What Do I Need To Fix Before I Sell?

Here's a short list of things that need to be addressed if you want top dollar from your Private Equity partners.

Customer Acquisition: Your partners do not want to learn that 70% of your new names come from the co-ops. They know what you already know ... that the days of using co-ops to find new customers is over. Sure, you may get new names from the co-ops for 10 more years, but your future demands that you find new customers via low-cost / no-cost methods. Your partners want to know that you have the marketing chops to find new customers without being dependent upon co-ops, Google, Facebook, or Amazon. If you plan on selling in 2019, then you have a very short period of time (18 months) to fix this problem. Get busy, NOW! This was a presentation from eighteen months ago - use it as a starting point (click here).

New Merchandise: Your partners want to feel confident in your merchandising team. You are going to have to demonstrate that your new customers love your new merchandise. If the productivity of new merchandise is sinking, then your partners will have no interest in your brand - who wants to buy a business where customers like the merchandise less and less?? If you want to sell in 2019, then you have a very short period of time (18 months) to fix this problem. This issue and the customer acquisition issue are the two biggest issues that harm cataloger valuation.

No More Discounting:  Your partners want to be reassured that you can sell stuff at full price. If you have to sell at 40% off, you will sell your brand for pennies on the dollar. You fix the discounting issue by fixing the customer acquisition / new merchandise issue.

Five Year Forecast:  Your partners want to see what the growth trajectory of your brand looks like over the next five years. They want to know that your customers are capable of delivering growth if things "remain the same as they remain today". You fix the five year forecast by fixing customer acquisition and new merchandise.

Gross Margins: Your partners want to see that gross margins are improving. Would you buy something that looks less and less healthy over time? You might, but you'd pay pennies on the dollar. Spend 2017-2018 fixing gross margin performance, so that you can extract maximum valuation in 2019, ok?

70%+ Of Business Exists Without A Catalog:  Nobody wants to buy a business that is dependent upon catalogs ... this isn't 1993. You have to prove that at least 70% of your business exists when catalogs disappear, or you won't get anywhere near top dollar. Your buyer will want to cut costs, and you know that. Sell a business that is dependent upon merchandise excellence and not catalogs.

No Chaos: I run across this all the time. Your partners are scared by a business that has chaotic metrics, and as a result, they pay pennies on the dollar to mitigate risk. Spend 2017-2018 executing a consistent strategy. Your partners don't want to see a business with pricing increases and then decreases, customer acquisition increases and then decreases, wild new merchandise swings, wild gross margin changes, you name it, they don't like it. Staffing fluctuations don't help, either. The buyer doesn't want to know you've had three Creative Directors in five years and you can't prove that the decisions had any impact on sales.

Younger Customers:  Your partners want to see that you can acquire a 36 year old customer as easily as you can acquire a 63 year old customer. And your partners don't like it when you lie. Earlier this year, I ran across an instance where a vendor told a cataloger they were generating customers age 35-55 when actual age data told us that the average acquired customer was 60 years old. Enough lying!! If you cannot demonstrate that you can acquire a 36 year old customer, then spend 2017-2018 crafting a plan that you can acquire customers younger than your core customer, ok? The customer doesn't have to be 36 years old, but it wouldn't hurt if you can demonstrate you can acquire customers 5-10 years younger than average at "scale", as the pundits say.

Use this as your starting point. Map your plan for 2017-2018, so that you can generate maximum value in 2019 when you decide to sell.

Question? Email me at kevinh@minethatdata.com.

Another Low-Cost / No-Cost Customer Acquisition Example

Click here, dear readers.

Here's the image from the tweet:

You use a product (a pair of products, really) to advertise how to prepare for a Fantasy Football League draft.

Yes, the tweet says it is an ad - so they apparently paid this NFL writer to tweet this (#influencermarketing). And if you want the grill, it's just $80 (click here).

How much does it cost to execute this strategy? Almost nothing.

Do you have a product that has a unique purpose?

Do you have the slightest bit of imagination?

Yes?!

Then why not Try Something!!

You can do this.


P.S.: I know, I know, you just want to pay Facebook a modest fee and have instant success. Ok then, click here and try out your version of this.

P.P.S.: Read what these two young ladies had to do to push the peanut (click here). My goodness. Again, creativity ... out of necessity. Try Something!

P.P.P.S.: Yes, I get it. You'll have to do 365 of these ideas a year, one idea per day, in order to hit on five or ten. And those are odds you don't want to buck. You can do this! I write more than 250 blog posts per year ... do you think that is easy? It's easier once you get in the habit of doing it. You'll get in the habit of producing a great low-cost / no-cost customer acquisition program. And you'll be rewarded for your efforts!

An Industry On The Ropes

As the kids would say, this is "prolly TL:DR" ... but I'm going to go there anyway.

Something is coming, folks. It's like a weather forecast that verifies across multiple initial conditions across different models.

Here's something I wrote nearly three years ago ... this was the last time went into this topic in-depth ... it's called the co-op feedback loop (click here). In the article, I complained about co-op performance going back to 2012-2013.

Notice the end of the bullet points ... I talked about how the Amazon / Google / Facebook ecosystem would be obliterated by mobile. This didn't happen the way I suggested it would happen ... instead, mobile amplified that ecosystem and cut e-commerce brands off from new customers. Today, if you want a new customer in e-commerce, your choices are Amazon / Google / Facebook, and you will pay a lot for the right to poach customers out of their ecosystem. Didn't evolve the way I thought it would, and it is costing standalone e-commerce brands who can no longer easily find new customers - pushing them to be purchased. There's a reason so many e-commerce companies are selling out right now.

But that's in e-commerce.

Today, I'm talking about catalog brands ... the companies that back in 2010 when I attended Internet Retailer the owner of Internet Retailer said were "like the Confederate soldiers who didn't know that the Civil War was over". Notice that Internet Retailer sold out as well ... now part of a conglomerate where you pay 4x as much for the same content. Snarky commentary about catalogers who helped pay his bills leading to a fat checkbook. See how that works? Internet Retailer sold themselves at a time just before Amazon would obliterate e-commerce. Timing.

Why talk about catalogers today?

Buying and Selling: Private Equity folks looking to buy ... Owners looking to sell. It's in the air. Seriously ... half of my inquiries right now are from people wanting to do one of two things.

1. Buy a Catalog Brand.
2. Sell a Catalog Brand.

Fifty percent, folks. This hasn't happened in the 10+ years I've run my own business.

This isn't my Shark Tank episode of Gliebers Dresses (click here).

Many of the discussions come down to the co-op feedback loop.

• Those who want to buy a Catalog Brand want to know if the company has a credible low-cost / no-cost customer acquisition program.
• Those who want to sell a Catalog Brand want to know how to implement a credible low-cost / no-cost customer acquisition program or make the co-ops work 40% better immediately.

Isn't that interesting?

The catalog co-op feedback look accelerated an industry already on the ropes.

• The Amazon / Google / Facebook ecosystem cut off names < age 45 from the co-op database. The names may still be there, but the transactions aren't, and that is fatal for the co-ops.
• Catalogers, who accepted the co-ops as the primary source of new names 10-15 years ago, did not develop new sources of new customers.
• Catalogers bludgeoned the 6,000,000 - 8,000,000 viable catalog names available via the co-ops, crushing productivity in the process.
• With lower productivity, catalogers could only extend the lifetime value window (hurting profit) or cut circulation (hurting new customer counts). Both happened.
• Because the co-ops hyper-optimized against the 6,000,000 - 8,000,000 viable catalog names, catalogers (indirectly) learned that these names have specific merchandise preferences ... hint - they're the preferences of the Baby Boomer generation.
• Catalogers optimized the merchandise assortment based on what co-op customers liked.
• The optimized merchandise assortment was not appealing to the Google / Facebook / Amazon ecosystem. Consequently, customers < age 45 bounced when arriving at a catalog brand website.
• The result: Catalog brands are fundamentally disconnected from customers < age 45, because of the unanticipated outcomes of the co-op feedback loop.

This is the reason that half of the catalog brands I evaluate are "sick". The cataloger cannot find enough new customers, and paid sources (Google + Facebook + Amazon) yield names that are not interested in a merchandise assortment skewed to a customer age 60+.

This brings us to an interesting question ...

• "It is time to sell?"

The answer is almost always "no", and for good reason.

• "You don't sell your brand for pennies on the dollar."

In other words, we're headed into Fall 2017 with a unique dynamic.

• "It is time to get our businesses healthy, so that when it is time to sell, we sell for top-dollar."

For many of us, it's time to craft an exit strategy (professionally for some, too). Some of our businesses are too sick to be purchased for a fair price. We need to restore the business to health, and we need to demonstrate that we can find new customers at low-cost / no-cost outside of the co-op / Google / Amazon / Facebook ecosystem.

This will be a topic this Fall ... restoring the patient to full health so that when the Private Equity folks call, they call knowing they're going to pay a fair price for your brand.

You can do this!!!!! You can restore your business to health. It's not a hopeless situation. We're talking simple basics, folks. Look at Hollister ... three straight quarters of growth by adhering to the basics. Focus on what matters.

When you need help evaluating your business prior to Private Equity inquiries, you will contact me (kevinh@minethatdata.com), ok?

#HappyMonday!!

Ok, the first tidbit has nothing to do with commerce, but it is a podcast worth listening to if you like poker and Phil Ivey and wonder whatever happened to him ... and pay attention to how these folks tell a story ... could your "brand" tell a compelling audio story?

• A Queen of Sorts (click here).

Here's an image for you ... related to cord cutters. Depicted below are the percentage of HHs by TV content provider. Tell me what you see ...

You can see how "traditional cable" is dying ... ever so slowly. Catalogers went through this dynamic ... the blue portion of the bar is similar to share of demand captured over the telephone ... this graph looks like a graph might have looked in the late 1990s. And we all know how that story ended.

And then we have this one ... about a UK gaming store that is reinventing itself (click here). You can't solve the retail problem via discounts and promotions and pricing strategies. The future of retail is experiences.

Moving right along, I was at a minor league soccer match on Saturday night (gametime temperature = 103 degrees). Look at the right arm of one of the fans.

Yes, your minor league soccer jersey is sponsored by the Mayo Clinic (as were the jerseys of the players).

Now, how much do you think it costs to sponsor a minor league soccer team?

Low-Cost / No-Cost customer acquisition programs ... this doesn't have to be difficult. Do something!

And it is Monday (#HappyMonday), so why not share one more tidbit with you? We're getting eyeglasses fixed on Thursday ... we ask an employee where we should eat, and he says "Cafe Zupas" (click here). Two things to share with you ... look at the chocolate covered strawberry you get with your meal at no cost to you:

And if your phone battery is down to 33%?

Sure you could squeeze two more tables in where the Recharge Bar is, but instead you give the customer a free chocolate covered strawberry and a Recharge Bar and next thing you know some math wonk in Phoenix is writing about it to 2,500 blog subscribers and 6,600 Twitter followers. Low-Cost / No-Cost customer acquisition!!

Try something!

Try something!!

The Brand Isn't Active And Has More Than 20,000 Followers On Instagram

You read this one a few weeks ago, right (click here)? The brand launches on August 25 (next week) ... the brand has been raising customer awareness since March.

Five months of customer awareness work for a brand that hasn't even launched yet.

You know how much customer awareness via Instagram costs?

Not much.

It's another example of low-cost / no-cost customer acquisition ... being a reader, you likely work for an old-school brand leveraging old-school marketing to produce an old-school result.

Is there a reason you couldn't curate a portion of your assortment, based on a demographic analysis of your online shoppers ... and then create a "new brand" based on your analysis ... and then use low-cost / no-cost techniques to build an audience?

Try something!

Well, That's Interesting

About 900,000 "Millennials" are watching 2 minute news shows on NBC's daily Snapchat show (click here).

I know, I know, just opening something doesn't mean the 26 year old watched it from start to finish.

Low-Cost / No-Cost acquisition ... it's the story we need to keep addressing.

Seriously - how much would it cost you to produce a two-minute daily video news update of what is happening in your industry? It costs nothing. You already have staff sitting there wishing they were doing something innovative. So go do something innovative.

And do this EVERY SINGLE DAY for TWO YEARS. Don't give up. Do stories about the news in your industry. If you don't like Snapchat, publish the stories on YouTube. If you don't like YouTube, then post them on your website. I don't care. But do the work!

Events

Take a look at the line outside of the store.

It's 102 degrees at 5:49pm in Glendale, AZ. And they're standing outside, waiting to get into a VIP event where they can save $30.

How many of your customers would stand outside in 102 degree heat at 5:49pm on a Sunday evening in Late Summer ... to support an event you hosted?

We went in the wrong direction.

We invested our energy learning how to target a customer (and didn't do a good job) ... with CRM and then "Social CRM" and then "Personalization" and then "Engagement" and then "Content" followed by "Relevancy" we built a series of skills ... and we spent the better part of a decade honing these skills.

One problem.

We spent almost no time on creating events that people would spend time standing in line for in 102 degree heat at 5:49pm on a Sunday night in Late Summer.

Be honest - look at your job ... how much time do you spend on technical skills ... and how much time do you spend creating events that cause people to stand outside on a 102 degree Sunday evening in Late Summer?