Customer Experience

The omnichannel thesis, a thesis that failed in an epic manner, has been rebranded as ... the "Customer Experience".

One can look to Macy's to see how everything played out and now see how the thesis has evolved. Go read their annual reports, their 10-K statements (click here) ... you do this for all publicly traded companies in your industry right? Right??

I counted how often the phrases "omnichannel" and "experience" have been used in their annual reports. The counts tell us something about the rebranding of the failed omnichannel thesis.

2006 Annual Report = First Reference of "Multichannel" ... the original phrase that didn't work and had to be rebranded as "Omnichannel".

2009 Annual Report:

• 0 Mentions of Omnichannel, 15 Mentions of Experience.
• Sales = $23.5 billion.

2010 Annual Report:

• 9 Mentions of Omnichannel, 22 Mentions of Experience.
• Sales = $25.0 billion.

2011 Annual Report:

• 11 Mentions of Omnichannel, 20 Mentions of Experience.
• Sales = $26.4 billion.

2012 Annual Report:

• 30 Mentions of Omnichannel, 22 Mentions of Experience.
• Macy's brazenly calls itself "America's Omnichannel Store".
• Sales = $27.7 billion.

2013 Annual Report:

• 26 Mentions of Omnichannel, 23 Mentions of Experience.
• Sales = $27.9 billion. Oh oh. Growth is Ending.

2014 Annual Report:

• 31 Mentions of Omnichannel, 21 Mentions of Experience.
• This is "Peak Omnichannel".
• Sales = $28.1 billion.

2015 Annual Report:

• 23 Mentions of Omnichannel, 22 Mentions of Experience.
• Labels annual report as "Agility to Adapt", introducing another failed buzzword.
• Sales = $27.1 billion. If omnichannel was so successful, why are they mentioning it less and why are sales now in decline?

2016 Annual Report:

• 23 Mentions of Omnichannel, 32 Mentions of Experience.
• Sales = $25.8 billion. Sales in the omnichannel era are now down 10%.

2017 Annual Report:

• Just 12 Mentions of Omnichannel, 36 Whopping Mentions of Experience.
• Sales = $24.8 billion.

"Peak Omnichannel" was 2014 ... sales of $28.1 billion.

In 2018, "Experience" is mentioned 3x as much as "Omnichannel" ... the branding is complete and done for a good reason ... sales are $3.3 billion (yes, BILLION) less in the three years after "Peak Omnichannel" happened.

When you listen to the "Customer Experience" thesis, you hear the same nonsense that you heard in the "Omnichannel" thesis ... great seamless/frictionless experiences across channels ... integrated marketing campaigns ... 360 degree views of the customer ... blah blah blah.

Your job is to sell stuff ... not to adhere to a vendor-driven thesis that used to be called Multichannel and then was called Omnichannel until Omnichannel brands saw horrific sales declines and then was rebranded as Customer Experience because nobody can argue with providing a great Customer Experience, right?

As a new Marketing Leader, you have to make a choice.

• Do you follow the failed vendor-driven Multichannel / Omnichannel / Customer Experience thesis that has to be rebranded every five years because it doesn't work?
• Do you follow the "Great Eight" and come up with a credible plan for your specific business?

Get the booklet for $0.99 (click here) and get started doing the latter.

Boxing Day: A Letter From Roger Morgan About Omnichannel Strategy

In honor of Boxing Day, I am turning my blog over to Roger Morgan, the Chief Operating Officer at Gliebers Dresses. Mr. Morgan would like the opportunity to chat a bit about the omnichannel movement that is sweeping the marketing landscape.


Dear Marketers:

My name is Roger Morgan. You probably already know that I am the Chief Operating Officer at Gliebers Dresses, most likely from the numerous thought leadership white papers I've written during my tenure at New Hampshire's 44th largest Catalog company.

Mr. Hillstrom was kind enough to give me an opportunity to share my thoughts with you on the burgeoning movement known as "omnichannel". We've had a long and productive relationship with Mr. Hillstrom. Like many industry resources, we've paid Mr. Hillstrom a lot of money over the years, but never really got around to implementing his findings. I guess our circumstances are just fundamentally different than those experienced by other companies. You have to understand, our business model is unique, and the way we do things makes us different. You can't just plug a "strategy" into our business model and expect it to work.

But omnichannel is different. You can plug omnichannel into a business like ours, and you can expect it to work. Simply put, according to a $1,795 thought leadership essay my company purchased from Woodside Research (a report commissioned by the Global Retail Federation, no less), omnichannel is defined as an "Everywhere Experience", or "EE". Omnichannel means that brands (like Gliebers Dresses) must provide a uniform experience everywhere, in order to meet consumer demand. 

I know Mr. Hillstrom is very tough on omnichannel. He is wrong. Is it wrong to only sell, say, online? Should you limit the number of marketing channels you utilize? Stop using retargeting? Stop using email marketing? Stop using affiliates? Stop using comparison shopping engines? Should a retailer ignore online channels and only sell in stores? And what about mobile? Should we all just ignore it because Mr. Hillstrom says your sales will simply cannibalize themselves? Ask Apple. It's better to cannibalize yourself than to be cannibalized by the marketplace.

Mr. Hillstrom is wrong. No offense to him and his blog, of course, I'm grateful for this opportunity. But he is wrong. And I, through everything I've learned from Woodside Research and a handful of trade journalists, am likely to be right.

Think about Barnes & Noble, for instance. Their "bricks 'n clicks" strategy allows the customer to browse a book while sipping a double tall mocha at the Starbucks store within a Barnes & Noble store. That's "bricks and bricks and clicks"!!  Or, if the customer is so inclined, the customer can purchase the book digitally on a Nook device, and have the book delivered instantly. Why would a customer ever buy from Amazon once they're locked into a sound omnichannel bricks 'n clicks strategy like the one offered by Barnes & Noble? Am I right? Of course I am right.

Heck, the customer could buy the book online, and then drive to a store and pick the book up. Or if the book was not available in the Manchester store, the customer could reserve the book in the Manchester store, drive to Nashua, and pick up the book in Nashua, and then drive home happy. Who doesn't like chasing from store to store to find a book, even though the competition could send a book instantly and groceries the same day? 

Having a seamless inventory system is critical to omnichannel success.

And we know that omnichannel works, because everybody is doing it.

Pioneers like Circuit City created the "buy online, pickup in store" model that is so critical to the development of the omnichannel thesis. Of course, capitalism is ruthless, so much in the same way that MySpace paved the way for Facebook, Circuit City paved the way for brands to, as I like to say, "reap the rewards" of a solid omnichannel foundation. First movers do not always experience the upside they generate for those who follow.

We're at a point now where brands must follow the omnichannel thesis, or brands are dead.

Yes, dead. There. I said it.

I like to point to Coldwater Creek as an example of omnichannel strategy. See, Coldwater Creek was an early mover in the omnichannel frontier. They went public, they built stores, the shifted catalog marketing dollars into retail marketing. But that's not enough. Coldwater Creek failed to go "all-in". They needed to move all of their chips into the middle of the table. Had they done that, Coldwater Creek would still be here today, and Sand Point might well be the omnichannel commerce capital of Northern Idaho.

See, the omnichannel thesis can't be wrong. Only brands lacking vision implement inferior omnichannel strategies. If a brand was willing to simply implement an omnichannel strategy, as outlined by research brands, consultants, trade journalists, and conference organizers, the brand would experience an outsized return on investment. It's guaranteed. But brands don't listen. Brands have siloed reporting relationships that limit their ability to execute as the experts tell them to execute. You cannot have siloed reporting relationships. The information technology team must work closely with marketing. Marketing must work closely with inventory management. Inventory management must work closely with creative. Creative must work closely with finance. In fact, all of these functional areas should be in the same silo, all executing the wishes of the Executive Vice President of Omnichannel Strategy, or in my case at Gliebers Dresses, the Chief Operations Officer. All departments, in fact, should report to this individual. In some ways, the CEO should report to this individual. It's just that important. Omnichannel turns the whole organizational structure upside down.

Some days, I look at Mr. Glieber, and I tell him the following ... "Mr. Glieber, TEAR DOWN THAT SILO". Then I'll tell him that omnichannel strategy is a lot like free marketing. Mr. Glieber loves free marketing.

But my company, like most others, is held back by Luddite thinking. We have a Marketing Executive who wants control over the integration of catalog and online marketing. She won't allow an Operations executive with considerable experience to even recommend an idea, much less an idea guaranteed to work. She'd rather sit in her silo and deal with her area of accountability. We have a Chief Financial Officer who counts beans all day - she's thoroughly unwilling to make the enormous and disproportionate financial commitment required to meet the omnichannel desires of the vendor community (and the customer). She's completely unwilling to borrow money to bet on a sure thing. We have a Chief Merchandising Officer who cannot understand that if we only sold in an infinite number of channels, our sales could potentially be infinite. It's simple logic, folks.

We must look to Macy's, known only as "America's Omnichannel Store", as a shining beacon in an otherwise tepid bath of omnichannel failure. They are laying down the Oregon Trail of the 21st century. Ignore the naysayers who point out that Macy's posted negative comps in November. Omnichannel works. Without Omnichannel, Macy's might be posting -40% comps. Point a finger at their merchandising team, and demand that the merchandising team pick up their game, if you want to blame somebody for negative comp store sales in November.

Mobile is the next biggest frontier in the Omnichannel forest. Remember, almost all brands failed to implement social media properly. Some people, including the host of this blog, suggest that if you are not marketing to a customer under the age of 30, you will not generate more than 1% of your sales from social media. That's just wrong. It's lizard logic. The reality is that almost all brands fail miserably to capitalize on the pot of gold known as social media. Brands are wrong, the omnichannel thesis is right. But I digress. Brands need to be first-movers in the mobile sphere, or risk tasting the rusty obsolescence that brands like Coldwater Creek choked on. I don't care if your customer is 87 years old and is looking to purchase a walker, that customer is looking to purchase a walker on a five inch screen while using 4G connections at 20mbps. And then the 87 year old is checking in on Foresquare after following GPS directions on his smart phone. That's how "the customer" behaves. Mobile is the next frontier, and an appropriate omnichannel strategy includes a strong social media presence fueled by real-time mobile customer interaction and an expanded use of Big Data. More on that subject another time.

Does Gliebers Dresses deliver on the omnichannel promise? Absolutely not. We have too many old-school thought deniers to make the progress we need to make. If we do not make progress, we, too, will be out of business. I'd hate to be my co-workers on the Executive Team I am part of - they won't be able to get another job if we go out of business. I, however, will be just fine, having been on the forefront of the omnichannel movement.

Readers, I am literally begging you to get on the omnichannel bandwagon. Won't you join me on this thrilling ride through the landscape of the omnichannel movement?

Thank You,
Roger Morgan
Chief Operating Officer
Gliebers Dresses
roger.morgan@gliebersdresses.com

An Open Letter To Omnichannel Advocates

Dear Omnichannel Advocates:

It's been an amazing couple of years.  In that time, you invented terms like "omnichannel" and "big data".  Both terms require each other, and therefore, require the purchase of research reports, attendance at conferences, and finally, expensive software installations that require consulting services to retrain employees who spent a lifetime dealing with "small data".  All of these purchases and services benefit the omnichannel advocate.

You frequently follow a compelling narrative.  You present a complex array of customer behavior, one that seems almost unmanageable.  You present us with a customer possessing nearly limitless sophistication.  She begins with search, visiting websites, conducting research.  Or maybe she receives a catalog or a personalized and highly relevant email campaign that drives her to a website.  Regardless, our intrepid customer, with considerable time and resources at her disposal, eventually drives to a store to physically look at merchandise.  This is a key inflection point in the purchase process.  In the old days (2010), the customer would buy something in-store.  But in modern times (2012), the customer "showrooms", she pulls out her mobile device, browsing for cheaper prices and social media reviews, dodging retargeting strategies by competing retailers via display ads.  With luck, the customer chooses an omnichannel brand utilizing big data to "be everywhere" the customer is.  At worst case, the customer buys from Amazon, an outcome more devastating than the customer buying nothing.  The narrative ends with a terrifying view of the future, one where "brands" that fail to adopt an omnichannel framework are destined for the scrap heap of history, destined to become the next Montgomery Wards, while Amazon continues an unstoppable rampage through the commerce landscape.

When you mix big data and fear in a marketing blender, you get "omnichannel".

Most important, you put the reader at a knowledge disadvantage.  The poor reader works at Ann Taylor, he certainly isn't leveraging big data, and even though his business is profitable, he is, according to the narrative, failing miserably, and is just a few years from being out of business.  He only possesses a series of legacy reports that are downloaded into Excel, reports that only tell him what sold, and when it sold.  He can't possibly see that his customer is researching alternatives on Facebook.  He has no idea that a competitor is offering a comparable product at 20% off.  His search reporting is terrible.  His direct mail efforts are feckless.  His marketing efforts are in silos across the company, not coordinated, not integrated, not effective.  He's about to lose market share to Zappos, a division of Amazon.  He'll be out of business in three years.  Everything he does has been pronounced "dead".

The reader is told that this problem can be solved by being "omnichannel".

I have a few questions for you, the omnichannel advocate.

• You promote an omnichannel strategy.  And yet, Amazon is anything but omnichannel.  Amazon is not "social" in the way that Best Buy (Twelpforce) is social. Amazon is not in retail.  Amazon does not leverage offline advertising in a scalable way.  Amazon does not leverage direct mail in an effective way.  But Amazon is systematically crushing companies that leverage various elements of the omnichannel strategies proposed by omnichannel advocates.  How do you explain the fact that Amazon essentially does the opposite of your proposed strategy, and easily defeats companies employing various iterations of your strategy?  And you can't answer "they avoid collection of sales tax", since brands that are forced to collect sales tax after being tax-free rarely see a measurable drop in sales once sales tax is collected.

• How do you reconcile the fact that you believe customers are "omnichannel", and yet, when you actually mine customer data, the majority of customers have a single-channel preference that doesn't often change? Have you actually done the analysis, or are you reciting survey data from research organizations?  Discuss.

• What proof do you have, today, that a "brand" that fails to adopt an omnichannel strategy will be out of business in the near future?  Please provide simulation results that demonstrate how Ann Taylor or Chicos will be driven out of business, soon.  In fact, if you provide links to the simulation results in the comments section, I will publish your simulations in a future blog post. 

• How do you explain companies like One Kings Lane, who go from $0 to hundreds of millions of dollars in annual sales in just a few years, by employing discount-based curation strategies that are largely independent of the omnichannel strategies you demand retailers participate in?  One can make a strong argument that One Kings Lane operates independent of the omnichannel strategies folks are proposing.  Do you have a case study of a business employing an omnichannel strategy, one that yields a sales increase over two years of several hundred million dollars?

• This year, JCP changed a pricing strategy, and saw sales drop by 15%.  In other words, we know that pricing strategies are critically important to the customer.  If pricing strategies account for a +/- 15% change in net sales, how much do your omnichannel big data simulations suggest that omnichannel strategies impact net sales? 0%?  2%?  12%?  22%?  32%?  Please show the data that illustrates or is used to simulate the sales increase you estimate.

• You claim that "showrooming" is a huge problem.  Have you stood in a Best Buy store and physically calculated the percentage of customers who pull out a mobile device and actively showroom in the store?  Have you segmented those who actually perform this activity by age cohort?  In the comments section of this post, please publish your findings.

• You consistently claim that "best customers do everything", and therefore suggest that best customers are omnichannel, and then make the leap of faith that if a retailer becomes "omnichannel", the retailer will cause average customers to become more likely to behave in an omnichannel manner, like best customers behave, thereby causing unfettered sales increases.  Please show the data mining results and/or simulations that demonstrate that a once-a-year buyer will become far more likely to spend more if the retailer advocates an omnichannel strategy that appeals to best customers.  Please provide a link to your research in the comments section of this blog post.

• If you were going to start a business from scratch, today, would you start a business with a fully integrated omnichannel strategy that includes direct mail and websites and social media and mobile and retail stores and online marketing, or would you start with a merchandising concept employed within limited channels (Amazon, Zappos, One Kings Lane, eBags, Chasing Fireflies)?  If your instinct suggests the latter, why do you advocate the former?

• Explain how Apple, with no tangible social media strategy, outperforms companies that fully leverage a social media strategy in the spirit of the ominchannel framework you advocate?  If your answer is "product" or "merchandise", then why shouldn't businesses prioritize product over channel strategy?

• You frequently advocate an integrated marketing/merchandising/creative organization, where all decisions are made by a centralized organization, providing one coherent representation of the brand.  You frequently advocate the elimination of what you call "silos".  Prove that your style of organizational structure leads to a healthy increase in annual sales and profit, and provide links to the case studies or simulations that demonstrate that your ideas lead to a 10% or better annual sales increase.

• Describe why retailers must integrate all marketing activities within one department via the elimination of silos, but your organization frequently operates within the context of silos (sales, marketing).  Why is your organization allowed to have silos, but the solutions you sell require the client to have full integration of marketing activities?

• Yes, I understand, there's a lot of data, and when it is braided together across fifty channels, you have the potential for a wonderful CRM-fueled situation where a customer tweets about a problem with an iPad and seconds later a vendor provides a solution to the customer.  But that capability existed four years ago, in real time.  And that capability existed thirteen years ago in email, just not in real time.  Why do you believe the customer demands that this capability exist as part of a seamless experience, and you believe that during the multichannel era the customer also demanded a seamless experience, and yet, for more than a decade, the promise has not been realized?  The technology existed.  The customer allegedly wanted it.  Why didn't it happen, and why do you think it will be different this time?

• We were told 5-10 years ago that retailers would be out of business if they didn't employ multichannel strategies.  Most retailers did not employ multichannel strategies as advocated by the vendor community, and survived nicely.  And companies that did employ multichannel strategies (Borders, Circuit City) are out of business.  Please reconcile these inconsistencies, and then discuss if similar inconsistencies may exist for retailers who do/do not employ omnichannel strategies.  Furthermore, if there are other reasons that cause businesses to succeed/fail, how important are those reasons in comparison to being "omnichannel"?  Should the retailer focus on other issues instead, if resources are limited and other issues provide a greater return on investment?

• You demand that email be part of an omnichannel strategy, and advocate that "email relevancy" is a critical step in the success chain.  When was it acceptable for email marketing to not be relevant?

• We keep hearing that social media is a huge component of big data and omnichannel.  And yet, unless you're a startup catering to an under-30 audience, social media never accounts for more than a couple of percentage points of annual sales, total.  Please explain why social is a critical component of an omnichannel strategy, when 95% of businesses with sales over $20,000,000 generate almost no sales whatsoever from social media, even those who apply all possible best practices to the craft?

• Catalogers were told they had to become "multichannel" or they would die.  They became multichannel.  They were told that catalogs drove orders to other channels.  However, by keeping the catalog "in the mix", most catalogers maintained their traditional audience and as a consequence, did not relate to a younger audience.  Today, most catalogers have an age discrepancy that disconnects them from the average consumer, now catering to a 55+ rural audience.  Since omnichannel is just an extension of multichannel, are you advocating a circumstance that will cause companies employing an omnichannel strategy to eventually serve an older-than-average customer?  Does your strategy potentially damage the customer files of businesses that employ an omnichannel strategy, given what we already know about the evolution of the catalog multichannel customer?

• Often, multichannel advocates use campaign results to prove that integrated omnichannel marketing campaigns work.  However, annual results (repurchase rate, orders per buyer, items per order) seldom change.  How do you reconcile the fact that your omnichannel campaigns change weekly customer behavior but do not change annual customer behavior?  And if omnichannel campaigns do not change annual customer behavior, then why employ them?

• The promise of "big data" in an omnichannel framework is that artificial intelligence will detect customer behavior unseen by humans, thereby eliminating the "gut feel" and "instinct" that historically drove business success.  And yet, the artificial intelligence that is used in a "big data" framework is not fundamentally different from the artificial intelligence used for the past twenty years by "small data" practitioners.  Why do you believe that the same methodologies that have been largely ignored by non-geeky business-focused individuals for twenty years will suddenly be embraced by non-geeky business-focused individuals within a big data framework?

Of course, omnichannel is important.  I am asking you to separate the importance from the facts that prove it is important.  Please provide proof in the comments section.  And by proof, I don't mean a Woodside Research report projecting what the world will look like in 2016, and I don't want the results of a one-off campaign executed over a two-week period of time in late 2011.  I want actual proof, or the simulations that lead to the possibility of proof.  If you're defending omnichannnel/big-data, then you are a data person, so go get the data!!! 

I will publish credible responses on this blog on Wednesday morning.

Thanks,

Kevin

2014 Year In Review: How Omnichannel Will Impact Retail Markets

This question came to me from one of our loyal followers:

Question: How will omnichannel be bad for a retail market? We are creating new markets (e-commerce, mobile, social), and that will yield more customers. Omnichannel will result in sales growth, not in a sales decline. How can you miss this simple fact?

In order to understand how omnichannel will play out, we have to understand how profit impacts Executive decisions. In order to do this, we need to look at a retail market over time, and we need to understand what happens to a retail market when a store closes.

Ok, let's evaluate a retail market ... let's pretend that you have two stores in Des Moines, Iowa. Let's compare the market in 1995, and then in 2015.

In 1995, we observed the following:

• Store #1 = $1,600,000 sales.
• Store #2 = $1,200,000 sales.
• Total Sales = $2,800,000.
• Gross Margin = 35%.
• Contribution = $980,000.
• SG&A = 25% of sales, or $700,000.
• Earnings Before Taxes = $280,000 ... 10% of net sales.

Now, in 2015, marketing conditions changed, obviously. This market now generates 20% of sales via e-commerce. Retail comps are up about 10% over the past twenty years, but skewed to Store #1 ... Store #2 is in a retail location that is not as "upscale", so-to-speak.

• Store #1 = $2,080,000 sales.
• Store #2 = $1,000,000 sales.
• Total Sales = $3,080,000.
• Gross Margin = 35%.
• Contribution = $1,078,000.
• SG&A = 25% of sales, or $770,000.
• Earnings Before Taxes = $308,000 ... 10% of net sales.
• E-Commerce = $616,000.
• Gross Margin = 35%.
• Contribution = $215,600.
• SG&A = 20% of sales (less than in retail), or $123,200.
• Earnings Before Taxes = $92,400.
• Total Market Sales = $3,696,000.
• Total Market Profit = $400,400 ... 10.8% of net sales.

On the surface, it looks like everything is better. The market had a 32% sales gain over 20 years, profit dollars increased, and profit percentage increased.

However, somebody in the Finance department is looking at individual store profitability. They don't like Store #2, and for good reason. That store generates $350,000 of gross margin dollars, but has an SG&A of $335,000. Store #2 is essentially at break-even. And if trends continue, this store will be unprofitable.

So as the business becomes increasingly "omnichannel", the lowest performing stores are exposed as being unprofitable. These stores will be closed.

It's been my experience that when a store closes in a multi-store retail market, between 60% and 70% of the sales at that store disappear. They're gone. In a single store market, between 70% and 85% of the sales at that store disappear.

In our case, let's assume that 70% of the sales in Des Moines Store #2 disappear, if the store is closed. 30% of the sales will remain ... 15% will transfer online, 15% will transfer to store #1. Now let's evaluate what the market looks like:

• Store #1 = $2,080,000 + $1,000,000*0.15 = $2,230,000 sales.
• Store #2 = $0 sales (store is closed).
• Total Sales = $2,230,000.
• Gross Margin = 35%.
• Contribution = $780,500.
• SG&A = $450,000 (some of the expenses in Store 2 move to Store 1, not much).
• Earnings Before Taxes = $330,500 ... 14.8% of net sales.
• E-Commerce = $616,000 + $1,000,000*0.15 = $766,000 sales.
• Gross Margin = 35%.
• Contribution = $268,100.
• SG&A = 20% of sales (less than in retail), or $153,200.
• Earnings Before Taxes = $114,900.
• Total Market Sales = $2,996,000.
• Total Market Profit = $445,400 ... 14.9% of net sales.

Do you see what #omnichannel does to the Des Moines market?

• Omnichannel resulted in market growth from $2.8 million to $3.7 million.
• However, omnichannel rendered the weak store unprofitable. Once the unprofitable store is closed, sales drop from $3.7 million to $3.0 million.
• The store closure improves profitability from $400,400 (10.8% of sales) to $445,400 (14.9% of sales).

On the surface, omnichannel will result (has resulted) in sales increases. Folks love this.

But omnichannel exposes unprofitable store locations. Sales are shifting from low-performing stores to high-performing stores. Sales are shifting from commodity items in stores to commodity items in e-commerce.

When low-performing stores are rendered unprofitable by omnichannel, they will be closed. When these stores are closed, only a fraction of the sales are recouped. However, company profit will increase.

Over time, omnichannel will expose low-performing stores, forcing them to close, causing an actual sales drop coupled with a profit improvement.

What omnichannel is doing, then, is exposing the fraction of your retail sales that are truly generating break-even or worse performance. Omnichannel will then, ruthlessly, cause low-performing stores to close. At that time, e-commerce will not make up the difference, causing a sales decline and a profit increase.

Omnichannel's logical outcome is the ruthless elimination of unproductive and underproductive and unprofitable retail sales.

Omnichannel: Are #Omnichannel Customers Truly More Valuable?

The most popular meme in retail is "omnichannel".  The theory posits that by aligning all channels around the customer, by creating a consistent experience across all channels, by tearing down silos inside organizations, by integrating a digital experience in-stores and online, by fully integrating mobile into the customer process, retailers get to reap the rewards of a customer demanding a fully holistic purchase experience.

You'll have to look hard to find any researcher or vendor who has proof that this strategy leads to a dramatic increase in profitability.

Here's how the argument begins.  We're told that omnichannel buyers, those who purchase from many, many channels, are much more valuable than single channel buyers.  Researchers cite this table as proof - here's what the data typically looks like:

This is where the research ends.  A simplistic query is run, and of course, there's clear proof that customers who shop many channels spend much more than customers who only shop a small number of channels.  In this query, 0-3 month buyers were chosen.  Then we measure historical channels purchased from, and we measure how much customers spent, historically.

Clearly, omnichannel matters.

Or does it?

Researchers need to go one step further, don't they?  Given that a customer is an omnichannel customer and has the same frequency as a single-channel customer, can we prove that omnichannel leads to increased future spend?

This table measures repurchase rates in the next month, after controlling for historical frequency, and for historical number of channels purchased from.  We're still evaluating 0-3 month buyers.

What do you observe, in this table?

Look at a customer with 6 life-to-date orders.  Read across the table ... these are customers who purchased from 1, 2, 3, 4, and 5 historical channels.  The customer buying from 5 historical channels should be much more valuable than the customer buying from 1 historical channel, correct?

But that's not what we observe.

In fact, you have to get to 10 historical orders, and 5 historical channels, before you start to see an increase in future repurchase rate.

Let's look at future spend, not future repurchase rate.

Average spend (no repurchase = $0, averaged with those who do repurchase) illustrates that there is some incremental value to getting a customer to purchase from multiple channels.  Read across the Life-To-Date Orders = 6 row.  You see that four channels are better than 1-3 channels ... mind you, only 20% better, but it's still better.

But there are quirks, aren't there?  Read across the Life-To-Date Orders = 3 row.  Here, buying from one channel is better than buying from three channels.  Read across the Life-To-Date Orders = 2 row.  Here, buying from one channel is better than buying from two channels.

For this retail brand, when a customer is early in the life cycle, omnichannel behavior is counter-productive.

For this retail brand, when a customer is deep in the life cycle, omnichannel behavior is more productive, but only 15% - 25% more productive, not 7 times more productive as is commonly published.

Run these queries for your business.  Seriously, go run them.  You'll see similar results.  Of course, your mileage will vary.

If your results look something like what I've illustrated above (hint - they will look similar to this), then there are a whole bunch of interesting strategic questions that need to be asked.

Strategic Question:  If most of my customers have 1-3 historical purchases, and the gains promised from omnichannel come from customers with 10+ historical purchases and 3+ historical channels, and the gains are in the 15% - 30% range (not 700% or 800% as promised in omnichannel literature), then of what benefit is an omnichannel strategy?

Strategic Question:  If the gains are in the 15% to 30% range, wouldn't I be better off investing in 1 new customer, so that I have 2 customers, than to re-arrange every process in my company so that I have 1 customer spending 15% to 30% more - only if the customer makes it deep into the life cycle?

Strategic Question:  If the payback of an omnichannel strategy is 15% to 30%, only among the 5% of customers who ever make it deep into the customer life cycle, then why should I tear down all silos in my company and work terribly hard to integrate all of my processes around digital channels?

Strategic Question:  What do Forrester Research, IBM, HP, and any other vendor promoting omnichannel integration have to gain by getting you to reinvent your entire business around a concept that only pays back 15% to 30% among the 5% of your customer audience that is deep into the customer life cycle?

Use the comments section to offer your thoughts.  Provide links to research that complements or refutes the information presented here.

And if you're looking for help determining if omnichannel is right for your retail brand, click here to email me, now!!

So What Is The Right Definition?

Way back in 2001/2002, I was given this image by a print rep ... the image offered "proof" that multichannel marketing was the preferred strategy. I recall the print rep advocating that companies that did not merge paper & physical stores and the internet were essentially dead.

How did the "bonanza" work for you?

About five years ago, a major researcher proclaimed that multichannel was dead (thanks for demanding that everybody adopt a multichannel business for a decade prior), and was about to be replaced by something called "omnichannel".

Since then, the same arguments have been used - just rebranded. Everytime an e-commerce brand announces that a store is opening, it's listed as "proof" that omnichannel works (as opposed to the reality that maybe, just maybe, the e-commerce business is running out of digital growth opportunities). In other words, to some, omnichannel is the reinvention of the venn diagram above.

To others, omnichannel means "seamless commerce". This is a very reasonable interpretation. I can support making it easy for a customer to shop where she wants, how she wants. The challenge with this interpretation is that it is expensive to align all channels along the vision of this sect of the omnichannel community. Not only is it expensive, but this sect of the community often acknowledges that there won't be a sales gain, once the vision has been fulfilled. The problem, then, is that the in-brand employee must spend money but should not expect a return on investment. That's a good way for the in-brand employee to get fired.

There's another omnichannel community - this one argues that the customer touches a dozen digital channels before buying merchandise. In the customer acquisition phase, this is undoubtedly true. I've analyzed the data - repeatedly. The customer is visiting your site five times over seven days, is using Google & Facebook & Pinterest to comparison shop. In this sect, the omnichannel advocate argues that you must spend money on digital advertising, in an effort to capture the sale. In other words, you must spend digital dollars to prevent the customer from buying from somebody else. This is a tough argument as well, because when everybody spends digital dollars, sales grow at the rate of inflation, but ad dollars increase, meaning that only the digital omnichannel vendor community benefits.

Finally, there's a fourth omnichannel community - the "data" community. This sect argues that you use data to be "smarter". The data must be collected across silos, and must be collected in an aggregated form across the internet - meaning that those who aggregate data will get paid. This faction of the omnichannel community piggybacks on the "visiting a dozen digital channels before purchasing" faction, offering to reduce tolls within that community by increasing tolls within the data community.

Those are four of the leading interpretations of omnichannel. None is right, none is wrong. The only thing that is certain is that each sect wants your money. The only problem is that, outside of a few cases, you won't experience an increase in return on investment.

This is why Merchandise Productivity is so important. When you grow merchandise productivity by 10% (easily achievable), every one of the omnichannel factions listed above benefit. The vendor community should demand that you increase merchandise productivity - it's the easiest way for vendors to grow their business.

So what is omnichannel, anyway? Your thoughts?

Knowing The Answer

You know, sometimes we just "know the answer".

And yet, we want proof. 

Take the whole omnichannel movement, for instance. Everywhere you look, we're told that you have to be omnichannel, or you're "dead".

Ooooooooh ... "dead".

Apple completely ignores social, and they steamroll the competition.

Amazon didn't choose the catalog marketing path, and destroyed catalogers in the process. How is that possible when catalogers had a "multi-channel edge" over Amazon?

Best Buy has a major competitive advantage with stores, and yet, customers willingly choose to buy elsewhere - from businesses that do not have stores (Amazon). Why would a customer ever buy from Amazon when the same merchandise is available in a Best Buy store and on the Best Buy website at the same price - wouldn't the power of omnichannel trump Amazon?

When you question omnichannel strategies, you get that stale, blank stare that confirms you are an idiot!

Except, almost no businesses that are lauded as omnichannel pioneers experience breakthrough sales. I know, I know, there's John Lewis in the UK, they're all about omnichannel ... except, of course, that while everybody cheers them on, they grow at a compound annual rate of 6% (click here). In other words, the best level of omnichannel performance cited by the experts is double the rate of inflation. #Omnichannel! And Macy's, "America's Omnichannel Store" as they call themselves, is growing at just over 2% over the past seven years, +/- the rate of inflation. That's what you get for being omnichannel?

Meanwhile, Amazon, without the bricks 'n clicks advantage, without catalogs to boost sales, quadrupled sales in the past six years.

Oh.

How do you explain that?

We have decided, for no good reason whatsoever, that omnichannel is the secret sauce that fuels our ecosystem. There isn't evidence (sales) that omnichannel trumps a sound merchandising strategy. Why don't we simply provide a great shopping experience complete with outstanding merchandise that customers must have, merchandise that cannot be found elsewhere?

Oh, that's hard to do? Alright.

Sometimes, we already know the answer. We just want to believe that we're doing something important - "it's not our fault".

Read the comic above. The store isn't working, nobody is shopping in it, and yet, the owner wants to perform an analysis. Sometimes somebody just needs to stand up, to "step up", and state the obvious.

Sometimes, we know the answer.

Why Is Allowing The Customer To Shop However The Customer Likes Terrible Advice?

I received a comment from a reader named "Claire" ... here is the comment, a comment that deserves a standalone blog post:

• Can you expand on your comment? Doesn't "omnichannel" allow customers to shop however they like? What was the terrible advice?

Here, then, is my reply.

On the surface, it sounds like the best advice one could ever receive. It sounds like simple common sense.

You probably know about the history of the term "omnichannel", right?  It goes back to Forrester Research, back in the 2009-2010 timeframe. A researcher wrote a blog post saying that "multi-channel was dead". The author said that the advent of digital channels would change how customers shopped, requiring retailers to expand the multi-channel thesis from online/stores/catalogs to include all digital channels. The author recommended that the retail organization be everywhere, because the customer is everywhere. There would be no such thing, in the eyes of the customer, as a store or website or mobile experience or social ... there was the brand, and there was the customer. Period.

That was the genesis of the movement. It wasn't a movement created by actual retail brands. It was a movement astroturfed by a research brand. If you are a Forrester subscriber, go find the article from the 2009-2010 timeframe.

The thesis was carried forward, then, by vendors. Not by retailers, mind you. Vendors. Vendors who figured out they could make money off of an omnichannel thesis. Database providers profited by linking data across all channels. Retargeters, search vendors, affiliates, social vendors, email vendors, mobile advocates, they all benefit by telling a story that the customer is doing "everything". So they told the story. Over and over and over again, until retailers believed the story. They used highly misleading tactics like suggesting that an omnichannel buyer was nine times more valuable than a single-channel buyer, and therefore, all retailers will get rich by building a database full of omnichannel buyers. The queries were highly biased and highly inaccurate (segment five year buyers by number of channels purchased from and then count number of purchases ... well, to get to nine purchases, you by default will touch six channels ... this does not mean that omnichannel caused the customer to be more valuable ... instead, the customer is simply valuable and therefore touches all channels. Our industry simply cannot understand the bias in the query, and therefore, made terrible decisions based on a bad query and a misunderstanding of customer behavior).

Macy's was the first to publicly embrace the story ... going so far as to call themselves "America's Omnichannel Store" three years ago ... they claimed the title in their 10-K annual report. Nordstrom, while far more humble, followed elements of the playbook as well.

By 2013-2014, many retailers were looking for growth opportunities, so the thesis that allowing customers to shop however they like sounded very seductive. Customer wants to shop online? Great! Customer wants to browse online then buy in a store? Fantastic! Item is sold out in a store so the store ships the item to the customer? Wow! Customer touches Facebook and various websites where retargeting tactics are applied and then searches on Google and receives email marketing campaigns and visits an affiliate for a discount? Perfect - pay everybody for the right to earn that order, everybody wins!

One problem.

What is the customer going to purchase when the customer shops however they like?

Let's compare Macy's / Nordstrom to, say, Zara.

At a time when traditional retailers followed the omnichannel playbook, focusing on product shipping operational tactics and marketing tactics, Zara focused on Merchandise. A  brand like Nordstrom might turn inventory 6-20 times a year, which is quite good. Zara might turn inventory 40-100 times a year. Nordstrom is largely beholden to merchandise vendors with traditional merchandise lead times. Zara knocks off what is popular today, and gets it in front of the customer in three weeks ... and sells through the merchandise in a couple of days. This causes the Zara customer to interact with the brand multiple times a week, to see what is new. This causes the Zara customer to have to ACT NOW because the merchandise may never be available again. The customer is literally competing with other customers to obtain scarce resources. What is scarce about buying branded merchandise at Nordstrom or Macy's?

In other words, a Nordstrom or Macy's focused on the thesis that the merchandise strategy was good enough, and it was simply the availability of the merchandise across channels that was the problem.

A Zara or H&M or Forever 21 focused on the fact that the merchandise is never good enough, and instead of investing in omnichannel theory ... these brands invested in merchandise brilliance.

So over a half-decade, the investment in merchandise brilliance defeated the investment in making sure that the existing merchandise assortment is made available across all channels so that the existing customer could shop however the existing customer liked.

We learned that New Merchandise Brilliance trumps Omnichannel Brilliance. I mean, you can almost make the argument that retailers using the word "omnichannel" in their Wall Street reporting experience negative comp store sales (not quite, but we're getting closer).

The byproduct of the failure of the omnichannel thesis occurs in new customer acquisition. Because the 24 year old shopper preferred Zara's new merchandise assortment (twice a week, mind you), the 24 year old abandoned Nordstrom / Macy's in favor of Zara / H&M / Forever 21 and others. This put pressure on Nordstrom / Macy's to find new customers ... and we all know that the reason that most businesses thrive over time is because of customer acquisition brilliance.

How did Nordstrom / Macy's address the new customer acquisition problem? Nordstrom leveraged Nordstrom Rack, acquiring lower-price consumers that can ultimately be up-sold into the full-line store channel. Macy's is going to copy this thesis. So kudos to Nordstrom for having a card to play here ... but it is a "different" card. Zara, which calls advertising a "pointless distraction", finds stuff that the customer finds "cute" at a low price and built a supply chain to respond immediately. Nordstrom / Macy's apply a "low price channel" strategy. It's a fundamentally different approach than the fast fashion folks use, and we will find out which strategy wins over time.

In other words, traditional retailers took their eye off of what matters when traditional retailers decided to focus on allowing the customer to shop however they like. Traditional retailers missed the trend that younger customers didn't want to shop however they like. Instead, younger customers wanted to buy something cute right NOW!! As a consequence, merchandise productivity suffered at traditional retailers, and today, customer acquisition among younger customers is suffering. The proof is in the comp sales metrics that Macy's publish and that Nordstrom could publish if they separated out online sales and Rack sales from published totals - undoubtedly, Full-Line sales would not be great, right?

In conclusion, the omnichannel thesis, an astroturfed concept coined by a research brand, led traditional retailers down the wrong path. While focusing on how to sell existing merchandise however the existing customer wanted, younger customers chose to shop however they wanted ... at Zara or H&M or Forever 21 ... buying cute stuff at low prices, cute stuff that can be turned 40-100 times per year.  Traditional Retailers choose omnichannel.

That's why allowing customers to shop however they like is such a bad idea. The thesis allowed traditional retailers to focus on omnichannel technology instead of supply chain  / merchandise reinvention based on scarcity of cute product. We learned, the hard way, that what the customer wants is cute merchandise. We learned, the hard way, that retailers need to offer cute merchandise in order to acquire customers in order to be successful in the long-term. Channel alignment with existing customers and existing merchandise strategies did not win.

Thanks,

Kevin

Update 4/22:  A reader tells me that the phrase "omnichannel" was coined by Leslie Hand of IDC. No links were provided to verify this is true, but I thought you should at least know that a reader believes differently. If you conduct a search, you will find at least a half-dozen different originators of the term. Which tells you something.

Oh That Pesky West Coast Port Shutdown

Blame is a funny thing ... when business is good, you don't see a lot of blame being passed around. But when business does not meet expectations, well, somebody has to be blamed, and that somebody sure cannot be Macy's and/or Omnichannel Strategy. More on that in a moment.

Have you had a chance to read through statements from first quarter earnings reports? No? It's free information! Free! You love free! And the documents communicate what actually happened, not results from a survey of 1,339 likely shoppers.

Wal-Mart: US Comps = +1%. E-commerce growth = +20%. Sams Club comps were +0.4% after excluding the negative impact of fuel deflation.

Target: Comps = +2.3%, e-commerce growth = +38%, which comprised a full third of the total 2.3% comp growth (yes, retailers add e-commerce growth to comp growth, inflating perceived retail effectiveness).

Home Depot: US Comps = +7.1% (no talk of blaming a West Coast Port Shutdown here). Favorable (closer to normal) weather, favorable housing bounceback helped.

Costco: Comps = +1% ... comps were +5% if you exclude fuel deflation.

Lowes: Comps = +5.3% (again, no talk of blame here).

Best Buy: -0.7% comp ... major slowing in e-commerce growth (5.3% vs. 29.2% last year). By the way, keep the decelerating e-commerce comp in the back of your mind ... this is about to become a big problem for many, many retailers.

Macy's: Oh, Macy's. Blame. Everybody but the merchandising strategy is to be blamed. They blamed the West Coast Port Slowdown (wouldn't that impact their competition, or just about every retailer?). They blamed weather (though others praised weather). They blamed international tourists (wouldn't that impact the competition as well?). They blamed their own omnichannel staffing reorganization for a temporary disruption. Blame - Blame - Blame - Blame - Blame. Shouldn't omnichannel overcome all of these challenges? Didn't the pundits tell us that omnichannel is the secret to success? Doesn't Macy's self-proclaim themselves as "American's Omnichannel Store"? Then why all the blame? Why? Sales were down -0.7%.

Kohl's: Comps = +1.4% ... how does Kohl's grow sales in the same environment that Macy's blames for hurting sales? Discuss.

Staples: Total sales = -7%. True comps = -0.6%. Staples.com sales only grew by 1%. In North America, sales were down 10%, comps were down 3%, e-commerce was up only 3%. Again, nobody wants to talk about this, but the deceleration of e-commerce growth in retail is going to become a big story (a secret story, but a big story). Nobody wants to talk about outcomes that are opposite of those promised by the Omnichannel Thesis, even though companies are publicly telling us about their problems.

Sears: Ugh.

J.C. Penney: Comps = +3.4%. At this rate, it will take seven or eight years to make up for the 30% drops they experienced a few years ago, and by then, inflation will have set JCP back another 20%. This is the trap that dying brands faces (and believe me, I know something about this). If the dying brand wants to make a change, the change is hated by existing customers. If the dying brand wants to grow, it cannot grow, because existing customers are not capable of fueling growth. Either way, the dying brand struggles to fight the competition. Either way, outsiders say that they have the answers. Outsiders do not have the answers.

Nordstrom: Sales = +9.8% (got that, Macy's?). However, there's all sorts of less-than-optimal numbers buried in the metrics. 50% sales growth at Nordstromrack.com (good). Earnings Before Taxes dropped from 9.3% to 7.9% (may or may not be bad). Full-Line Store comps = +0.5%, while e-commerce growth = +20%. Since e-commerce growth is tucked into comps, this implies that Full-Line Store comps were negative (Macy's will like that). And Nordstrom Rack posted -0.2% cops vs. +6.4% last year (oh oh). Loyalty program growth was +11%, and represented 38% of sales. Given that comps are flat and/or down, this tells you that the Loyalty program isn't truly fueling incremental growth, but may instead funneling customer shift from non-loyalty tender to the loyalty program, which isn't the same thing as "generating loyalty".

TJX: Net sales = +6%, comps = +5%. No blame for weather or port shutdowns here. Isn't that interesting? Some businesses just plow forward, even though they deal with the same challenges other companies deal with.

Gap: #OhBoy. Gap = -10% comp on a -5% comp from last year. Bananna Republic = -8% comp on a -1% last year. Old Navy = +3%. Why do the brands who struggle so much praise omnichannel and get so much press about omnichannel?

Ross Stores: Sales = +10%. Comps = +5%. No talk of omnichannel. No blaming the west coast port slowdown. Sell something the customer wants to buy at a price the customer wants to pay.

Limited Brands: Sales = +5%, comps = +5%. Direct sales = -6% ... again, pay attention folks ... retail e-commerce growth is rapidly decelerating. Direct sales ... that's the website plus print marketing ... declined. Declined! Do you ever hear about that when reading anything in the trade journal / consultant / vendor ecosystem?

Foot Locker: Comps = +7.8% ... the most profitable quarter in company history. No blame, no discussion of omnichannel. Just unfettered success. Think about it.

American Eagle: Comps = +7% on top of a -10% last year. Gross Margins are improved. Gains came from AOV, not from more customers purchasing. You always want more customers purchasing, gains in AOV are always temporary. That being said, you always want to erase the bad taste of a -10% comp, so kudos are earned here.

Urban Outfitters:  Growth in all brands. Growth.

Chicos: David Dyer will retire in 2016. Sales +1.7%. Comps = -0.1%. Lots of omnichannel chatter (again, those who praise omnichannel so frequently correlate with lower sales performance, think about it), Chicos store comps were -2.3%.

DSW: Sales = +9.4%, comps = +5.1%. These folks say they were awarded the "Best Omnichannel Experience Award" at some eBay conference. So here's a case where omnichannel aligned with highly positive sales outcomes. Good job!

Abercrombie & Fitch: -9% comp, Hollister = -6% comp. 'Nuff said.

Aeropostale: Net sales = -20%. Comps = -11% vs. -13% last year. Guess what? They blamed weather and the west coast port slowdown on performance. But there was no west coast port slowdown the year prior, and weather was worse the year prior, and they posted equally horrific numbers a year prior. Hmmm. We need to start applying common logic to what we read.

Dillards: -10% comp. Yeesh.

Belk: +3.3% comp. Online = +36.7%. The companies farthest behind on e-commerce are generally posting monster online comps ... those who captured a ton of e-commerce volume early on have largely plateaued.

Dick's Sporting Goods: +1% comp.

Cabelas: Sales are increasing.

Read the 10-Q statements from retailers and e-commerce businesses. These documents outline business trends that few in the vendor / consultant / trade journal universe will acknowledge.