When New Items Fail In The Short Term, Existing Items Struggle In The Long Term

Here's a simple query.

Freeze your customer file as of the end of the year.  Then, in the next twelve months, for a comparable group of customers (say 2x buyers in the past year), measure how much the customer spends on existing items, new items, and in total.

This example illustrates a business that has a serious merchandise productivity problem.  Customers spend as much as $34.29 in the next year, back in 2006.

Look at what happens when the recession hits.  In 2009, this business cuts way, way back on the number of new items (yes, it's expensive to develop new items).  Consequently, demand from new items drops, significantly.  Look at 2009 and 2010.  New item demand is way down, and existing item demand is basically flat.  Productivity, therefore, is down solely because of new product development.

In 2011 and 2012, existing item productivity is down, in large part because of two years of poor new item development.  Eventually, new items become existing items, and in this case, the problems of 2009 and 2010 yield sluggish existing item productivity in 2011 and 2012.

This is the most common problem I see when performing Merchandise Forensics work.  Merchant problems in prior years become customer productivity problems in subsequent years.

Contact me for your own, customized Merchandise Forensics project (kevinh@minethatdata.com).

Pot of Gold

You can't see a rainbow until after the storm passes.

Similarly, your head merchant doesn't really know if a new item is going to yield a pot of gold until the item has been offered to the customer.

There are at least two ways to drive new item productivity.

1. Previous knowledge of the new items that are going to turn into a "pot of gold".
2. Developing enough new items so that "x" percent of the new items will turn into a "pot of gold".

Here's an example.  In 2011, the merchandising leader created 200 new items.  Ten percent, or 20 of the new items, became "best sellers", generating a pot of gold.

In 2012, this same merchandising leader created just 140 new items.  The merchandising leader did an even better job of finding "best sellers", with twelve percent, or 17 items, becoming best sellers.

However, the merchandising leader paired back new product development.  As a result, next year, only 17 items graduate to best seller status, whereas the year prior, 20 items graduated to best seller status.

There are merchants you would trust to cut back on new product development, so long as the number of bests sellers remains constant.

For most merchants, however, it's way too difficult to know what "will work" ahead of time.  So it becomes really important to keep pushing on the new item gas pedal.  It is very common, in my Merchandise Forensics work, to identify new product development declines.  These declines hurt new items in the current year, and worse, the new items become existing items that fail to generate enough volume in the future.

Contact me (kevinh@minethatdata.com) for your own, customized Merchandise Forensics project.

Dear Catalog CEOs: Gravy

Dear Catalog CEOs:

This is called "Chicken Fried Steak", or, as your physician might call it, "a viable path to obesity".

Look at the gravy.  Heck, you can't even make out the steak, can you?  Who knows if the steak is truly chicken fried or not?

That's what we've done to the merchandise we sell.  We spent the past decade coating our merchandise in gravy.

What are examples of gravy?

• 30% Off.
• Free Shipping.
• Loyalty Programs.
• Credit Programs.
• Loyalty Programs Implemented Via Credit Programs.
• Credit Programs Implemented Via Loyalty Programs.
• Sweepstakes.
• Gifts With Purchase.
• Pins.
• Likes.
• Followers.
• Viral Videos (because, be honest, who wants to create videos that do not go viral?)
• Catalogs designed to interest you, then drive you online, where you comparison shop and ultimately buy comparable merchandise from somebody else.  Woo hoo!
• QR Codes.
• Podcasts.

So many of us are now disconnected from the merchandise we sell.  Heck, we're disconnected from the merchants we used to call "co-workers".

You are the CEO of your company.  And as time goes by, your marketing employees are gravitating more to the vendor community they have outsourced most of your marketing activities to.  They are gravitating away from the employees responsible for the merchandise you sell.  Only you can re-integrate merchants and marketers.  You won't do this by "tearing down silos".  You'll do this by forcing your marketing team to understand how merchandise productivity influences marketing productivity.

The more your marketing team understands merchandise, the less they have to dazzle themselves with credit programs, percent off sales, and sweepstakes.  Your marketing team will care less about pins/likes/followers if they learn to care about the merchandising team responsible for the success of your company.

Contact me (kevinh@minethatdata.com) for your own, customized Merchandise Forensics project.

Knockoffs

This is Miller Park, in Milwaukee, home of the Milwaukee Brewers.

It's also home of the sausage race.

The races are popular among fans.  The races sometimes make Sportscenter on ESPN.

Then the races were copied.

In Pittsburgh, they race Pierogies (click here please).

In Washington, they race Presidents - heck, you can even have a meet and greet before the ballgame, like the one enjoyed by this youngster.

In other words, when you hit on something interesting, others quickly copy what you are doing.  They "knock off" your product.

Do you sell products that are easily copied (or are branded), and are sold by those whom you compete with?

This is where you need a "decay" analysis, part of a typical Merchandise Forensics project.

It's common to observe a "decay rate" among products.  This is the relationship you'll see:

• Year 1 = $18,000.
• Year 2 = $56,000.
• Year 3 = $45,000.
• Year 4 = $36,000.
• Year 5 = $29,000.
• Year 6 = $23,000.
• Year 7 = $18,000.
• Year 8 = Discontinued.

As you can see, this item has an approximate 20% "decay rate".  Each year, you lose 20% of the volume, as the item ages into obscurity.

When the competition "knocks off" your product, you'll observe an aberration in the relationship.

• Year 1 = $18,000.
• Year 2 = $56,000.
• Year 3 = $31,000.
• Year 4 = $21,000.
• Year 5 = $14,000.
• Year 6 = Discontinued.

Do you see what happened in Year 3?  The item dropped off much faster than the normal decay rate (by more then 40%).

It's really important to know what your average "decay rate" is.  By knowing the average "decay rate", you can identify items that are potentially being "knocked off" by the competition.

Contact me (click here) for your own, customized, Merchandise Forensics project.

Just Create Great Content!

It's the number one phrase you hear from the social media elite:

• "Just create great content!"

As if it were that easy.

I imagine that the social media elite would agree that if they write 100 "great" articles, only one or two resonate.

But that's the secret, right?  One or two resonate, while more than ninety-eight percent simply fall flat.

But those ninety-eight percent keep readers coming back.  They're not excellent, they'll never be excellent.  But they keep readers coming back.

Same thing in Merchandise Forensics.

The vast majority of the items you sell generate very little volume.

A handful of items are "great".  They generate forty or fifty percent of sales.

But without the other ninety percent or more of items, customers don't have reasons to purchase.

Run a Merchandise Forensics analysis on the items that are not popular.  You're likely to learn that those items are needed, or your best customers will walk away.

Click here to contact me for your own, customized Merchandise Forensics analysis.

Trouble Brewing - Mobile

This is a picture of Mt. St. Helens.  As many of you know, this active volcano blew, way back in 1980, long before people could live-tweet horrific events.

During the past thirty-three years, the lava dome is "on the grow".  Given time, it will fill the crater.  And then, it is likely the volcano will blow once again.

History repeats itself.

In direct marketing, history is in the process of repeating itself.  It's called "mobile".

In the late 1990s, you'd run merchandise forensics on the online channel.  It was small, it was growing like a weed, and the merchandise that early adopters purchased was different.  When I was at Eddie Bauer, we knew that the early adopters were men - they were purchasing mens apparel at rates far greater than in the catalog, or in stores.

As e-commerce matured, the experts demanded that e-commerce be "integrated" with the rest of the business.  This stripped e-commerce of many of the unique benefits it possessed - it became the low-cost, free shipping, promotional channel that everybody enjoys until they compare themselves to Amazon.

It's happening again.

Now it's common to hear that 10% of e-commerce sales come from mobile (well, it really isn't mobile - it's the iPad, but that's splitting hairs).

Have you conducted a full Merchandise Forensics analysis on your mobile channel?

Why not?

You're highly likely to be selling different merchandise in your mobile channel than you are in e-commerce.  And if you don't demand that mobile become fully integrated with the rest of your brand (hint - that's boring), well, then you'll quickly see what convenience-based, on-the-go customers need.  That need will be different than the needs of the traditional e-commerce customer.

Ready to see what mobile buyers are purchasing?  Contact me (click here) for your own, customized Merchandise Forensics project.  Just like Mt. St. Helens, direct marketing is going to blow up again.  Get ready!

Dear Catalog CEOs: Aquafresh

Dear Catalog CEOs:

You probably don't sell Aquafresh ... it's not exactly a "catalog must have", is it?

Imagine if you did sell Aquafresh in your catalog.

How, in the name of J. Peterman, would you be able to compete with Amazon?

Once I paid my $79 fee to Amazon for Amazon Prime (or whatever the heck I paid, I don't even care anymore) I essentially get everything delivered to my house, for free, in two days.  A simple list of must-have necessities can be plopped into a cart with a click, purchased with a click, and delivered in two days for free.  Omnichannel cannot compete with simplicity and low prices.

Meanwhile, over in catalog land, we're offering free shipping with $100 orders - sometimes - otherwise, it's $12.95 for shipping with a $2.99 handling fee (customers love that), and we can't price match Amazon or we'll be bankrupt in no time.

In 2013, I'm analyzing a meltdown of merchandise productivity, across the board - this is something I haven't witnessed in a very long time.  Increasingly, it's Amazon that is to blame ... we can't offer new items because Amazon will knock 'em off and sell 'em cheaper ... or one of our competitors will sell the item online (and on Amazon, for good measure), so the number of new items introduced annually are being scaled back.  Scale these items back for three or four years, and you don't have as many winners left to generate profit.  When you don't have many winners left to generate profit, customers get bored ... and move on to ... wait for it ... wait for it ... AMAZON!

Well, at least that's what Jennifer does.

Did you know that Amazon accounts for something like 25% of total e-commerce sales?  They didn't employ a catalog / retail / e-commerce multi-channel model to dominate the world, did they?

Call this the "Aquafresh Effect".

We could have seen this coming a decade ago - but we invested in multichannel instead.  We now know that didn't work, while we researched the link between a printed catalog and an e-commerce transaction, Amazon figured out what customers wanted, mulching us in the process.  It's too late, now.  Amazon won.

There are varying levels of competition with Amazon.

• Crutchfield ... you're battling 'em head-on.
• Cuddledown of Maine ... any innovation can be knocked-off instantly, sold on Amazon, cheaper.  Frustrating.
• Paula Young ... sell something unique and different, something Amazon doesn't care about ... until you visit Amazon and realize they sell comparable products too, oh boy.

We lived through the "Aquafresh Effect" in retail ... the mom 'n pop store (or Kresges or Gimbels or Montgomery Wards) dominated downtown retail until Wal-Mart brought low prices to the Interstate Highway interchange.

We're going to live through the "Aquafresh Effect" in e-commerce, on two fronts.

1. Amazon / Jennifer
2. Mobile / Jasmine.

Our job is to think ahead, and to plan a response.  It's time to start planning, don't you think?

Merchandise Forensics, of course, is a good place to start.  Click here to contact me for your own, customized project.