Posting Again

Last week I posted this topic about sales challenges coming in Fall/Winter (click here).

Among blog readers, it was a snoozer (blog readers tend to be a catalog-centric audience).

Among Twitter followers, it was very popular (that audience tends to be e-commerce-centric). Twitter / E-Commerce folks have been very responsive to this topic this Spring/Summer.

Strong hint ... this article is more important to the catalog audience than the e-commerce audience. So, I'm publishing the link again. Read it. Then work with your forecasting team to try to mitigate what is coming in a few months, ok? And if you don't have a forecasting team you can trust, contact me (kevinh@minethatdata.com) and we'll get busy.

Winning Items Among New Items

Back to the brand we're studying.

In each year we see sales distributed by A/B/C/D/F grades, allowing me to calculate a GPA for the first year (or for any year, really) of a new merchandise class.

• 2019 = 2.21
• 2020 = 1.93
• 2021 = 2.88
• 2022 = 2.50

2.00 is average, so we observe a change over time, don't we? 2019 wasn't bad ... 2020 was bad ... 2021 improved significantly, and 2022 was pretty good.

This tells me that somebody is trying ... hard ... to reverse the trend of new item performance.

However, this company solved the performance problem ... they haven't solved the core problem (declining sales of new items). Obviously, they aren't offering enough new items.

The Older Items Are Dying, However

At the bottom of our table we see the problem with those long-time items.

The "Class of 2018" in the table represents all of the long-term existing items ... the old stuff. Look at what happens to those items over time.

• 2018 = $1,441,582.
• 2019 =    $887,766.
• 2020 =    $604,527.
• 2021 =    $498,776.
• 2022 =    $357,782.

Yeah, they're dying.

This is why your new merchandise is so darn important. You can keep pushing existing items, but eventually your items will die off, and you will have no choice but to offset the existing items with new merchandise.

This happens in every class. Look at the class of 2019.

• 2019 = $581,765.
• 2020 = $438,380.
• 2021 = $469,514.
• 2022 = $273,966.

Within three years these items sell 1/2 as much as they sold in the year of introduction.

You see the same things in the classes of 2020 and 2021.

It's just a doomed situation ... being staved off by squeezing as much as this brand can from existing items (items which perform progressively worse over time). In the past year, the sales decline took off. It's gonna be hard to fix this problem in the short-term.

A Lot Going On Here

Speaking of reports your boutique agency won't create for you (because they think your problem is marketing - and hint, it probably is 65% merchandise, 20% marketing and 15% creative), we look here at Merchandise Category #5, measuring sales of new/existing items by merchandise grade (A/B/C/D/F).

Yeah, a lot going on here.

In this post, let's focus on the bottom of the table. Sales of new items look like this:

• 2019 = $581,765.
• 2020 = $347,852.
• 2021 = $290,224.
• 2022 = $293,816.

So that's bad news.

However, it's clear that somebody instructed the marketing team to feature existing merchandise ... everywhere.

• 2019 =    $887,766.
• 2020 = $1,042,907.
• 2021 = $1,281,862.
• 2022 = $1,157,969.

This is a classic scenario, we see it all the time. Somebody decides to "squeeze more juice out of the lemon". It's the kind of thing Sears/Kmart did ... it's the kind of thing very mature / late stage brands do, they ride their favorite items into the sunset. And in the short-term, yeah, good idea.

But eventually, the sales lost by not having enough good new items harm you over time. More on that topic tomorrow.

Late 2022 / Spring 2023: A Warning

Allow me to show you what is happening to too many of you. Let's pretend you run a really small business.

As of 2/28/2020, you might have possessed the following customer metrics.

• 100 12-Month Buyers The Year Prior.
• 30% Rebuy Rate and $200 Spend per Repurchaser.
• Year Prior = 60 New/Reactivated Buyers Spending $120 Each.
• 100 * 0.30 * $200 + 60 * $120 = $13,200 Net Sales, 90 Customers Total.

Then the COVID-bump happens. Things go bonkers.

• 90 12-Month Buyers.
• 33% Rebuy Rate and $200 Spend per Repurchaser.
• 90 New/Reactivated Buyers Spending $120 Each.
• 90 * 0.33 * $200 + 90 * $120 = $16,740 Net Sales, 120 Customers Total.

We think life is good ... other than the dying part and the illness part and the pointless hatred for each other because of political beliefs. Otherwise, life is/was good. Until life wasn't good. Until prices started to increase in late 2021. Until new/reactivated buyer counts began to fade. As of today, our data looks like this.

• 120 12-Month Buyers.
• 26% Rebuy Rate and $220 Spend per Repurchaser.
• 55 New/Reactivated Buyers Spending $130 Each.
• 120 * 0.26 * $220 + 55 * $130 = $14,014 Net Sales, 86 Customers Total.

Our little business, which had $13,200 in sales two years ago and $16,740 a year ago now has $14,014 in sales. Better than two years ago, but oh oh. And our little business had 100 buyers, then 90 buyers, then we improved to 120 buyers, and now we have 86 buyers. We've lost all of our file power, haven't we? File power is important, because next year's sales are connected to how many customers we have at the end of this year.

Worse, our rebuy rates are impacted by rising prices ... down to 24%. New/Reactivated buyer counts were at 60 two years ago, then 90 COVID-infused newbies a year ago, then just 55 due to the price increase.

Now we have to forecast what happens in the next year. Well, prices are much higher, so we'll forecast a 24% rebuy rate, $230 spend per repurchaser, just 45 new/reactivated buyers, and $140 sales per new/reactivated buyer. Fewer customers, but more spend per customer.

What does the next year look like?

• 86 12-Month Buyers.
• 24% Rebuy Rate and $230 Spend per Repurchaser.
• 45 New/Reactivated Buyers Spending $140 Each.
• 86 * 0.24 * $230 + 45 * $140 = $11,047 Net Sales, 66 Customers Total.

This is what the end of the COVID-bump combined with an increase in prices means.

Sales by year:

• $11,047 forecasted for the next twelve months.
• $14,014 for the year ending June 23, 2022.
• $16,740 for the year ending June 23, 2021.
• $13,200 for the year ending June 23, 2020.

Tell me what happens when we get to October and the forecast becomes reality?

Many e-commerce brands will be able to outrun this forecast ... they'll find ways to generate new customers, as they have for the past twenty years.

Many traditional catalog brands will not be able to outrun this forecast. By not developing sufficient online marketing capabilities, the contraction currently being observed will be amplified by a lack of paper. The very vendors demanding that catalogers mail paper instead of embracing online marketing will hasten this dynamic.

This blog post is a warning. There is time to do something about what is coming. Expense increases paired with sales declines = trouble.

Trouble.

I've spent much of the past eight years advocating for strong customer acquisition programs. Fall/Winter 2022 will belong to those who have a strong customer acquisition program.

You are a Leader. You have time to address this challenge. Be a Leader.

P.S.:  If you need forecasting help, let me know (kevinh@minethatdata.com).

A Struggling Category

Here is the GPA for each of the past five years for a category that is struggling.

• 2018 = 1.77.
• 2019 = 1.48.
• 2020 = 1.37.
• 2021 = 1.27.
• 2022 = 1.19.

Yup - that's a category that is dying. An average GPA is 2.00, so this category has been below-average for five years and performance is getting progressively worse.

If you are a marketer, you need to know this is happening, so that when you are asked to feature this category you adjust your sales plan accordingly, right?

The Marketer Influences The Customer

For one company, I looked at the GPA of the merchandise purchased by customer based on customer life stage ... for all new customers acquired in the past two years. Ready?

Look at the "Below Average" column ... on a first order, 25.9% of the merchandise is priced below the historical average for the item. For loyal customers? 82.3%. This brand is discounting the living daylights out of the stuff they sell to the most loyal buyers.

Look at the "New Items" column. 13.5% of what first-time buyers purchase are new items (new in the past year). 4.5% of what loyal buyers purchase are new items.

Now look at "A" items ... 13.1% of what new buyers purchase are the very best-selling items. However, 77.6% of what the most loyal buyers purchase are the very best-selling items.

Look at the "GPA" column ... the GPA goes from 1.81 to 1.94 to 2.13 to 2.39 to 2.66 to 3.13 to 3.39.

In other words, the customer (as the customer matures) clearly increasing buys the best items. However, the marketer is pushing this customer to purchase the best items at discounted prices. The marketer is driving the behavior.

It would take a LOT of discounted purchasing to overcome the damage this marketer is doing to this business.

Yes, the marketer influences the customer.