.

On the surface, Management sees this as a good thing. "Our best items continue to carry the business, we need to focus on them". So Management cuts back even further on new items.

That strategy works until existing items outlive their usefulness, which always happens. Always. It's the law of merchandising, it is unavoidable. At that point, what are the new items that replace existing items? Oh, there aren't any!

This is when productivity begins to tank. This business, featured above, is on the verge of collapse - you just can't see it yet if you look at normal business metrics.

You can see it if you run a merchandising forensics analysis.

You run the comp segment analysis, and you count the number of new items that generate at least "$x" in the first year (I usually pick a 45th to 55th percentile for all items as the cutoff).

• 2013 = 174 new items.
• 2012 = 196 new items.
• 2011 = 219 new items.
• 2010 = 233 new items.
• 2009 = 241 new items.
• 2008 = 254 new items.
• 2007 = 266 new items.
• 2006 = 255 new items.
• 2005 = 250 new items.

Yup, we've got a collapse in new items, which yields a collapse in new item productivity, which yields a customer switch to existing items, items that eventually outlive their usefulness, yielding a business that is about to collapse.

Happens every day.

And we're doing it to ourselves.

Microsoft

Microsoft doesn't get a lot of love these days, does it?

One of the fascinating aspects of Microsoft is their #omnichannel approach to integrating operating systems.

Desktop. Laptop. Tablet. Mobile. All running a common operating system. Nice integration, don't you think? They have retail stores, e-commerce, they sell through third parties, they sell via an endless number of parties, don't they?

So why, do you think, that this integrated system, this #omnichannel approach, has not resulted in Windows dominating tablets and mobile? Doesn't the customer want an integrated experience? That's what we're told, right? We're told that all of our creative and offer strategy and merchandise strategy must be 100% unified across all channels.

Honestly, I don't have the slightest idea why their approach works or does not work. Nor do I care. I'm not here to defend them or to criticize them.

I am here to ask you to focus on what matters, using Microsoft as an example.

What matters is merchandise (or product or content, depending upon your business model). This operating system, across devices, IS the product at Microsoft. So if customers don't like it, they don't buy it.

These days, merchandise is largely ignored. Go read a trade journal or advice from the experts on Twitter. You won't find a discussion about merchandise.

Talk to customers, however, and you'll learn a lot about what customers think about the merchandise we sell.

So please, focus your efforts there. Focus on merchandise.

Merchandise Forensics - Mega Winners

Read this little ditty (click here) about music.

In the pre-mobile world, the artist released a CD with ten songs, of which between one and three, if lucky, became popular.

Now, with music streaming on a mobile phone, the goal is to find a mega-winner and ride it for a long, long time.

Or we have movies, where the number of movies are being reduced, but the ones being released are mega-winners that generate a ton of profit (click here).

When we think about mobile, we think about "omnichannel", and all the nonsense that comes with integrating channels for a theoretically magical customer experience.

We should be thinking about MERCHANDISE!

What is happening, of course, is that mobile is splitting us into two kinds of companies.

1. Long-tail brands like Amazon, or even department stores like Macy's.
2. Everybody else, who, in order to succeed, are moving toward a small number of winners that disproportionately carry the success/failure of the business. This business model, being forced upon us by a mobile experience where almost nothing can be featured on a 5" screen, is very, very risky, especially when new item development is poor.

Analyze your own data, over the past ten years ... you'll see this trend evolving, happening, being forced upon us.

Contact me for your own Merchandise Forensics analysis (kevinh@minethatdata.com).

When Discounting Doesn't Work

Ok, so sales dropped last weekend (click here to read).

Can you honestly say that the economy is any worse this year than last year? Or two years ago? Or three, four, or five years ago? Black Friday - Cyber Monday sales increased at the bottom of the economy in 2008/2009. You can't blame this sales drop on the economy, can you? The economy is perpetually awful, it was in June as well, and you weren't hearing dire predictions in June.

Discounting takes you only so far. You keep offering more and more promotions, then you push promotions earlier to steal business, and then the whole thing starts to crater.

If you discount more, and sales drop, what do you think happens to profit?

Don't you find it funny that omnichannel and discounts are supposed to save us - and then when you enter the most omnichannel environment ever, with the deepest discounts available, sales drop?

Meanwhile, Amazon is preparing to fill the sky with drones designed to deliver products to your home in thirty minutes. Imagine waking up in suburban Seattle, and having Mt. Rainier blocked by thousands of drones delivering Amazon products?

You get the feeling that 2014 is going to be the "Year of Merchandise". It HAS to be. We have no choice. We're in the process of destroying the businesses we work for with insane discounts and promotions.

One major apparel retailer (one you know) offered my family 40% off on Wednesday, 50% off on Friday, 40% off on Saturday, and 50% off for Cyber Monday. God help you if you bought on Saturday ... or if you only got 30% off when you purchased early last week, or if you were stupid enough to pay full price two weeks ago. At some point, we are teaching the customer NOT TO SHOP, because, as a customer, we're afraid we're going to get ripped off.

Another major apparel retailer refunded my family $$ because we were able to show that deeper discounts were offered after a purchase. Yes, we were ripped off. And the apparel retailer (one you know) acknowledged it.

The level of modern discounting causes trust issues. We simply cannot trust businesses anymore. Discounting erodes trust.

Black Friday / Cyber Monday / Deep Discounts allow trade journalists to hype the season, driving page views to their stories, causing advertisers to pay for ad space in their publications, causing the trade journalists to make money. Of course the trade journalist is going to champion 60% off - more people read her story if she runs with deep discounting topics than if she runs with merchandising topics. She gets paid when you suffer.

How do you make money? Certainly not by offering 50% off products that have a 60% gross margin.

Merchandise.

Get back to the basics, before it is too late.

Metrics That Matter Most

I ran a veritable plethora of trial "Hillstrom's Heath Index" projects in October - and it became very, very obvious what matters most (click here for file layouts - cost = $4,950).

In order of importance:

• Number 5 = Increased Spend per Customer.
• Number 4 = Increased Customer Loyalty via Increased Repurchase Rates.
• Number 3 = Increase in Number of New, Winning Items Each Year.
• Number 2 = Positive Balance in New/Reactivated Customers vs. Lost 12 Month Buyers.
• Number 1 = Overall Increase in Merchandise Productivity.

What trade journalists, bloggers, and vendors ask you to focus on.

• Number 3 = Omnichannel - Aligning All Channels Around Digital Initiatives.
• Number 2 = Increased Spend per Customer.
• Number 1 = Increased Loyalty via Channels, Discounts, Promotions, Loyalty Programs.

Do you see the significant difference between the two lists?

You'll have to look far and wide to find somebody talk about the importance of merchandise. I had a person tell me on Twitter that it is critical to find the right promotion for the right customer at the right time. Well, that may be true - but what exactly is the customer going to purchase with the right promotion at the right time?

Merchandise.

I was in a meeting recently, and I told the CEO that "the data suggests that customers don't like your merchandise anymore." Well, you would have thought a bomb went off in the room! Mind you, I had data that showed a significant and prolonged drop in merchandise productivity, but the room hated the message. Hated it! They thought that they might not be applying the right promotional mix to the business.

I was in another meeting recently, and the topic was channel alignment. The thesis was that if channels (mobile, retail, e-commerce, print) were better aligned, customers would spend more.

Really?

Look at what Microsoft does with channels. They have a tablet that is every bit as functional as an iPad. It integrates with killer apps like Outlook, Word, Excel. It's cheaper than an iPad. The desktop channel and the tablet channel and the mobile channel (Nokia 41 megapixel camera, wow) are all aligned and integrated.

It's an omnichannel wonderland!

And it doesn't work.

It doesn't work because of merchandise. Merchandise is what matters. Your iPad needs apps to work properly. The combination of tablet and apps represents merchandise.

So the metrics that matter most are merchandise related. You keep hearing stuff like "the customer is in charge". That's garbage. The customer is in charge of deciding what to do based on the information you provide the customer. If the merchandise isn't desirable, then what the heck difference does everything else make?

Merchandise productivity. 

Measure the metrics that matter most.

Storm Brewing?

Allow me to take a brief moment to tell you about a dream I had last week. Yes, I promise, the dream has everything to do with business.

See if you can spot the symbolism in the dream.

I'm staying at a hotel in Cannon Beach, OR. (Haystack Rock is depicted here). I'm hosting a party. Maybe fifty to one hundred people are attending.

I look out on the ocean, and guess what I see? Tornadoes ... or as they're frequently called when appearing over water ... waterspouts. With danger approaching, I scream "tornado", and point vigorously to the ocean. Nobody listens to me. So I run inside to tell my wife, a person who runs a catalog business, and a doctor that a tornado is fast approaching. I tell them that they must head to an interior room to protect themselves. These three people, whom I consider "smart", move to an interior room, though they do continue to enjoy the party, not embracing the true danger that I'm sensing. In fact, these three individuals perceive my actions as being a bit annoying, to be honest!

I head back out to the main room, and I notice that all of the party goers have assembled on the deck. They're sitting in chairs, pointing at the tornado that is now just a football field away from them. They're oblivious to what is coming. I scream at them to get inside, to get to an interior room. They ignore the information provided to them. They raise their drinks as the storm approaches, cheering it on, celebrating. Then, suddenly, one person in the crowd says "Oh my goodness, the tornado just killed that person." The crowd looks over the deck, stunned that people on the ground are dying. How could this be? The crowd looks up the coast, as a separate tornado destroys a water park that hosted numerous tourists. The crowd is stunned, but they don't move, they don't take cover inside. Seconds later, the tornado hits the deck. Mass carnage ensues. I run inside, sprinting to the kitchen. I pick up my keys and wallet from the counter top, thinking "at least I have the keys". The tornado hits the interior of the building, where I am swept up into the air.

End of dream.

It's fun to sit on the sidelines and cheer concepts like "omnichannel".

Sometimes you have the keys, and you can unlock the problem. Like with Merchandise Forensics. A CEO recently told one of my readers that "this merchandise stuff is like magic".

I've analyzed a ton of data in 2013. The data continually suggests that a storm is brewing. Many of us failed to invest in new products, and are now left with dying products that are not being replaced fast enough to maintain sales levels. Most of us are rapidly shifting the e-commerce side of our business to mobile (adapt or die), only to find that conversion rates are awful (often because we simply cannot feature enough merchandise to increase conversion rates in a mobile environment). Or worse, we find out that our customer is 61 years old, and is never going to "engage" with a mobile device like a 28 year old will.

A storm is brewing.

Will we fix the problem and save ourselves?

Will we head to an interior room and at least protect ourselves?

Or will we take a seat on the deck, pour ourselves a drink, and cheer as the storm approaches?

Yelp and Merchandise Forensics

If you travel, you know that Yelp and those who compete with Yelp are particularly helpful.

Yelp shifts demand.

Let's say that you visit a town with 30 restaurants, all earning an average of $750,000 in sales per year, all generating $75,000 pre-tax profit (this is being done for illustrative purposes, no claims for accuracy other than a few simple Google searches). Let's say that 5% of the traffic is tourist traffic that is impacted by Yelp. In other words, $37,500 of demand per store is up for grabs, steered by Yelp and similar apps.

Let's say that your expense structure looks something like this:

• 35% of costs are for food.
• 35% of costs are for salaries (essentially fixed).
• 20% of costs are for overhead (essentially fixed).

The pre-Yelp profit and loss statement looks like this:

• Demand/Sales = $750,000.
• Variable Costs (food/drink) = $262,500.
• Labor = $262,500.
• Overhead = $150,000.
• Profit = $75,000.

In a Yelp-fueled environment (shifting 5% of total market demand to establishments favored by Yelp), the top 10 rated restaurants capture $37,500 * 30 / 10 = $112,500 per store. The bottom 20 rated restaurants all lose $37,500 each.

Yelp-fueled restaurants:

• Demand/Sales = $862,500.
• Variable Costs (food/drink) = $301,875.
• Labor = $262,500 (though you could make a case you need more staff).
• Overhead = $150,000.
• Profit = $148,125 ... 17% of sales.

Yelp-penalized restaurants:

• Demand/Sales = $712,500.
• Variable Costs (food/drink) = $249,375.
• Labor = $262,500 (though you could make a case you need fewer staff).
• Overhead = $150,000.
• Profit = $50,625 ... 7% of sales.

I know, this example is unfair, because the best restaurants would already have a disproportionate sales advantage ... but I'm doing this for illustrative impact. I'm trying to show how our current marketing environment causes subtle shifts, subtle shifts that result in major impact on the profit and loss statement.

In my example, 10 restaurants accelerate to winner status ... 20 restaurants fade just ever so slightly, with a big impact on profitability.

A similar thing is happening in my Merchandise Forensics projects, within companies, and across companies.

• Google plays the role of Yelp, with a comparable impact on your profit and loss statement. To a much, much smaller degree, social media plays this role as well.
• Your own marketing efforts (mostly email, home page, and landing page strategy) act as Yelp, steering demand to the items you focus on.
• Amazon simply cannibalizes your business, acting as a Yelp-penalizer effect.

Combined, the examples you see above apply to your business as well.

This is why it is so critical to perform Merchandise Forensics work - within your own business, you are causing the Yelp effect that I illustrate above. You have to understand the dynamic, and measure how it impacts marketing productivity.

Everlane - Transparent Pricing And Lean Inventory Levels

Have you heard of Everlane? (courtesy of @dannysauter):

Click here for the website.

Click here to learn more about the business model.

And here's an article about the business model - full price all the time, buy small inventory quantities and sell through them - and be transparent about cost of goods sold to the customer (click here please).

You'd almost think you were looking at the rebirth of Lands' End, two generations removed.

Now, let's be honest. They may not make it. There's that dilly of a $30,000,000 pickle (annual net sales) that seems to be a real hurdle that is tough to get over.

Even more interesting than transparent pricing is the inventory strategy ... always buying "too little" inventory to satisfy demand. I remember seeing this type of model when I worked at Nordstrom - once you've been burned by liquidations, you don't ever want to have too much of anything. So if you can get 80% of what a customer wants, or 70%, then yes, you're going to disappoint a lot of customers, but you're also going to create urgency.

Urgency at full price.

Too many businesses create urgency by having short-term promotions (40% off on Cyber Monday only).

You can create urgency by telling your customers to get it now, before it is gone ... and do that at full price.

We'll see how this works.

Caring About Merchandise

There are three places where you can truly tell what a business/marketer cares about.

1. Catalog Covers.
2. Email Content.
3. Home Page ... classic or mobile.

This catalog cover tells us that Chefs loves catalogs. They love catalogs so much they hold the customer hostage. You may remember this tactics from the early 90s, when, if you were cut off, you didn't learn about the business anymore - that was truly it!

How much merchandise do you see on the cover of this catalog?

Let's visit the home page, and see what is offered to us:

We see three items featured, so that's good.

Now, how many discount/promotional messages do we see?

• Free Standard Shipping.
• Save $20 on a Roasting Pan.
• Save $155 on a Carving Set.
• Save up to $130 on Flatware.
• Final Days for Free Thanksgiving Delivery.
• Fall Giveaway, Chance To Win Daily Prizes.
• Shop Thanksgiving Sale.
• Free Return Shipping.
• Thanksgiving Sale - save up to 50%.

I count at least nine sale/promotional message. Nine.

Heck, valuable home page real estate is given to a blog ... a BLOG! 

If we go below the fold, then we see merchandise - six of the top eight items are on sale, furthering the sale messaging to the customer. 

Yes, they're favorites, and we know what happens in the Merchandise Forensics framework when you over-emphasize best sellers and do not develop new items. But items are featured. Interestingly, the items are "customer favorites" - not the items that the merchants/marketers are passionate about.

I am not saying that this style of presentation leads to above/below average conversion rates.

I am not saying this strategy is right/wrong.

I am only saying that we know where merchandise stands on the pecking order.

Amazon mulched all of us. Amazon relentlessly pushes merchandise at us.

Pay close attention to what companies feature in email, on the home page, on the mobile home page, and on catalog covers. You'll learn what the company truly values. And as we all know, we attract customers who share our values.

Multiple Channels Limit The Assortment The Customer Buys From

You'd think that all of these channels result in more and more items being sold.

And yet, in my Merchandise Forensics projects, I keep seeing an opposite trend.

In one recent project, the number of styles sold by channel yield an interesting trend.

• Telephone / Catalog = 4,393 annual styles selling at least $500.
• Online = 3,558 annual styles selling at least $500.
• Email = 3,240 annual styles selling at least $500.
• Search = 2,992 annual styles selling at least $500.

In online marketing, the best-selling items tend to be featured on the home page, and on landing pages, giving them more attention, making it hard for low-selling items to get any attention outside of a "customers who bought 'x' also bought 'y'" environment.

In email marketing, the items with lower price points and high unit volumes tend to be featured more often, in an effort to ramp-up email opens/clicks.

In search, the items that Google wants to give attention to get attention. You play a role in the items that are ultimately purchased, but Google plays a bigger role. Nobody talks about this, but Google, not your customer, decides what sells.

What does this mean? As a business is "digitized", we're seeing more and more demand pushed into fewer and fewer styles/skus. Chasing customers in an omnichannel world may (or may not) yield an integrated customer experience that may (or may not) yield increased sales. 

What so few people are thinking about is the thought that the omnichannel experience fundamentally alters the merchandise assortment, putting a business at increased risk via a smaller, high-selling assortment. 

As fewer and fewer items generate sufficient sales volume, the marketing team respond by "promoting" those items at 20% off plus free shipping, further diluting the profit and loss statement.

As the profit and loss statement is diluted, the CFO responds by outsourcing functions, reducing headcount, lowering expenses.

As marketing is outsourced, vendors algorithmically take over, and the cycle results in an acceleration of a small number of winners and a large number of under-performing items.

Think about this, and measure it. You're going to see the seeds of this dynamic appearing in your business, too. The vendor community, through "omnichannel" and mobile, is reshaping your business in ways you have not anticipated.

The Relationship Between Product Density And Conversion Rate

Here's a way to think about conversion rate, in absence of marketing activities.

Your "brand", if you will, is responsible for generating half or more of your conversion rate. Customers decide they want to buy from your business, generating a significant amount of the conversion rate.

After we account for customers who "had an agenda" and were going to buy, regardless, we have everybody else. These customers need to be informed.

We inform customers via merchandise, we inform customers via discounts/promotions, and we inform customers via creative/imagery.

And when we minimize the amount of information presented to the customer, we minimize our conversion rate.

This is happening in mobile. We're unable (at this time) to provide as much information as we can on a website, or via a catalog. This drives conversion rates down.

When we drive conversion rates down, we respond by offering deeper discounts/promotions, or we gamify the experience (cheap prices end at 11:00am, act now).

When we attract customers via discounts/promotions, we shift the focus away from merchandise.

In other words - mobile is (at this time) shifting the focus away from merchandise. The form factor employed by mobile demands this - the customer has to know what the customer wants before hand, using mobile to simply transact. The art of getting the customer to "shop" is, at this time, not part of the mobile experience.

Just as interesting - when we reduce the amount of merchandise featured on a mobile website, we, by default, try to jack up conversion rates by offering the best products, the ones most likely to increase conversion rates. This leads to a small amount of highly productive "winners", and everything else that sells less well - in fact, selling at lower rates than forecast, causing us to have to increase liquidation activities, hammering gross margins in the process.

The whole process is quite interesting to observe.

The ramifications are significant, and worth considering.

The Merchandise Tournament Bracket

Do you really want to optimize your email marketing campaigns? And no, I'm not talking about A/B testing 30% off against 10% off plus free shipping - that doesn't push the peanut.

No, it's time to help your merchandising team.

Here's what I want you to do.

1. Pick eight new items that have sold reasonably well in October/November.
2. Randomly match up the eight items, in a tournament bracket.
3. In email campaign #1, match up item 1 vs. item 2. Tell the customer you're running a tournament, and the item that sells best "wins", and advances to the next round.
4. In email campaign #2, match up item 3 vs. item 4 - same premise.
5. In email campaign #3, match up item 5 vs. item 6 - same premise.
6. In email campaign #4, match up item 7 vs. item 8 - same premise.
7. In email campaign #5, match up the winner of 1/2 against the winner of 3/4.
8. In email campaign #6, match up the winner of 5/6 against the winner of 7/8.
9. In the championship, match up the winner of 1/2/3/4 against the winner of 5/6/7/8.

What do you get for doing something like this?

1. Your customers will tell you the new items that they like the most (let them "like" various items - measure via sales (80%) and likes (20%) - sort of like "Dancing With The Stars", if you will.
2. You promote/advertise new items, and based on my work this year, most of us desperately need to promote/advertise new items.
3. You do something different than the same, boring, 20% off plus free shipping that plagues email marketing.
4. You can promote the tournament bracket across Facebook and Twitter - pleasing the omnichannel advocates to no end - you partner with your customers. Think of the virality of it all?!
5. You "engage" your email subscriber list - theoretically pleasing everybody.

What would stop you from doing this? What would stop you to focus on selling, to not focus on teaching your best customers about your best new items?

Discuss.

Digital Real Estate - Chasing Fire-Flies

Here, we visit catalog brand Chasing Fire-Flies. These folks clearly have a creative bent to their presentation technique.

I know, I know, there's going to be dozens of you who tell me this is ugly, who tell me that this looks like something from 1999. Have at it. Ugly is not correlated with selling, is it?

What matters most is if the presentation style results in somebody buying the merchandise.

So that's the presentation style on the home page. What do you think the presentation style look like on my Samsung Galaxy Note II? Let's take a look:

What do you observe?

Well, as always in a mobile environment, compromises have to be made. Here, the compromises are creative in nature.

Again, in my Merchandise Forensics work, the more you remove imagery and product opportunities from the experience, the more you reduce sales.

You know, on Twitter a few weeks ago, folks were telling me that they simply cannot convert on a mobile device like they can on their home page. I kept hearing about how traffic is being seriously cannibalized, but sales are declining because conversion rates are in the tank.

We're all going to have to think carefully about our mobile experience. The only reason we are in business is to sell something. When we compromise the sales experience, we put ourselves on a path toward being out of business. And with mobile comprising more and more of the brand experience, we have a challenge we have to figure out.

Need Merchandise Forensics work completed? Contact me (kevinh@minethatdata.com) for your own, customized, Merchandise Forensics project - it's the #1 project I work on in 2013.

Digital Real Estate - Gap

Here's a recent screen shot of the home page of Gap, on my PC.

Yes, you'll see discounts splattered all over the home page - everybody is doing it, as if discounting was more important than the product being sold.

But you have merchandising choices - hidden across the top of the page - the customer can navigate from one merchandise category to another. And the creative team made sure that all sister brands can be shipped (upper left).

Ok, now let's take a look at the mobile version of the website, via my Samsung Galaxy Note II.

Notice that compromises have to be made, and Gap chose to compromise on merchandise. The 35% offer is still there, the 50% off select styles fall sale offer is still there. Find a store gets more real estate. Winter warmers? Gone. Fall for dresses? Gone (and yes, I get it, you can scroll through and get to merchandise and get to fall for dresses - but that's different than the home page experience).

My Merchandise Forensics work increasingly shows that if you don't feature merchandise, you don't sell merchandise.

And honestly, folks, the only reason we're in business is to sell merchandise.

But mobile is requiring us to make major compromises. Across the board, we're compromising the merchandising assortment for other aspects of business.

Digital Real Estate

Sometimes, you have to put things into perspective, in order to make a point.

This is a screen shot of Craigslist, on my PC.

As you can see, there's an awful lot to click on, isn't there?

Now, I get it, your website doesn't look like Craigslist. Your website is professional, polished, beautiful (and maybe converts at a far lower rate than it could, but that's a topic for another day).

Let's take a look at what the same website looks like on my Android phone.

Here we go:

Oh.

Some will argue that "the customer wins" when you simplify presentation and choices. I've analyzed an awful lot of data in the past twenty-five years - there's one consistent theme - the more you present, the more you sell.

In catalog marketing, the costs are prohibitive, causing one to eventually reduce pages to increase profit.

In digital, the costs are essentially zero. When you reduce choices, you reduce how much a customer spends.

Tomorrow, we'll look at Gap - comparing the website to the mobile experience. The shift in customer behavior to mobile requires a different presentation mindset, something we haven't had to worry about for a half generation. My Merchandise Forensics work suggests we have not figured out how to generate demand in a mobile environment.