Kevin Hillstrom: MineThatData

Subtle Changes Over Time

Sometimes I'll step back and look at changes across several years. Many clients don't realize the subtle changes they've caused.

In the business we're studying, there are subtle changes worth pointing out.

Comp Rebuy Rates: -6% vs. three years ago. Not ideal.

Comp Segment Demand: +1% vs. three years ago.

Comp Items Purchased: -8% vs. three years ago. Yup, this company is selling more-expensive items over time. The COO is probably looking at downsizing operations folks, the CFO might be happy if gross margins are up. Always remember that items = customers. It's not a bad thing if management has metrics moving in odd directions with a top-line that is steady/growing. It's almost always a bad thing when fewer customers buy from a client.

Comp Item Price: +9%. Wow.

Comp Full Price Selling: -4%.

Comp Off-Price Selling: +11%. The two metrics tell a story, don't they? The likely story is that merchants are increasing prices when they offer new items, customers rebel against the merchants, so the marketing team offers discounts/promotions which customers accept. #ohboy

Comp New Items: +5%.

Comp Existing Items: -2%.

I create the metrics (above) to cut through all the BS a consultant hears from "some" members of the Management Team. The business I'm analyzing here had an ownership team who wanted to "transform" the brand. After digging into the numbers and speaking with members of the Management Team, it was clear there wasn't trust/harmony between the Ownership Team and the Management Team.

The core problem wasn't merchandise ... the core problem was trust.

As it so often is.

You run these metrics for your business ... right? Of course you do. You like to know what is happening, you like being smart.

Every business has customers shopping across micro-businesses / categories. Every business has interpersonal dynamics between ownership / management / employees that spill over into the customer relationship. The consultant / analyst cuts through all the nonsense, identifying core issues impacting the customer.

Nine More Months for the USPS - Which Means an Offer for You

That's the scare they threw at #papertarians this week.

Maybe they need Henry Adkins to come in and get things done (click here).

While your agencies and paper reps and printers furiously lobby for more of the same, your job becomes a lot more interesting.

What happens to your business if you cannot mail catalogs anymore?
What happens if postage increases by 50% and you ... essentially ... cannot mail catalogs anymore?

Surely you've modeled this outcome and know exactly what happens. You have mail/holdout tests that are reliable, you thoroughly understand your organic percentage, you know how you'd shift money into digital marketing channels. You know what happens to net sales. You know what happens to your customer file.

You know.

But if you don't know, it's time to hire me (kevinh@minethatdata.com). Here are your choices.

$9,000 and I'll tell you what happens, I'll model the outcome for you. You'll know. Within a few weeks. You'll know. I'll analyze any mail/holdout tests executed in the past year at no additional cost. Pretty good deal, given the millions you spend on paper, printing & postage.
$15,000 and I'll model the outcome for you AND score your file AND I'll provide you with the scoring equations so you can implement the equations in-house. I'll also score customers for email responsiveness so you can use that information as part of your transition. You'll know, and you'll be able to take action.
$35,000 gets you more ... I'll model the outcome for you AND score your file AND I'll update your scores at least once a month AND I'll score your email file monthly AND ... AND ... I'll be on-call for general marketing challenges you have, providing advice ... you get me on video conference for 90 minutes per month and I'm available via email whenever you need me ... all through 3/31/2027. Sort of a Virtual CMO to assist with your business transition. You don't get me for on-demand ad-hoc analytics like some clients do (that's more like a six-figure situation and on-demand email/chat response and 60 minutes of video conferencing per week ... but if you need that for your transition, contact me as well, I probably have bandwidth for one (1) additional client in this circumstance). But you'll do well with this arrangement.

Here's my email address (kevinh@minethatdata.com).

Contact me immediately, 'cause this stuff usually gets me busy quickly and I don't have bandwidth to help everybody. Act right now. Be prepared.

Micro-Businesses Moving In Different Directions

Every business is comprised of a series of micro-businesses / categories. Some micro-businesses are dependent on other micro-businesses, others move independently.

I evaluate micro-business movement in terms of comp segment performance on an annual basis. You remember comp segment analysis, don't you? I select all customers who bought exactly two times in the past year - then measure how much customers spent in a future period of time (in this case, one year ... in my Elite Program runs, it's the following month). I want to see how "good" customers behave.

In the case of the business I'm analyzing in this study, here is comp segment performance (annual) for the merchandise categories that have meaningful amounts of net sales.

Category 02 = +19%.
Category 03 = +6%.
Category 04 = +8%.
Category 05 = -12%.
Category 06 = -18%.
Category 07 = +12%.
Category 10 = +22%.
Category 11 = +41%.
Category 13 = +8%.
Category 15 = -13%.
Category 16 = +10%.
Category 17 = +5%.

Yeah ... #chaos.

In total, comp segment performance was +7%. In other words, the merchants as a whole are doing a very good job.

But at a micro-business / category level?

#ohboy

Remember Category 03 from earlier this week? The category had a significant sales decline ... and yet, "good" customers spent more in the category. This is even more sad ... because it means that declines caused by likely discontinuation of items from 2/3 years ago harmed new/reactivated buyers.

What are you seeing across your business, when you evaluate customer behavior at a micro-business / category level?

When A Micro-Business Crumbles

Here's one ... this category had problems last year.

4 Years Ago = $6.1 million.
3 Years Ago = $6.7 million.
2 Year Ago = $6.7 million.
1 Year Ago = $6.7 million.
As of Today = $5.9 million.

The decrease happened in a growing business. This means somebody messed up. If customers like other categories and this category is struggling, it's a merchant who messed up.

I like to look at my "Class Of Report" next - analyzing merchandise classes over time. The story becomes obvious when we look at the table.

Look at the classes from three years ago and two years ago. Tell me if you see a problem?

The problem is sales in the year ending "today".

3 Years Ago Class = $1.4 million to $0.8 million.
2 Years Ago Class = $1.4 million to $0.8 million.

A "normal" drop-off might have been 20% ... these two classes dropped off by more than 40%. In other words, "somebody" decided to discontinue a bunch of items from these classes, and the business got hammered to the tune of about $600,000.

Look at the number of new items in the class ending today. New items went from 176 the year prior to 250 ... regardless, demand decreased by $100,000.

Look at the price of new items across time ... from $61 to $76 to $99 down to $86. What impact did this have? Quantity of items sold are half of what they were three years prior.

Yup - this is a merchandising problem.

It gets worse.

Customers who bought from this category exhibited the following behavior the following year (within the entire business, not just within this category).

They were 6% more likely to repurchase next year.
If they repurchased, they spent an additional $35.00 next year.

The merchants hurt the business this year.

The merchants hurt the potential of the business next year.

When a micro-business crumbles, problems cascade.

Every business has a set of cascading micro-business problems.

Are you looking for these problems?

You Run A Collection Of Micro-Businesses

Way back (around 2010) a CFO told me that his brand had a category (socks) that was the place where his brand developed talent. The category was < 5% of total sales, so as he said, "they can't muck it up". His company used the category as a training ground - the employees who marketed the product, the employees who sourced the product, those who wrote copy, those who managed inventory ... they formed a team ... and it was their job to grow their "business".

Every one of you runs a collection of micro-businesses. Here's Silk & Willow ... a whole collection of micro-businesses.

Now, you could develop employees in key micro-businesses / categories. That's a good idea.

It's also a good idea to understand how every category / micro-business fits together. When "business stinks", it isn't that business is bad ... it's that some of your micro-businesses are causing a cascading set of problems.

For instance, when I worked at Eddie Bauer, it was common to see a bad Women's Apparel business spill over into Home ... if customers didn't buy Women's Apparel, they didn't become good Home customers and consequently Home suffered. If Home suffered? No impact on Women's Apparel. Each category / micro-business played a role, but the role was different ... it was important to understand "what" role each category / micro-business played.

Do you understand the role each category / micro-business plays in your brand?