Retail

Read this, my friends (click here).

I could be 100% wrong, folks, but I believe we are killing retail by digitizing it.

Retail, the largest component of the much demonized "offline" world that software wishes to eat, must be experienced. Retail must be fun!

When I moved to the Seattle area, I would visit a Barnes & Noble store in University Village. This store had a fantastic math/science/marketing area. Stuff you couldn't find anywhere. It was a thrill to go in the store, spending an hour thumbing through these books. Then I'd purchase a book or two (often unrelated), or a magazine. Or not.

The internet changed the experience.

I could find anything I wanted online, at any time of the day. Discovery and thrill happened online. Barnes & Noble responded - they got rid of all the obscure books that I loved looking through, maybe because they weren't selling - obscure stuff could now be found online. Instead, they carried popular math and marketing books. Instead of 1 copy of 100 unique books, you'd find 100 copies of Seth Godin books, stuff that would sell in volume. Eventually, I stopped visiting the Barnes & Noble at University Village. No discovery, no thrill. I didn't need to go to a Barnes & Noble store to see a veritable plethora of books from a small number of pundits, or a wide selection of "Books for Dummies".

The popular line of thought is that the internet killed retail. This might be true. But, to me, our response to the internet killed retail more than anything that the internet did to retail.

First, we were told we had to be "multi-channel" - we had to have an online store to complement our retail store. This accelerates the demise of retail - we move discovery from the retail store to the website, decreasing in-store traffic. Why would we want less traffic in a store? When have you ever seen Apple encourage less traffic in an Apple store?

With less traffic in a store, fixed costs catch the eye of the CFO. Fixed costs are battled on two fronts. First, you cut expenses. That sure can't make the retail experience more fun. Second, you use marketing to drive traffic back into the store. And you've got problems when you ask marketers to drive traffic into the store. Why? Marketers love discounts and promotions. Discounts and promotions are taxes placed upon brands for being unremarkable. Eventually, most stores offered 10% or 20% or 30% or 40% off, often. When everybody executes promotional tactics, you end up with the same level of traffic averaged across the same number of businesses ... with the end result meaning that every retailer makes less money off of each transaction. This catches the eye of the CFO, who demands more expense cuts.

You end up with a self-serve store with few employees, no music, no smells, nothing visually enticing. 

You end up with a modern day mall.

And everything is sterile. It has to be sterile, because we're taught that the experience must be identical across channels - you cannot take a risk and capitalize on the strength of online at the expense of retail, or have a great in-store experience that is different from online. You must be generic, unified, integrated. You become boring, as boring as the solutions thrust upon retailers by the vendor community. You become the technology that wires the brand together. You lose your identity as a brand.

I always wonder why we bought into this line of thinking? H&M sold billions in the US in stores, with no e-commerce, at a time when the experts told everybody they had to integrate e-commerce with stores to be successful.

So now we are boring, sterile, integrated, and we're failing. Be honest - when is the last time you walked into your local Gap store and left feeling like you had the greatest experience of all time? And I'm not trying to pick on Gap, at all, it's just that you know who Gap is and you can relate to their in-store experience, which is every bit as "good" as the experience offered by their competitive set.

What is the response to the malaise we're in?

Omnichannel!

The way out of this mess is to even further digitize the in-store experience. "Fix the supply chain and you've fixed the brand!" We're being sold a CRM-centric experience of personalized, relevant, engaging content, coupled with behind-the-scenes technology that makes inventory awareness easy across all channels. That's it. That's what saves retail. Engaging content and knowledge of the fact that the socks you want aren't available in your store but can be shipped in a day or two from the store in Bellevue. You're told that the "customer demands this". Really? The customer demands operational excellence from a retail brand? Like that has never been the case previously?

Operational excellence certainly helps, no doubt. But it helps the vendors that sell operational solutions a heck of a lot more than it helps the retailer. And vendors dominate trade journals, where you hear about omnichannel solutions.

Honestly answer a series of questions for me.

1. When you have engaging content, how much do your sales increase? 200%? 20%? 2%? 0.2%?
2. When you have relevant content, how much do your sales increase? 200%? 20%? 2% 0.2%?
3. When you do a great job of personalizing content, how much do your sales increase? 200%? 20%? 2%? 0.2%?
4. When you have campaigns that are the same across channels, how much do your sales increase? 200%? 20%? 2%? 0.2%?
5. Over the past decade, when you've done a great job of aligning your channels and you've done a great job of providing a technology-based solution to align channels, how much did your sales increase?  200%? 20%? 2%? 0.2%?
6. When you identify a great new series of products/merchandise, how much do sales increase?
7. When is the last time you experienced joy, love, happiness, thrill, excitement, satisfaction, or any other positive emotion after entering a mall-based retail store? What store provided you with that experience?

In sports, there is intense competition from "the living room". You have 7.2 channel surround sound and a 65 inch screen and access to every game live and you have great food (nachos) that can be made at home for a fraction of the price. Why should the customer ever get in a car, drive forty-five minutes or three hours, fight traffic, pay $20 for parking (can you imagine paying $20 to park at Macy's), pay $45 for a ticket for each of four people (or pay $145 for a ticket on the secondary market), pay $9 for a beer and $6 for a hot dog and $3 for a program. Why would anybody do that? Why would a person spend hundreds of dollars when the entire experience is digitized, at home, for free?

The only way you'd pay all that money for a three hour experience is if the experience gave you emotional benefits that greatly exceeded the emotional benefits that you get by staying at home.

Every Milwaukee Brewer game is televised in Wisconsin. Every Seattle Mariner game is televised in the Pacific Northwest. And yet, people pay to attend. The Brewers have Sausage Races. The Mariners just had a "Bark in the Park" promotion ... bring your dog to the game and your dog gets to run the bases after the game. At a Red Sox game, you sing "Sweet Caroline" as a collective group of 33,000 fans (so good). You attend a Cubs game because the stadium is old and decrepit ... the stadium "has history, tradition". At a Seattle Seahawks game, the stadium is designed to amplify noise ... so fans scream for the sole purpose of making it loud, which then impacts the opposing team ... and the Seahawks have the tradition of raising the 12th Man flag ... they've created reasons for you to be at the game ... they've created a reason for somebody to get in a car and drive downtown and deal with horrific traffic and sit in the rain.

In sports, the trend isn't toward a seamless experience across channels ... not at all. The trend is toward a great experience. The in-game experience, in-person, must be great. There must be emotional benefits from being at the game that greatly outweigh the experience of sitting at home, enjoying the game for free.

One wonders if this is a trend that has meaning in retail?

Might it be that a seamless omnichannel experience provides incentive for the customer to never enter a retail store? Might a seamless omnichannel experience lead to boredom, a boredom that can ultimately be better fulfilled by Amazon?

Might it make more sense for the retail experience to be so spectacular, so entertaining, so delightful, that the customer wants to get into a car and drive 20 miles to a retail store?

I mean, honestly, when is the last time you felt a thrill run down your spine after shopping Staples, Coldwater Creek, Barnes & Noble, Orange Julius, Penney, Sears? Be honest!

Time for your thoughts. Leave a comment.

Name Just One Retailer Who ...

... initiated an omnichannel alignment strategy, attempting to integrate digital and offline into a wonderful blend of sales bliss ... and actually grew comp store sales by at least 10% in the first year after integrating digital and offline?

Use the comments section to list all of the retailers who accomplished this level of success.

Or Tweet all of the businesses you are aware of that accomplished this level of success.

Go.

Getting The Message Right

Maybe the most frustrating project I ever worked on happened at Nordstrom in the mid-2000s.

I had two folks on my team who were responsible for analyzing where new stores should be located. They had built sophisticated models that estimated the retail sales potential of every zip code in the United States. The models were quite good.

Then Management decided to bring McKinsey in. A $750,000 project was designed to determine the markets best suited for Nordstrom expansion. From what I recall, three or four McKinsey thought leaders pushed my team around for a month, then left Nordstrom Management with a color map of the United States, illustrating the markets with the best potential. A table was produced, ranking the markets with the best sales potential, top-to-bottom.

Well, this left me absolutely furious!

I recall walking into the office of the Chief Marketing Officer (my boss) for my weekly touch-base meeting. I recall ranting about the company paying $750,000 for nonsense.

I especially recall saying that my team could just as easily have produced the maps and tables that McKinsey produced, since we actively measured retail sales potential at a zip code level ... all we had to do was roll-up the zip codes to a DMA/Market level.

And then, my boss said something so insightful that my mind exploded.

• "Well then, Kevin, if you could have done what McKinsey did, then why the heck didn't you do it months ago, before we decided to bring McKinsey in?"

Within two years, that area of practice would be removed from my supervision.

What a lesson.

So often, the data we need to improve our business already exists. We just don't know how to communicate the message properly. In this example, Nordstrom had to spend $750,000 just because I failed as a communicator - and later, the company had to reorganize members of my team away from my leadership because I failed as a communicator.

I couldn't get the message right.

The message is so much greater than the data.

Now, learning how to communicate the message properly is largely a pursuit requiring trial and error. 

But that's where the energy needs to be spent.

Tactics That Only "Work" For Big Businesses

If you're an analyst, there are two environments where your improvements really make a big difference.

• Startups.
• Mega-Brands.

Let me give you an example.

My team at Nordstrom found a way to use targeting to improve overall email-generated sales by about 2%. Now, as a percentage, the number was pointless. But because Nordstrom generated $200,000,000 a year from email marketing alone, the percentage became meaningful.

• $200,000,000 * 0.02 = $4,000,000 in net sales.
• $1,100,000 in profit (Earnings Before Taxes).

When I communicated the benefit to company leaders, I'd communicate a 2% increase in sales that yielded $4,000,000 in net sales and $1,100,000 in profit. Folks certainly heard the end of the sentence.

This is the advantage that the big-company analyst possesses.

The small-company analyst isn't so lucky. She generates a 3% lift in sales - she does 50% better than the analyst at a large company. Her company is a $60,000,000 company where email is responsible for $6,000,000 in annual sales. Here's her reward.

• $180,000 in annual net sales.
• $54,000 in annual profit.

The message is so much less powerful ... she increased email sales by 3%, and her efforts, while far better than the analyst peer at a large company, are simply not noticeable.

This is the problem with personlization, relevancy, omnichannel, digital, social, optimization, engagement, and any of the trendy topics of the day. "If" they work, they work at a level that benefits mega-brands.

If you work at a small company, focus on the merchandise you sell. Identify what is working, and find ways to get more of that merchandise in front of customers. You have no choice but to find 10% or 20% gains, and those gains do not exist in personalization, relevancy, omnichannel, digital, social, optimization, or engagement initiatives. Those gains do exist by finding merchandise that works.

Where Are We Headed?

Discovery / Trending: There's too much information, and you certainly don't want to be wrong. You want to be part of the club. When you know that this squeeze-a-bean (click here) has been saved by more than 6,000 people, you know you're not buying a dud. There will be countless intermediaries and countless lists ... everything ranked, scored, and measured.

Intermediaries: There will be intermediaries. Within any service created by those with financial incentives, there will be tastemakers who do the work, mostly for free. It's a sharing economy - so almost nobody makes money except the folks who create the intermediary. In the old catalog world, the co-op was the intermediary. In the first generation of e-commerce, Google was the intermediary. In early social, Facebook was the intermediary. Each niche will have a customized intermediary - requiring omnichannel integration - or not - there's no reason why a brand has to "work" Wanelo when a tastemaker on Wanelo can do the work for you, for free, as long as you have something worth sharing.

Something Worth Sharing: This is so important. How do you make information about a basic hot dog "worth sharing", for instance? Maybe you spend decades creating an event that is popular enough to, over the past ten years, get televised nationally - on July 4.

Look at Nathan's stock price run-up in the past decade - a decade that coincides with ESPN's broadcast of their July 4 event (click here). All for a boring hot dog that faces infinite competition.

The biggest challenge old school direct marketers seem to have is the concept of sharing. Twenty years ago, twenty percent of catalog demand was called "passaround" or "passalong" ... the demand came from a name/address different than the name/address printed on the catalog ... in other words, the catalog was "shared". Catalogers loved it ... "free marketing" as Glenn Glieber would call it.

Today, younger brands also measure their ability to get things shared ... the "viral coefficient". Something worth sharing leads to "free" customer acquisition ... maybe the most important metric to measure.

There are many ways to get your content/product shared.

1. Create something so undeniably great that people have to talk about it (i.e. a Cabelas Store or Apple Store, for instance). Good work if you can find it.
2. Create an event peripheral to your product (i.e. the Nathan's Hot Dog Eating Contest on July 4).
3. Participate in every channel and astroturf the results in your favor (omnichannel). This is the "best practice" ... which tells you something about best practices.
4. Buy attention (television commercials).

Offline Seems Pretty Important: Twenty years into e-commerce, and e-commerce sales are still a spec compared to offline retail in-store sales. We've learned that offline creates demand, while digital steers and captures demand (yes, I know, digital can create demand ... but nowhere near as powerfully as offline does ... and the experts mostly chose to focus on capturing demand as an expertise since it is so difficult to be talented enough to actually create demand). Go spend some time on Twitter - it's people digitally interacting with offline activities - without the offline activity, there's nothing digitally to experience. Think about the World Cup Soccer/Football tournament ... without all those full stadiums and excellent players and old-school television broadcasts, there's nothing to talk about. Nothing. Offline is critical.

Demographics Matter: Your Grandparents are not going to use Spotify. And your seventeen year old daughter is not likely to purchase from a Garnet Hill catalog. The omnichannel people have it all wrong ... you don't "leverage" all channels in hopes of attracting all customers. Pick your customer demographic, and pick the channels that appeal to your customer demographic.

But Merchandise Matters Most: If you don't sell something that your customer craves, why are you in business? The vast majority of conversations I have with Executives fail to inspire any mention of the merchandise being sold. How is that even possible? Go read what customers have to say about your business ... the majority of the discussion is about merchandise and service. Furthermore, what we offer dictates the customer we acquire. You cannot sell an item that a 72 year old customer appreciates and hope, via an omnichannel strategy, that the 27 year old customer will buy it because it is available on Pinterest.

Strategy = New Products: If you ask 100 marketers how new products are performing, you're going to be lucky to get 3 accurate responses. What an abdication of responsibility! But those same 100 marketers can tell you how often a discount/promotion message on Twitter was re-tweeted. New products mean everything, EVERYTHING! In 80% of my Merchandise Forensics projects, you can easily pin the blame for business failure on a multi-year failure to introduce new products, new products that sell well. Your existing customers are bored - thrill them!! The strategy is important because it guarantees future success (long-term), and it gives customers something to talk about (short-term). Why astroturf success when great new products can be shared and discussed by customers and prospects, for free?

Data: Everybody wants your data, because they can monetize your data. They earn profit off of your hard work. How do you think flashlight apps on phones survive? Altruism? Ha! You will either create data and profit from it, or you will create data, give it away to the 1%, and then repurchase it back from the folks you gave it away to. Which side do you want to be on?

Omnichannel: You will do more and more for less and less. Vendors, Consultants, and Trade Journalists love this, because they get paid when you do more and more. Why do you think IBM or Oracle or McKinsey or Forrester preach the message to you? They get paid! You are able to prove that every single channel interacts with every single order - but customers over the past twenty years still buy 2 or 3 or 4 times a year (go analyze L.L. Bean's twenty year repurchase metrics and orders per year and report back on what you find). We can measure everything, but we cannot influence hardly anything. This trend will only get worse as time progresses.

No Middle: Like so many internet theories, we're going in the opposite direction of the theory. The internet leaves no room for a middle class ... in e-commerce, there's the 1% (Amazon) and everybody else. Folks call this "scale". It's going to be harder and harder to have $50,000,000 to $500,000,000 businesses. It's going to be easier and easier to grow a business to $5,000,000 or $10,000,000, and then you hit a brick wall. Thump.

Hype: We've all seen the nonsense it in content marketing - go visit The Weather Channel website for specific examples. "Eight Shocking Images That Will Change The Way You Think About Apples Forever". To either stay in the 1%, or to try to cross the bridge between everybody else and to achieve scale, many folks will attempt hype. This will provide countless opportunities for folks who operate with honesty and integrity.

Merchandise + Service + Story: This is the opposite of omnichannel and hype. It's the secret to success in business. Many will try to cut corners. Try hard to perform honestly.

Catalogers: Turned out opposite of how I thought it would turn out. I was wrong. Back in 2007, I thought catalogers would go through short-term pain but emerge as reasonably healthy e-commerce businesses. Instead, the vendor industry convinced catalogers that paper and renting names was essential (I've been in the meetings, I've heard the sales pitch from the vendor community). Catalogers listened. Today, the majority of catalogers I analyze possess a 60+ year old, rural customer who loves catalogs. Half of the US population is under the age of 45. It's terribly common to see 10% to 15% of the catalog customer file under the age of 45. In other words, the vendor community and catalog executives who love cataloging more than merchandising ran the future of cataloging right into the sewer. And everybody seems perfectly content with this outcome!! "We've decided that we serve the 72 year old retired professional with money to spend." Thirty years ago, you served a 42 year old professional with money to spend. What happens to your customer in 10 years? If I saw that catalogers could effectively acquire younger (i.e. 50 years old) customers, I'd be highly optimistic about the future. Instead, catalogers have chosen to support the vendor community vision of cataloging (which keeps the vendor community in business, by the way), and are following a cohort of the population to a logical outcome.

Why Doesn't Anybody Care About Mobile?

This was a question I received last week, on Twitter. It came from somebody under the age of 40. This person attended a conference that featured an older demographic. The person on Twitter was shocked to see such apathy.

"They all said mobile was a big deal, but none of them wanted to do anything about it."

"It was as if nobody cared. It was like they all wanted the world to be the same as it was."

I spoke at a company where the employee base was under the age of 40. Numerous employees asked me a simple and similar question ... "how do we convince Executives about the importance of mobile?"

Now, what I'm about to say is a dramatic over-generalization, of course. But I continue to see three camps out there.

1. Old-School Marketers.
2. Classic Online Marketers.
3. Mobile Mavens.

And here's the thing, folks. If you are an old-school marketer, you will be able to find a customer base that loves old-school marketing. It's not uncommon for me to run across businesses where 20% of the customer base sends money in the mail, via a check. Do you understand the gravity of that statement? If you are a 28 year old marketer trying to convince somebody that mobile matters, and that somebody is involved in a business where 1 in 5 orders are sent via the mail, you've got a disconnect, don't you?

How about the Classic Online Marketers? This is an interesting crowd. These folks ripped into old-school marketing from 1995 - 2005 ... they were the future, everybody else was stupid. The fascinating thing about this group is that they, of course, became the establishment. So now we have mobile, and we can all see that mobile is going to eat the world. But if you are a Classic Online Marketer, mobile is a threat. To protect your job, you bolt mobile onto your business model (omnichannel), thereby maintaining your perceived importance. We've been here before. Old-School Marketers did this back in 1998 - 2003 ... they bolted e-commerce on to their business model and called it "multichannel".

If you are bolting mobile onto e-commerce (or retail), then mobile is all about lip service. Yes, to you, mobile is important, but it is important within the context of what is REALLY important to you ... and that's Classic Online Marketing. So you're not going to embrace real change, because by embracing real change, you have to relinquish all that you love about your job.

This, folks, is why the younger marketer is frustrated that "nobody cares about mobile". Old-School Marketers don't care because the old-school customer is sending checks in the mail and is responding to catalogs by giving call center employees key codes printed on the back of the catalog. Classic Online Marketers don't care because mobile is a threat to their way of doing business - so mobile, to them, is a bolt-on instead of a way of doing business.

I know, the Classic Online Marketers are going to tell me I'm wrong. Happens every week.

We live in a world where every marketing channel and every physical channel is important. You can find an audience that will respond to your favorite marketing tactic. Everybody else will think you are nuts - but you can make a good career out of mastering any marketing tactic.

It's not that nobody cares. It's that each audience cares about the tactics that cause their customer to respond.

Focus on the style of marketing you love, and focus on the customers who respond to the style of marketing you love. There's room for everybody.

Simple Catalog Models And Email Models - I Do Them!!

I don't talk about it much, but I am more than happy to prepare models for you - models that rank customers for catalog mailings or email campaigns. The models rank from best customer to least productive customer, and perform exceptionally well, if I may be so bold.

Many of you just need simple models that rank customers from best to worst. Your favorite vendor may find your requests too simple, or not automated enough, or too time consuming. In other words, they find it hard to make money on your request.

I don't find your requests trivial. They're important, and I'm here to help!

Email me right now (kevinh@minethatdata.com) and we'll get started on response models right now!