Well, That Didn't Work

Click here - Thanksgiving weekend sales, online + retail, estimated to be down 11% against a comparable weekend last year (same number of weeks before Christmas).

• Stores were open Thanksgiving, more and longer than last year.
• Discounts & promos everywhere.
• Omnichannel should increase sales, right?
• Weren't amazingly low gas prices supposed to turbo-charge customer demand?
• Mobile ... aren't customers shifting to mobile? If so, wouldn't that result in a sales increase? I guess mobile is cannibalizing e-commerce & retail. Hmmmm. Something to think about.

The National Retail Federation cheered the results, calling the times "exciting" (click here). They're right ... it is exciting when sales drop by more than 10% ... unless you are a VP at a business experiencing the sales declines. It's not exciting when your job is at risk.

There will be breathless cheers for "record" Cyber Monday performance today ... but add a "record" Cyber Monday to Thursday-Sunday, and you'll still see a sales drop.

We made three mistakes, mistakes that we all must try to fix in 2015.

1. We spent a decade telling customers to sit at home and click. It worked!! It's hard to sell merchandise in a store when you repeatedly, five times a week, for a decade plus, send emails telling the customer to click. Tell the customer 2,500 times over ten years to stay at home (imagine that message multiplied by a dozen retail businesses over a decade saying the same thing ... 30,000 messages), and the customer might start to listen. And now, we've trained the customer to avoid Black Friday by shopping on Thanksgiving or Cyber Monday ... so now we generate less sales over five days than we used to generate focusing on one day.
2. Retail is boring as heck. By investing in the online experience, we ignored the in-store experience ... and there is no reason to shop in a store if it isn't fun ... online (Amazon) is eating up anything that is "boring". It's time we fessed up to this fact and did something about it.
3. We ignored merchandise. We assumed the merchandise was fine and that pricing was wrong. We should have realized that the merchandise was not fine, and that's why discounting had to happen. We must invest in merchandise and experience in 2015.

We're more than capable, folks - we can easily fix this problem over the next two years. We're talented. We just need to shift our priorities away from activities that make our business partners profit, and instead focus on the merchandise that generates profit for us. If we do that, our business partners win, and we win.

We can do this!

Gliebers Dresses: Cyber Monday

Back in the day (2009-2010), I wrote a weekly fictional series about an Executive Team at Gliebers Dresses, a cataloger struggling to deal with the realities of modern marketing. If reading about a fictional Executive Team is not your cup of tea, click here and spend your time learning about Marketing Leadership and the Customer Journey.


Setting: The Gliebers Dresses Executive Conference Room, Cyber Monday. The Executive Team is gathered for their daily 9:00am meeting.

Glenn Glieber (Owner, Chief Executive Officer): Welcome, team. How was your Thanksgiving?

Meredith Thompson (Chief Merchandising Officer): I'm going to be eating left overs until Christmas.

Lois Gladstone (Chief Financial Officer): You still have left over stuffing from last year in the cafeteria refrigerator.

Pepper Morgan Pressley (Chief Marketing Officer): Ew.

Meredith Thompson: Roger, at this point you typically jump into the conversation with a reference to Woodside Research. Then, we spend thirty minutes telling Pepper what a horrible job she's doing.

Roger Morgan (Chief Operating Officer): I'm busy.

Meredith Thompson: Get your head out of your tablet and tell Pepper she's a failure.

Roger Morgan: I just can't stop reading through all these Cyber Monday offers.

Pepper Morgan Pressley: Here we go.

Roger Morgan: Thirty percent off. Forty percent off. Fifty percent off one item plus free shipping. It never ends. It's marketing competition at the highest level. Somebody is going to win the pricing war!!

Pepper Morgan Pressley: Do you get a trophy for winning the pricing war?

Glenn Glieber: What is Cyber Monday?

Pepper Morgan Pressley: It is a ...

Roger Morgan: I'll take this one. Cyber Monday is the best holiday of the whole year.

Glenn Glieber: Better than Flag Day?

Roger Morgan: It's the day when marketers tickle the customer buying bone by offering the deepest discounts and most tantalizing promotions.

Pepper Morgan Pressley: It's a holiday invented by a trade organization to generate page views and to focus attention on e-commerce.

Roger Morgan: And it worked! Cyber Monday is as important a day in the digital realm as Black Friday is in retail.

Pepper Morgan Pressley: We have to give up an epic amount of gross margin dollars and profit so that trade journalists get page views and attention.

Roger Morgan: All the attention created by trade journalists acts like free marketing for us.

Glenn Glieber: I love free marketing!

Lois Gladstone: What is our Cyber Monday promotion?

Roger Morgan: I'll take this one. We have six segments, based on historical promotional response. 

Pepper Morgan Pressley: I'm in charge of marketing.

Roger Morgan: Sure you are. As I was saying, we have six segments. Our most loyal discount buyers get 60% off plus free shipping. We stair-step the promotions down to 30% off for inactive buyers.

Lois Gladstone: Our most loyal discount buyers get 60% off plus free shipping? That means we don't generate a penny of profit on the order.

Roger Morgan: Bean counters, geez.

Meredith Thompson: Roger, my bonus is based on gross margin dollars. If you take 60% off, I lose every penny of gross margin.

Roger Morgan: But you win Cyber Monday!

Meredith Thompson: I don't think you understand, Roger.

Roger Morgan: No, I don't think you understand. This is all about personalized, relevant, one-to-one offers that create customer loyalty.

Lois Gladstone: Are you saying that a Cyber Monday purchase leads to increased customer loyalty?

Roger Morgan: That's what Woodside Research said in a recent $1,795 thought leadership essay titled "Cyber Monday Purchases Are Highly Relevant And Engaging In A Rapidly Changing Mobile World".

Lois Gladstone: What does that have to do with increased customer loyalty?

Roger Morgan: It's so simple, really.

Pepper Morgan Pressley: Please use Gliebers Dresses metrics in your argument, Roger.

Roger Morgan: Cyber Monday is a major American event. Customers are in a froth, awaiting the best possible discount or promotion. We need to capture mind share in an effort to remain relevant in an ever-changing mobile landscape.

Glenn Glieber: Don't forget the catalog.

Roger Morgan: The omnichannel shopper demands the best discounts and promotions. So if we can stand out on the day when e-commerce truly scales ...

Pepper Morgan Pressley: By offering personalized, relevant one-to-one offers?

Roger Morgan: Exactly!

Pepper Morgan Pressley: Oh boy.

Roger Morgan: By offering personalized, relevant one-to-one offers on a day when e-commerce truly scales, we capture mind share, and mind share in an omnichannel environment is far more important that a few gross margin dollars that net a merchandising executive a bonus.

Meredith Thompson: If I meet my annual goals, my bonus, and your bonus, is around $150,000.

Roger Morgan: My bonus isn't based on gross margin dollars.

Meredith Thompson: What is your bonus based on?

Roger Morgan: That's confidential.

Lois Gladstone: It's based on how many Woodside Research reports he purchases each year.

Roger Morgan: My bonus is based on the quantity of transactions that go through the distribution center without error.

Meredith Thompson: So if you could get 100 orders at full price or 200 orders at 60% off, you'd take the latter because your bonus will theoretically be bigger?

Roger Morgan: You know me well enough to know that I don't care about my bonus.

Pepper Morgan Pressley: You only care about impressing Woodside Research.

Lois Gladstone: So what happens next year when the competition offers 65% off plus free shipping? Do we have to offer a deeper discount?

Roger Morgan: You only win Cyber Monday when you have the biggest discount.

Lois Gladstone: So when the competition offers 70% off plus free shipping we have to match it?

Roger Morgan: Or do better.

Lois Gladstone: We'd have to offer 75% off?

Roger Morgan: Do you want to win Cyber Monday or not? 

Meredith Thompson: I want my bonus.

Roger Morgan: Well I want to win. Period. Team, don't you want to be excellent? Don't you want to be the best? Maybe the reason our business is stuck is because we simply don't want to demonstrate the thought leadership necessary to be great?

Lois Gladstone: You want to be the best by offering the deepest discounts, causing us to lose money but win Cyber Monday? Being the best is defined as winning Cyber Monday?

Roger Morgan: We have to win in real time, folks. We need to dynamically increase our promotions during the day, as competitors offer their promotions. In a perfect world, we demonstrate thought leadership by working with our email service provider to integrate our database in the cloud, enabling us to optimize yield. Don't you want to optimize relevant, engaging promotions in real time? These are mission critical opportunities to demonstrate thought leadership in a rapidly changing mobile landscape. If we do this right, we not only win Cyber Monday, but we move one step closer to embracing an omnichannel future.

Glenn Glieber: What the heck did Roger just say? It sure sounded important.

Meredith Thompson: Roger, you have yet to say a word about merchandise.

Roger Morgan: This isn't about merchandise. This is about winning Cyber Monday.

Meredith Thompson: My customers purchase merchandise.

Roger Morgan: Our customers purchase the brand promise. Merchandise is a very small fraction of the brand promise.

Meredith Thompson: What the heck are you talking about?

Roger Morgan: By offering relevant, timely, personalized, engaging content in real time by integrating our email service provider with our cloud-based customer database, we leverage discounts and promotions, causing loyal customers to participate in the brand promise. In a rapidly changing mobile landscape, digital relationships are a mission critical component of any omnichannel endeavor. I want to win Cyber Monday, because it puts us in a position of thought leadership, and it enables us to scale the operational challenges we face. Furthermore, we'll use cross-channel attribution algorithms and artificial intelligence to obliterate the traditional purchase funnel. Finally, by measuring social media sentiment, we can develop an unwavering bond with today's fickle promotional shopper. Our brand might even go viral.

Pepper Morgan Pressley: But we'll be bankrupt if we do that.

Roger Morgan: Not if we do it the right way. My way.

Meredith Thompson: Feldman, help us out.

Dr. Gene Feldman (Executive Vice President of Global Brand Direction): Do you remember those old movie subscriptions? If you signed up for a year, they gave you twelve VHS movies, for free? And then if you acted immediately, they gave you a thirteenth movie for free? Well, that was a fancy way of saying "50% off". It probably wasn't fifty percent off, because the markup was unnaturally high. They key to the promotion was that you got the freebies first, then, you were stuck paying full price or more for a full year. The promotion promised a full year of purchase activity. In other words, the promotion was part of a long-term customer relationship.

Glenn Glieber: Feldman, what the heck are you talking about?

Dr. Gene Feldman: A promotion must be part of a long-term customer relationship, one where the customer is consistently purchasing and is consistently generating downstream profit. If a promotion only generates a daily demand bump, then the promotion only helped the vendors who demanded that the promotion happen in the first place.

Roger Morgan: Don't forget relevancy. Or personalization, one-to-one marketing, omnichannel, optimization, the cloud, engagement, thought leadership, all of those concepts interact with the promotion, allowing the brand to win Cyber Monday. It's so much more than what Feldman outlined.

Glenn Glieber: Did we win?

Pepper Morgan Pressley: Win what?

Glenn Glieber: Cyber Monday. Did we win?

Lois Gladstone: Oh please.

Glenn Glieber: Please what?

Lois Gladstone: We need to run our business for us - we do not need to offer discounts so that we generate page views for other people.

Pepper Morgan Pressley: Amen!

Roger Morgan: None of you are able to envision a future that we can win. None of you.

Glenn Glieber: Well, I'm not quite sure what we accomplished this morning, but it must have been important, because y'all spent a lot of time talking about it. Now let's go make Cyber Monday a magical holiday. I should talk to HR about making it a formal holiday on the paid time off calendar.

Best Buy Website Down

Some Omnichannel vendors will beat the living daylights out of Best Buy for a pair of website outages today (click here), acting like they've never made a mistake, ever.

When you work at a company that has a problem like this, the natural reaction is to go fire somebody in the IT department, and then identify "what went wrong".

Another option is to analyze how customers truly behave when you take the website away.

1. Measure the anger on social media. Does social media anger correlate with sales declines?
2. Measure online demand, by hour. You lose sales when the site goes down. Do the sales come back? If the sales rebound and exceed plan in subsequent hours, making up for what is lost when the site is down, then you have to re-evaluate every single attribution assumption used in your business model.
3. Measure retail sales, by hour. Did anything happen in-store when the website went down? If the answer is no, then you have to question if the website has any role in driving retail sales. If the answer is yes, then you have to evaluate just how much credit the website truly deserves.
4. Did the merchandise mix change when the site went down? In other words, if you cannot advertise various items online, does what the customer purchases change?

Pundits beat companies up when something goes wrong.

Opportunists use these situations as a chance to learn.

Do the latter, folks.

Shifting Demand Into November And December

You see this one repeat all the time.

• New+Reactivated Buyers, November-January = +5%.
• New+Reactivated Buyers, February-October = -20%.
• New+Reactivated Buyers, Annual = -7%.

When you drill down into the numbers, you uncover two really uncomfortable findings.

First, November-January buyers are much less likely to pay full price than February-October buyers.

Second, November-January buyers are much more seasonally oriented than February-October buyers, who happily buy during all calendar months.

Over the past five years, businesses ramped-up the November and December machine (Cyber Monday!), and greatly increased the presence of January as a clearance / liquidation month. Customers responded, in earnest.

Then we wonder why customers won't purchase during the rest of the year, when we try to push full price, non-seasonal merchandise?

Use your diagnostic framework to identify if this is happening in your business. Run the queries! Contact me if you can't get the work done (kevinh@minethatdata.com).

Modern Retail Comp Store Sales Calculations

In the old days, when retail comps were acceptable, companies broke out direct channel sales and retail sales - separately.

In the modern era, with retail comps tepid at best, companies add total direct-channel sales to the comp store sales measure, and for good reason.

Here's an example of how this works.

• E-Commerce Last Year = $1 Million.
• E-Commerce This Year = $1.2 Million.
• E-Commerce Comp = +20%.
• Retail Last Year = $10 Million.
• Retail This Year = $10 Million.
• Retail Comp = 0%.
• Total Business Last Year = $11 Million.
• Total Business This Year = $11.2 Million.
• Reported Comp = +1.8%.

See how that works?

I know, I know, the experts will tell you that, in an omnichannel world, you have to add the two metrics together. Fine.

But the modern metric hides retail weakness. So if you're going to do this, you must find a way to clearly articulate the weakness evident in in-store retail performance.

Think carefully about the future, a future where e-commerce performance increases, but increasingly, there's fewer and fewer people shopping in a physical store. I'm not talking about a store going from $1.5 million in annual sales to $0.5 million, that won't happen. All it takes is the store going from $1.5 million to $1.3 million for all sorts of interesting dynamics to happen - just ask your CFO.

Warby Parker: $3,000 Per Square Foot

Another breathless article suggests that this e-commerce business is moving into retail, and is doing amazingly well (they are). Click here to enjoy.

The vast majority of retailers would love to enjoy the luxury of $3,000 per square foot.

Catalogers know how this process works. If a cataloger only mailed a November catalog, that catalog would generate $15 per book. But when a cataloger adds the 28th catalog to the calendar, it generates $3 per book. The law of diminishing returns is alive and well.

Catalogers know the square footage game as well ... in catalogs, it's square inches. Have a 64 page catalog, and you get $60 demand per thousand pages circulated. Have a 128 page catalog, and you get $40 demand per thousand pages circulated. The law of diminishing returns is alive and well.

Established retailers know how this process works. Your first store in the New York City market generates $500 per square foot ... your tenth store in the New York City market generates $250 per square foot. The law of diminishing returns is alive and well.

Warby Parker deserves praise for earning $3,000 per square foot - you go and try to achieve that level of productivity - it's not easy. The challenge for Management, of course, is to forecast what happens if the size of a store were to increase (this store is less than 1,600 square feet - very, very small), and as the number of stores within / across markets increase. That's hard work, because with one data point, you can draw a line from the data point to anywhere.

Major, major props for good performance. Major challenges forecasting what happens next. And your mileage will vary.

Your thoughts?

Catalogers: Please Preview This Draft Of A Presentation

If you are in the catalog world, you know that I will be participating in a day long presentation about the future of catalogers / e-commerce businesses and those who look out for your interests (in Concord, NH, on February 19, 2015 - click here for preliminary details). The day-long event is hosted by Datamann - it's a non-selling event, for those of you who are interested.

I assembled a series of notes that may or may not be used during my presentation, the slides represent my initial thoughts. I'd like for Catalog Executives and Catalog / E-Commerce / Retail Employees to click here and thumb through the notes. Please give me some feedback - what do I need to cover that you think is missing from the notes - where do you think I'm aligned with your thoughts - where do you think I am completely missing the boat? What would you like for me to share about the future of our industry? What are the business challenges you want for me to address?

Again, this is not the presentation ... these are the notes that will form what ultimately becomes the presentation. As I learn more, and receive your feedback, I'll modify the content.

Click here to download the presentation.

Then send me an email (kevinh@minethatdata.com) with your feedback, suggestions, and thoughts.