Kevin Hillstrom: MineThatData

I watched a program on linear television (#gasp #oldschool #luddite). A pair of perfectly wonderful sisters were running a restaurant that was unprofitable. The sisters didn't want to change. They served gigantic meals at unrealistically low prices ... paired with ridiculous monthly rent, they were flying their plane into the side of the mountain.

Something had to give.

They had to serve less food.

They had to raise prices.

They had to reduce expenses (i.e. fewer people).

In other words, this restaurant needed to "rebuild". They were like the Arizona Cardinals, the Los Angeles Angels of Anaheim, the Utah Jazz, the Vancouver Canucks, the Wisconsin Badgers Football Team.

Our Country needs to rebuild. No need to go further.

A generation of ecommerce businesses (founded 1995 - 2015 ... think legacy brands like Stitch Fix) are ready to rebuild, if they haven't already begun to rebuild. They're like that house you built in 2011 ... it needs to be painted, floors need to be replaced, appliances don't work, bathrooms are tired. We know this is true when growth stops. We know this is true when merchandise productivity erodes. We know this is true when email marketing hasn't fundamentally changed post-COVID. We know this is true when somebody says "Facebook isn't delivering quality names".

My catalog clients? Forced to rebuild. It's like your Hall of Fame quarterback just retired, except in your case your paper / printing / postage partners keep increasing costs to the point where the discipline they love is ending because of their cost increases. You get to rebuild as a digital marketer.

Like the NFL Team rebuilding after losing a Hall of Fame Quarterback, it can be hard to understand "what" needs to be rebuilt. A great quarterback covers a multitude of sins. Now your defense is on the field more often. Your new quarterback holds onto the ball too long, making it look like the offensive line is bad. Are they bad?

If you are rebuilding, you likely need analytical guidance, so you can tell if your defense / offensive line / etc. is in need of fixing. Same thing in ecommerce. You have to know "where" your rebuilding efforts need to be emphasized.

        

This one came up in the past year. I noticed a problem with a business.

Regardless of the attribution method (they're all wrong and yet they're called "truth" by so many in the industry), it's pretty easy to play detective and identify a business that is not healthy.

Healthy Business:

• 40% of Sales Happen Organically, Without Aid of Advertising.
• 20% of Sales Happen Via Email Marketing.
• 20% of Sales Happen Via Search Marketing.
• 10% of Sales Happen Via Social Media (Paid + Organic).
• 10% of Sales Happen Via Other Marketing Channels.

• 10% of Sales Happen Organically, Without Aid of Advertising.
• 15% of Sales Happen Via Email Marketing.
• 35% of Sales Happen Via Search Marketing.
• 15% of Sales Happen Via Social Media (Paid + Organic).
• 25% of Sales Happen Via Other Marketing Channels.

        

In the 2016-2018 timeframe Private Equity folks asked me to evaluate a business that they felt was "cheating".

What does "cheating" mean?

It means the brand was somehow boosting net sales in a manner that wasn't ideal for the future of the business.

When I reviewed ad spend, I didn't see anything unusual.

8,500 lines of code later, my detective work paid off.

• 13-24 Months Ago = 15% (numbers disguised here) of sales from discounted/promo items.
• Past Year = 55% (percentage disguised here) of sales from discounted/promo items.

        

In the 2016-2018 timeframe, I was asked to evaluate a business that was simply bumbling along. I was told to figure out how a company with a reasonable annual repurchase rate (35%ish) could struggle to grow, even though customer acquisition efforts were being managed properly.

This is when you have to become a Merchandising Detective.

Very few clients manage merchandise consistently over time.

It's easy to see when the CFO demands higher gross margins. I'll see an immediate price per item purchased increase that is immediately paired with a customer response decrease and/or conversion rate decrease.

It's easy to see when a merchant quits or is fired. The new merchant comes in, has disdain for what the predecessor did while disrespecting what previously worked (see Lands' End 2014-2015ish for examples), leading to a new vision that is "trend right". Sales plummet and it takes 2-5 years to dig out of the mess. Nobody wants to hear that message, but that's frequently the message you deliver when playing merchandising detective.

It's easy to see when the paper / printing folks interact with unsuspecting catalog merchants. Costs increase by 20% or 25%, the unsuspecting catalog merchant cuts pages, the pages that are cut are not supported via digital marketing, and sales decrease ... then the paper / printing folks belittle the merchants for "being stupid". It's a common story post-COVID.

If you are planning on selling your business (catalog brands) or rebuilding your business (many ecommerce brands are in the rebuilding stage right now), you'll need a stable merchandising base. Take two years and build your merchandising foundation. This isn't the time to hire a "maverick" who takes risks. You need the smartest people possible to put together a multi-year plan to put your business on stable ground.

        

This is way back in 2016. The Private Equity firm wanted to buy a catalog brand. Their initial review of the data showed that the brand "bumbled" along for several years ... and then eighteen months ago the business surged. "Tell us the scheme this brand employed" was the mission.

What "scheme" did the brand employ? What is your guess?

Did you make a guess?

It took me all of four minutes running this business through 8,500 lines of code to reveal the reason. They juiced up their customer acquisition efforts for about a year, then let all those new customers pay off handsomely via well-analyzed customer lifetime value metrics while throttling back customer acquisition, thereby making the p&l look utterly robust.

This is the kind of stunt you can pull off when you mismanage your business for a considerable period of time and then the owner wants to buy a yacht at the same time that a smart marketer/analyst figures out the secret to success. When executed properly, Private Equity pays a higher multiple for the business.

Of course, it begs the question ... why wasn't the brand smart enough to do this in the decade prior? If it was smart enough, the business would have sold for 2x - 3x what it sold for.

The best time to properly manage the inflow/outflow of customers was ten years ago.

The second-best time to properly manage the inflow/outflow of customers is tomorrow morning.