Coldwater Creek, Chicos, The Missy Customer

Q4 Comp Store Sales are down 19%. Catalog+Online sales are down 16%. Advertising is slashed 70%, circulation is slashed 20%.

The stock closed today at $4.05, compared with peaks at $30.00 a share in 2006 and 2007.

Holy honking cow.

Was the missy customer really spending all that home equity money on apparel?

Chicos, an indirect competitor, posted a -14.9% comp store sales drop in February, and a net loss in Q4. Chicos stock closed at $7.42 a share, down from nearly $50 a share in 2006.

Multichannel Comp Store Sales

As Dr. Johnny Fever said on WKRP in Cincinnati, back in the 1970s: "Chips are falling!"

Brilliant merchandising and presentation coupled with a thorough understanding of the needs of your target customer, now that's where it's at. Where's the strength in being "multichannel" when you review these numbers?


Nordstrom: -5.8% (much bigger drop in full-line sales).

Neiman Marcus: -7.3%.

J.C. Penney: -6.7%.

Kohls: -3.8%.

Dillards: -2.0%.

Saks: +3.4%. Woo-hoo.

Bon-Ton: -7.2%.

Wal-Mart: +2.6%.

Target: +0.5%.

Pacific Sunwear: +6.0%.

Aeropostale: +7.0%.

Ann Taylor: -1.7%.

Chicos: -14.9%.

Gap: -6.0%.

TJX: +3.0%.

Carrying Capacity

I created Multichannel Forensics as a way of simplifying some of the more technical aspects in biological and ecological modeling.

Every so often, a gifted marketing individual applies the concepts of biological and ecological modeling to practical marketing issues.

In this case, Andrew Chen shows how a topic called "carrying capacity" (i.e. the upper limit in growth of your business) and customer retention are applied to applications in Facebook.

If you like math, pay close attention to the equations used in his post.

Blue Nile

Ok mulitchannel folks, you didn't have many ideas for how to grow Orange Julius into a multichannel brand.

So what do you think about Blue Nile, the online purveyor of jewelry? The leaders of our industry strongly believe a brand needs to be multichannel. Blue Nile doesn't have a catalog, doesn't have retail stores, and yet, built a credible business.

How would you explain their success in an environment that experts believe favors multichannel strategy?

Orange Julius

A quick read of the DMNews Essential Guide To Multichannel Retail leaves one believing that retailers without a multichannel approach are about to be fossilized.

So let's pick a retailer, and give you an opportunity to share with all of us what an appropriate multichannel strategy would be.

The retailer: Orange Julius. Yes, that's right, the mall-based purveyor of appetite satisfaction.

It's unlikely that a catalog strategy will drive a dramatic increase in sales. It's unlikely that targeting prior hot dog consumers with discounted nachos via e-mail will move the needle (though they do offer an OJ Quench Club program that offers you e-mail discounts). And who is going to buy a smoothie online, and pick it up in the store? Or who wants to check retail inventory online to see if there will be an ample supply of turkey club pitas?

All kidding aside, here's your opportunity to draw up a multichannel strategy for an atypical retail brand. What ideas do you have (and all ideas are good ideas in this case, I won't be offering my thoughts in the comments section, so have at it)?

An Example Of The Direct Marketing Customer Continuum

This one comes up all the time. Take a look at catalog performance, over a four year period of time.

Evolution Of Segment Performance
		HHs	Phone	Online	Total	Profit	Change
2004	Catalog Only	10,000	$5.00	$0.20	$5.20	$0.81
	Catalog + Online	3,000	$2.00	$2.00	$4.00	$0.45
	Online Only	2,000	$0.05	$1.75	$1.80	($0.21)
	Total Segment	15,000	$3.74	$0.77	$4.51	$0.60
		HHs	Phone	Online	Total	Profit
2005	Catalog Only	9,000	$5.00	$0.20	$5.20	$0.81
	Catalog + Online	3,500	$2.00	$2.00	$4.00	$0.45
	Online Only	2,500	$0.05	$1.75	$1.80	($0.21)
	Total Segment	15,000	$3.48	$0.88	$4.35	$0.56	-3.4%
		HHs	Phone	Online	Total	Profit
2006	Catalog Only	8,000	$5.00	$0.20	$5.20	$0.81
	Catalog + Online	4,000	$2.00	$2.00	$4.00	$0.45
	Online Only	3,000	$0.05	$1.75	$1.80	($0.21)
	Total Segment	15,000	$3.21	$0.99	$4.20	$0.51	-3.5%
		HHs	Phone	Online	Total	Profit
2007	Catalog Only	6,000	$5.00	$0.20	$5.20	$0.81
	Catalog + Online	4,000	$2.00	$2.00	$4.00	$0.45
	Online Only	5,000	$0.05	$1.75	$1.80	($0.21)
	Total Segment	15,000	$2.55	$1.20	$3.75	$0.37	-10.8%

Again, I see this one all the time. Traditional RFM performance illustrates a segment that is "dying", performing progressively worse over time.

What is actually happening is quite different. Customers are shifting their status along the Direct Marketing Customer Continuum.

Catalog-Only customers require advertising. Notice that their performance hasn't changed over time.

Catalog + Online (those vaunted Multichannel Customers) are in the middle of our continuum, using advertising and search and word of mouth to buy merchandise. Notice that their performance hasn't changed over time.

Online-Only (customers that are self-serve customers, not needing advertising, have not changed their performance over time.

So the three key segments that multichannel brands track are all performing the same, over time. Yet in total, the performance of the total segment is dropping like a rock.

What is happening is that customers are moving along the continuum. Look at the number of households in each segment, from 2004 to 2007. Customers are shifting from needing advertising to not needing advertising.

Yet, while customers shift their behavior, the multichannel brand continues to do the same thing (mail catalogs), then wonders why productivity is dropping.

Simple solution: Take your RFM segment, and split them out by recent (not lifetime) purchase behavior --- catalog-only, catalog+online, online-only. If you see this phenomenon occurring, your problem is solved. Mail fewer catalogs to the online-only and multichannel audience, and improve the profitability of your brand.

Honestly --- for most multichannel brands, it isn't more challenging than that. And for those of you who are more advanced, go ahead and do the incremental mail/holdout tests we talk about all the time, you'll see different results than you see in your matchback reporting.

Simplifying The Direct Marketing Customer Continuum

Let's simplify this message a bit.

You are a direct marketer.

Whether direct marketers understand this or not, direct marketers simultaneously manage three distinct segments of customers.

One segment requires advertising in order to purchase merchandise. This customer wants to be led, wants to be inspired. In our hearts, we believe that all of our customers fall into this category.

A second segment of customers combines advertising, paid/natural search, social media, and word of mouth. This segment of customers might reflect the average customer we market to in 2008.

A third segment of customers buy out of brand loyalty. Think of the customer who wants to buy a book, visits Amazon.com, and buys the book. No advertising, no e-mail campaigns, no marketing was required. Think of the customer who wants to buy a pair of shoes, visits Zappos, and makes the purchase. Again, no catalogs, no e-mail marketing, just an inspiration followed by a website visit.

Direct marketers want customers to feel our passion. We believe customers love our marketing. You wouldn't see catalog CEOs handing catalogs to you if this weren't the case. You wouldn't see a hundred different e-mail marketing blogs if this weren't the case.

But during the past decade, the internet caused customer behavior to change ... dramatically change.

Retailers have always dealt with this. By simply opening a store in a popular shopping center, customers showed up, and sales poured in. Retailers know that marketing plays, at best, a small role in the success or failure of retailing.

Direct marketers never had to deal with this.

Now we have no choice but to start dealing with this.

If you are a business intelligence expert, SAS programmer, web analytics expert, statistician, or a query manager, start splitting your customer base into these three groups. Use your tools and techniques to identify which segment your customers fall into.

If you are a catalog executive, online marketing executive, or e-mail marketing executive, challenge your analytical folks to define these three groups for you. And then market to each group appropriately, the way the customer wants you to speak to her, not the way you want to speak to your customer.

Customers on the left side of the slide need/enjoy advertising. So send your catalogs or e-mail campaigns to these customers. Revel in the fact that these customers love interacting with you.

Customers in the middle of the continuum are fascinating. Let go of the old rules that suggest our marketing strategies are solely responsible for their purchases. Observe these customers, research their activities, ask them why they behave the way they behave.

Customers on the right side of the slide no longer need marketing. Identify these customers, and stop mailing your catalogs and postcards. Stop offering 20% off your next order. Scale back your e-mail marketing to this audience. Bathe yourself in profit instead of bathing yourself in marketing ego.

This self-sufficient audience is hard for us to let go of. We want to attribute their voluntary orders to all of our marketing activities, thinking that without us, these loyal customers would not buy from us anymore. Let go of these customers!

How do you see these principals impacting your business, your customers? Do you have the analytical tools necessary to identify these distinct audiences?