Fetzer's Footwear: You Have To Want It

Today, I am meeting Lauren Fetzer, CEO of Fetzer's Footwear, at Eagle Heights, a barren prairie on the southern end of Madrona Island. As usual, Ms. Fetzer is listening to her iPod Touch.

Kevin: "What are you listening to?"

Lauren: "Walking on Broken Glass by the Eurythmics" That's how I feel when I'm dealing with my creative team, you have to tread lightly with them."

Kevin: "Why are we meeting here?"

Lauren: "Look around, there aren't any trees here. There were trees at one time, but they were harvested a hundred years ago. Now, they have a hard time getting started again. In November and December, the windstorms down here are brutal. So the landscape changed, it evolved."

Kevin: "What would it take for a tree to grow here again?"

Lauren: "Well, it would have to really want it."

Kevin: "What does that mean?"

Lauren: "A friend of mine has a saying. She says 'you have to want it' when it comes to success. I couldn't agree more with any other statement than that one. The tree would have everything working against it. The soil is sandy now, so if it did grow to a reasonable height, the winds in November and December would uproot it. The tree has to want it!"

Kevin: "It wouldn't be a best practice to start growing here, would it?"

Lauren: "Absolutely not. But if the tree made it, and the odds are against the tree, it would pave the way for a forest. Nobody would ever recommend that the tree take root here, would they? No, the experts would find the perfect environment, they would take soil samples and they would measure everything so that they could find the best place to plant the tree."

Kevin: "And they would be successful, wouldn't they?"

Lauren: "Define success? The tree would grow, but it would be one of, what, a million trees? Is that success? Who wants to be part of a forest?"

Kevin: "What does this have to do with Fetzer's Footwear?"

Lauren: "Have you ever taken part in strategic planning, Kevin? I assume you have."

Kevin: "Sure."

Lauren: "Strategic planning is not a spreadsheet exercise, Kevin."

Kevin: "Meaning what?"

Lauren: "Penny Parker, you've met her, she is our VP of Marketing, she has all of these fancy spreadsheets and metrics. Her life is a series of campaigns. She'll line up two hundred different campaigns for next year. She'll figure out how to optimize every single campaign, to squeeze an additional eight percent out of every single campaign. Then she sits back with this big smile. She adds up eight percent on top of eight percent on top of eight percent and thinks she has the answer. All we have to do to grow the business is be perfect across two hundred consecutive campaigns, and if we're perfect across each and every one of two hundred campaigns, our business will grow by something like thirteen percent. She has the metrics to prove it, she opens up this big spreadsheet and puts it up on a plasma monitor and everybody gazes as all of the metrics, and she is manipulating one cell and twelve other cells all improve. Wow. She's really optimizing the business, isn't she?'

Kevin: "Why the attitude?

Lauren: "Well, for one thing, her strategies never work. Who can be perfect two hundred times out of two hundred? If you do your best, you might improve the performance of one hundred and fifteen campaigns, and you'll inadvertently fail eighty-five times."

Kevin: "That's still improvement, right?"

Lauren: "It's fools gold. Her answer is to simply execute more campaigns, if you have more campaigns, you'll have more sales, and if you have more sales, your business will grow. Paid Search, Email Marketing, Affiliate Marketing, Organic Search, Print Ads, Banner Ads, Re-Targeting, Radio. Now we have thousands of campaigns, and our marketing team and analytics team believe they can optimize each and every one of thousands of campaigns, squeezing an additional four percent and six percent out of each one. It's funny, Kevin, nobody in marketing ever says that they expect campaigns to perform less well. Every single metric in every single spreadsheet points north, showing improvement. Fools gold."

Kevin: "Maybe you hate metrics and spreadsheets? There's lots of people who feel that if you test and optimize your business will experience unfettered growth. They are frustrated by people like you."

Lauren: "We had this consultant in a few weeks ago, maybe you know him, his name is Chip Cayman. He had this document that said if we grew to a hundred stores, our sales would essentially quadruple, his spreadsheets showed that multichannel customers are worth nine times as much as single channel customers, he showed how the website would benefit from a national store presence. Nice presentation, classic stock photos that he paid $6 each to obtain, great math, an opportunity to rack-up ten or twenty million dollars of debt that a spreadsheet suggests will be paid off with profits from the stores in ten years."

Kevin: "So what is the problem?"

Lauren: "He didn't want it."

Kevin: "He didn't?"

Lauren: "Not even close. He wanted somebody to love his spreadsheet, his math. He didn't give a rat's behind about the relationship between a customer and an employee ... it is a humbling experience to serve a customer who wants to buy shoes in a store. No spreadsheet solves for a human being wanting to help another human being."

Kevin: "Why are you telling me this?"

Lauren: "Tell me I am right."

Kevin: "So what if you are right? You are the CEO, it doesn't matter."

Lauren: "It means everything. Penny hates it when I ride her on this topic, she calls me a 'HiPPO'"

Kevin: "A hippo?"

Lauren: "Highest Paid Person's Opinion. She has all of this science, and she believes that if I just listened to her science, everything would be fine. Then I tell her that she 'has to want it'. I tell her to have a passion for our business, not a passion for spreadsheets and optimization. And she just stares at me, she says the spreadsheet tells the whole story. But listen to me, Kevin. She's been optimizing year after year after year, and somehow, our annual retention rate, the percentage of customers who bought last year and will buy again this year, that never budges, it always stays the same. Well don't you think that if she was right, if we listened to her and her glorious metrics, that the annual retention rate would improve? See, that's the problem. If all of that math and optimization were right, business would improve. It doesn't improve. She doesn't want it, she wants science."

Kevin: "So what does wanting it look like?"

Lauren: "Wanting it means being willing to take a risk. There are no risks in spreadsheets, only numbers. Wanting it means innovating. Wanting it means moving beyond campaigns. Campaigns are nothing more than glorified begging, you are trying to manipulate the customer into buying something."

Kevin: "Isn't that what a marketer does? Don't marketers manage campaigns?"

Lauren: "Marketers tell stories. See, that's what matters. A marketer that doesn't try to tell a story is a marketer that doesn't want it. Here's the neat thing. If you tell a story, and if you are consistent with that story, and then the sales naturally follow."

Kevin: "Or they don't."

Lauren: "And if they don't follow, it is self-evident that the story didn't resonate with the customer. Then you try another story. The marketer must have an instinct for getting from Point A to Point B. Look, we're all getting killed by Zappos. They tell a story. Their story is flimsy, of course, but it is a story. They ship you product fast, they have every sku imaginable, they have perceived free shipping, and their employees will chat with you via social media. That's a story. There's no optimization and spreadsheet manipulation and campaign management there, heck, where was the best practice for that business model before they invented it? Coming up with that story, a marketing story supported by merchandise, that's hard work, Kevin, it isn't easy. That's what I call 'wanting it'. We have to want to beat Zappos so bad that we come up with a better story. When people don't have a better story, they revert to campaigns and optimization and spreadsheet manipulation."

Kevin: "So the tree trying to grow on this prairie needs a different story?"

Lauren: "Exactly!"

Kevin: "Seems like it would be easier to simply transplant this tree in the forest on the other side of the island."

Lauren: "Yes, it's easier to manage by spreadsheets and metrics and campaigns and optimization. That's not what I am looking for. We need to break through, we need to tell a story that is more compelling than the story that Zappos tells. We need to want it more than them."

Kevin: "Yup, you're just another dumb HiPPO."

Summer Segmentation

This summer, we're going to talk a bit about segmenting customers.

See, it turns out that this is one of the most important times in history to actually slice and dice customers. Our customers are going in a myriad of different directions. Back in 1995, you could do a simple RFM analysis, and you'd be in good shape, because you had a one-dimensional business.

In 2010, your customer is a few years into the early stages of a great diaspora ... a once homogeneous audience is now dispersing itself across a nearly infinite number of micro-channels. What is important, here, is that while customers adopt an increasing number of micro-channels, overall response does not improve --- you know this because you look at annual retention rates, and your annual retention rates have not improved in a decade. When the number of micro-channels increase and overall response fails to increase, you have tremendous "optimization" opportunities!

So, we're going to explore segmentation this summer. Get ready!

Dear Catalog CEOs: Brand Loyalty

Dear Catalog CEOs:

Twice in thirteen days members of your elite club reached out to me to communicate interesting findings. In one case, one of you stopped mailing catalogs altogether and retained 90% of your sales one year later (pure catalog brand, no retail channel). In another case, one of your staffers executed a catalog holdout group for more than nine months, and retained 90% of your sales within the holdout group (pure catalog brand, no retail channel).

It's not a bad thing when you stop mailing catalogs and sales are generated anyway. In fact, it's the very best thing that can happen. YOUR CUSTOMERS ARE BRAND LOYAL!

Do you love sending catalogs, or do you love printing money? So often, the answer is the former, not the latter.

Any business that maintains sales when advertising stops is a blessed business. Run a mail/holdout test, and see how much brand loyalty you have!

Even Monks Are Now Abandoning Catalog Marketing

From Multichannel Merchant ... here's the quote about the closing of Abbey Press:

• "All businesses have a lifecycle, and the monks felt that the catalog business was past its peak as a dominant business model".

And to top it off:

• Wilson says Snail’s Pace will reflect changing marketing paradigms: “You’ll see less money spent on advertising, catalogs, direct mail and the like, and more effort put into reaching exactly the right customer prospects through social media channels, the Internet, and through media that they are currently consuming.”

Now half of you will say that "... print isn't dead, my vendor/co-op just showed me matchback results and 81% of my sales are attributed back to the catalog." And you may be right, assuming that your matchback results tie out to your mail/holdout test results. Have you done the analytics work to prove that your matchback results are accurate? Has your vendor recommended mail/holdout testing to validate matchback results?

If your matchback vendor hasn't recommended executing mail/holdout testing to validate matchback results, be afraid ... be very afraid.

I'm not saying you shouldn't be mailing catalogs ... I'm saying you should make profitable decisions. Look at what is happening all around you, and pay close attention to how customer behavior is shifting.

J. Crew and Rue La La

Want to make a good use of the next ten minutes? Give this transcript a read ... J. Crew pumped-out 18% pre-tax profit last quarter. In case you didn't know, that's not an easy accomplishment. Ten percent pre-tax profit is often considered a gold standard in apparel retailing ... in my sixteen years at Lands' End, Eddie Bauer, and Nordstrom, the companies I worked for only exceeded 10% four times (I think three of the times were at Nordstrom). Just read the merchandising passion they exude in a boring investor conference call.

And then there is Rue La La --- debuting apps: Don't tell me that "... that doesn't apply to us, we're not some low price auction brand, our customers are different, they love sitting in front of the fireplace thumbing through a catalog that has been sitting on the coffee table for twelve weeks" ... that's an excuse to not even try, folks. It is pretty obvious now that the future isn't e-commerce. If I am running an e-commerce division, I want my customer to hold my brand in her hand at all times ... anything short of that and we're just clinging to the past.

Fetzer's Footwear: The Executive Team

I enter Lauren Fetzer's office. As always, she's listening to her iPod Touch.

Kevin: "What are you listening to?"

Lauren: "Bonnie Raitt: 'I Can't Make You Love Me', it reminds me of things that happened in college."

Kevin: "I'm sorry."

Lauren: "Moving right along, today you're going to get to meet with my Executive team. We'll have you sit in on some of our meetings. Feel free to offer your opinions, I won't censor them. And don't let anything Bart Cox says offend you. Every good Executive team should have one crusty individual with a contrarian point of view. All viewpoints are welcome at Fetzer's Footwear. Let's go."

We enter the Executive Boardroom.

Lauren Fetzer: "Good morning everybody. I want to introduce Kevin Hillstrom to you. Kevin will join us from time to time to review our current strategies, analytics, and help us achieve our goal to craft a vision for the future"

Bart Cox (VP, Stores): "Who is this guy, again, no offense?"

Lauren Fetzer: "Kevin is a direct marketing industry analyst, and Bart, Kevin previously worked at Eddie Bauer and Nordstrom, so he does know something about stores."

Bart Cox: "Sure he does."

Lauren Fetzer: "Let's start our meeting. Penny, please share business results from yesterday."

Penny Parker (VP, Marketing): "Comp store sales were up 2.8% yesterday, led by Bellevue with a +8.3%. Alderwood was at -6.5%. The website was up 14.5% from last year, and was up 9.5% vs. budget. The Mountain-ariffic e-mail blast was responsible for the entire increase yesterday, that was an outstanding campaign."

Lauren Fetzer: "Bart, what happened at Alderwood yesterday? That's three consecutive weeks of negatives at Alderwood?"

Bart Cox: "We've talked about this for two consecutive weeks, the mannequins are too athletic, and as a result, we're not drawing customers into the store."

Ashley Zimmerman (VP, Merchandising): "Bart, we have the same mannequins in Bellevue and Bellevue is running positive comps."

Bart Cox: "The Bellevue customer is different, she is more likely to hike in the Cascades. The Alderwood customer is functional, she's going to wear her shoes to Red Lobster. You already know this, just look at the taper reports that show what sells by store, the best selling styles are totally different."

Bill Bledsoe (VP, Logistics): "Penny, do you see these customer differences online? In other words, do you have online taper reports that show what sells by geography?"

Penny Parker: "Now that's a great idea, we'll go back and take a look at that!"

Connie Simpson (VP, Finance): "Year-to-date, retail is trending at +3.3%, online is +11.4% to last year at +6.8% to budget. I'd say that we're having a very nice year. Your teams deserve kudos for their hard work."

Lauren Fetzer: "Let's talk a bit about our vision. Penny, what did you learn about where the experts think online retailing is headed?"

Penny Parker: "I purchased a Woodside Research report that predicts 88% of businesses will generate up to 22% of their revenue in 2015 from a combination of mobile and social."

Bart Cox: "You know, folks have been saying all of this virtual stuff will wipe out retail for at least fifteen years now. And it never does. Retail keeps plugging along. Last time I checked, retail comprised 90% of all purchases, just like it did fifteen years ago. So, yes, keep thinking visionary thoughts, folks, but remember that from a net sales standpoint, almost nothing has changed in the past fifteen years. Back then it was telemarketing and direct mail, then it was the internet, now it is mobile and social."

Ashley Zimmerman: "That doesn't change the fact that we have to change with the times, Bart. You probably didn't envision a customer walking into your Downtown Seattle store with a Fetzer's Footwear iPhone app back in 1995, did you? Today she walks into the store, and if the item she saw online isn't available in the store, she punches up her app and gets the item shipped to her home. So you have to adapt and change."

Bart Cox: "And I want credit for that sale, too, because I generated that sale. Bill, when are we going to make the reporting changes necessary to show that I drove that sale?"

Bill Bledsoe: "Who cares who drove the sale, just be thankful that somebody bought something! In that case, the website, the store, and the app all contributed to the sale. That's the future. Trying to parse out that combination and assign weights to each channel is nothing short of fool's gold."

Bart Cox: "Or a lack of analytical imagination."

Lauren Fetzer: "So the future involves more channels and more analytical complexity. That's what we need to focus on. Kevin, where do you see the customer in five years?"

Kevin: "I think she'll have moved away from static websites. I believe that the traditional e-commerce website is already a 'dead man walking' if you will. So much of what a customer does today has nothing to do with the traditional e-commerce website. She's on Facebook, Twitter, Foresquare. He's on a mobile app that basically shifts eyeballs away from a traditional website. All of the things we deal with in e-commerce, our entire knowledge base, is dying. We need to learn to be really good at being there for our customer. When she needs us, we're there. When she doesn't need us, we quietly disappear. We cannot assume that she will visit us like we are some sort of destination that she desperately needs."

Bart Cox: "That's just hokey theory."

Ashley Zimmerman: "Sure it is, but we need to think about it, because you can see it happening already. We worked so hard to get user generated comments on our website, only to realize that we get a hundred comments on Facebook and Twitter for every user generated comment on our own website. User generated content on a website is so 2008. My customers love my product, and they talk about it all of the time in their social circles, they don't come back to our site to chat with us, we have to go out there to chat with them."

Bill Bledsoe: "I don't want brands following me out into my 'solar system', if you will, to chat with me, that's just plain creepy."

Connie Simpson: "So that speaks to our future, doesn't it? How do we follow the customer out into the 'cloud' without announcing that we are right there next to her, screaming at her every five minutes to buy something?"

Bill Bledsoe: "That's why I like our our series of apps for all mobile devices. We're essentially following the customer in an invisible manner. When she needs us, she just punches us up!"

Penny Parker: "That's where my job becomes challenging. Somehow, I have to encourage the customer to carry our apps with her without sounding like a snake oil salesman."

Lauren Fetzer: "Good discussion, folks. I want for us to honor our meeting requirements. We have ten minutes left before this meeting ends, and as you all know, we end all meetings at five minutes to the top of the hour so that nobody is late for the next meeting. Thanks to Kevin for being here, he's going to join us a lot in the future as we flesh out where we think we want to take Fetzer's Footwear."

Bart Cox: "I think we want to open a bunch of stores!"

Summer Schedule

Just like last summer, we'll go on a reduced schedule for the summer. Traditionally, blog readership peaks in February and March, then begins a slow decline that culminates in minimal traffic in late July.

From June 7 - September 6, we'll go with a Monday / Tuesday / Thursday schedule, with additional posts on Wednesday as opportunities present themselves.

If you are craving additional updates, come on over to Twitter and follow me there.