This one is especially designed for traditional retailers and catalogers ... give this a read (click here). We wonder why we see 40% off everywhere? Why do we have to liquidate everything? I was on a call recently - the team was planning their ...

 

Kevin Hillstrom: MineThatData - 5 new articles



Liquidations


We wonder why we see 40% off everywhere? Why do we have to liquidate everything?

I was on a call recently - the team was planning their merchandise assortment for Spring 2018.

Spring 2018.

Meanwhile, the "fast fashion" folks see a trend, create merchandise related to the trend, and the merchandise is available within a few weeks. You read results, you move forward with the stuff that works, you stop the stuff that doesn't work. Everything is "test and see".

Or, you plan an entire assortment for Spring 2018. What happens when you order 25,000 widgets and the customer only wants 6,000 widgets? What happens when you order 6,000 widgets and the customer wants 25,000 widgets?

There's another trend that is even more disturbing ... it comes up in my data all the time. Since many of my clients do not have a supply chain that can compete with e-commerce and fast-fashion brands, my clients will cut back on new merchandise, focusing on the stuff that they can forecast accurately. In other words, the inventory management team and merchandising team respond to a bad supply chain by starving the company of new merchandise. As a result, the assortment becomes terribly stale and only appeals to the long-time buyer. Marketing misinterprets this trend as "only our loyal customers are buying, we better have a good loyalty program in place to keep 'em" and next thing you know you have a catalog brand appealing to a 64 year old shopper.

You measure this stuff, right? You can easily detect it in your own data. The queries are easy to construct.

There's hope, folks. There's time to change, to improve. Not a lot of time, but enough to beat down all of the competitors who are moving in the wrong direction.

         
 
 

What A Bizarre First Half Of The Year!!

There are maybe forty different things all happening at the same time. Maybe sixty. I don't know. I'm not a prophet. But I'll share some thoughts next. Next week, we start focusing on what we control, and we employ a hopeful journey into the second half of 2017, ok?

Demographics: Not many folks want to talk about it, but the migration of the Baby Boomer generation toward retirement has sweeping consequences for all of us. Mall-based retailers wouldn't be struggling as much if Baby Boomers were 20 years younger. We need to adjust ... we should have a Baby Boomer plan and a non-Baby-Boomer plan.

Income: Most of the country never recovered from "The Great Recession". You see this in retail - Nordstrom Rack is growing, Nordstrom Full Line Stores are contracting in terms of sales. The "middle" of our country has been trimmed over time - the impact is any "middle" dependent company is struggling. So we have a choice - pick the top of the income spectrum, or pick everything else. It's hard work in "the middle".

Amazon: You cannot blame Amazon for what happened in the past 2-3 years. You can blame Amazon (maybe) for what happened over the past 20 years, but then you have to take accountability for their growth and your tepid results, because they've been growing for 20 years in plain sight and we are paid to compete against them and we failed to compete properly. It's on us to improve. And the odds are now stacked against us. When will the Leaders emerge, Leaders with interesting and innovative ideas?

Omnichannel: A complete failure, and maybe the enabler of Amazon's rise. Look what happened to Amazon in the past five years, and look at what happened to retailers who adhered to the omnichannel thesis. How did omnichannel theory work for Macy's? How did a single channel and rapid delivery and low prices and a huge assortment and data science and Prime and personalization and innovation work for Amazon? Have you looked at Amazon's share price over time vs. Macy's? Wow.

Gate Keepers: Facebook, Google and Amazon are your gate keepers. Facebook owns awareness. Google owns intent. Amazon owns product. Your 2018 strategy could look to avoid Facebook / Google / Amazon ... if you choose to integrate them with your business in 2018, then understand that they own you and you go where they want you to go. You get to decide what you do. Do you want to do what Facebook / Google / Amazon tell you to do, or do you want to chart a different path? Your choice.

J. Crew: A fascinating case study. Everybody has an opinion. It's not their fault that Macy's and their competitive set struggled and are closing stores and that saps traffic from J. Crew. It is their fault that they did not see that people couldn't afford mid-priced and expensive merchandise. When you are soaking up profit as J. Crew did 5-6 years ago, it's hard to focus on the future, because the present is so profitable. One could argue that Madewell was a smart focus on the future - how many successful brands have you launched in recent years? But The Great Recession tore mall-based apparel apart at the seams (tee-hee), and not many of us played the right cards to figure out how to move forward.

Price: People are raising prices on new items, creating all sorts of challenges. When new item prices go up and new items don't sell, companies offer blanket 40% off promotions, which deflates the price of winning/existing items. We keep deflating the price of winning/existing items because of our failures elsewhere, and it's killing us. I see this happen all the time.

People: Talent is pooling in places where there are emotional benefits (great work environment, great people) and where people can get paid. Talent is avoiding traditional companies where 2% cost-of-living salary increases and a lack of promotional opportunity is coupled with non-stop hands-on direction from 57 year old professionals. Traditional companies cannot hope to compete on talent unless the work environment changes and the risk/reward/compensation environment changes.

New Merchandise: I keep giving you free advice - we all need more new items, especially more new winning items. We increase our chances for success if we have more new items. And yet, our industry is not listening to the free advice. I wouldn't tell you this if I didn't repeatedly see the strategy work. Tell me why you aren't following the advice? And tell me why the heck so many of you won't even bother to run simple queries to see if this is an issue?

Creativity: I bring up Duluth Trading Company and the groans are heard from all across New England. They are a Midwest cataloger (gasp) with 28 consecutive quarters of growth. How many consecutive quarters of growth have you experienced? Digital strategy drained the creativity out of our businesses - and without creativity, there is nothing to compete against Amazon with. A way to beat Amazon is via creativity and personality.

ROI: We can measure the return on investment of a tweet, second-by-second. How many of us know the proper investment horizon for a new customer - in other words, how many of us know whether a three-month payback or twelve-month payback or sixty-month payback is what is "right"? We've forgotten how to properly evaluate business success, and it's our own fault. We know the reasons our businesses aren't growing ... we are choosing to perpetuate our own challenges.

Vendors: I spoke at a conference a few months ago. One of the attendees told me that her "vendor partners" were more important to her than her co-workers ... she said "these are the people I work with". It's fine that this employee loves her vendor partners, as long as her vendor partners deliver sufficient return on investment. It is wrong that she devalues her co-workers. I repeatedly observe contempt for co-workers in other departments. I suppose I was guilty of this as an Analyst/Manager/Director as well. I was wrong. We need to be part of a team, and our team needs to at minimum equalize our co-workers to the vendor partners we enjoy working with.

P.S. on Vendors: Give this story about the Seattle Seahawks a read (click here). Pretend the defense represents your co-workers. Pretend the offense represents the fusion between a marketing department and the vendor community. Think carefully about the article, then apply it to your company.

Store Closures: We are in the early innings of store closures. Every store that closes reduces store traffic for surrounding stores, which causes more stores to close. This trend will end when the next generation of retail comes to the forefront and generates new traffic from a younger generation of customers. FYI - mall-based retail is behaving a bit different than standalone store retail is behaving. Pay attention to these differences, ok?

Urgency: At a conference, a Professional told me that she wasn't going to move forward on important initiatives until "conditions were perfect". Her company was struggling. Is it any wonder her company was struggling? There's a difference between chaos, urgency, and complacency. Urgency is the place to be on the continuum.

Decisions: A Professional told me at a conference that he's not allowed to make decisions, but instead, he has to "float ideas past the Executive Team, and they like people who execute their ideas more than they like new ideas." Life is too short to work at a company where you are not allowed to make decisions.

Budgets: I keep hearing that budgets are frozen. Then I ask what happens if Google/Facebook performance improves? "Oh, then we'll spend more money." That means that budgets are not frozen. We quickly adjust to reward those who deliver profit to us. Expand your horizons and increase budgets for any/all partners and employees who are delivering disproportionate profit.

Entertainment/Sports: Pay attention to what sports teams do to create urgency. Their tactics are coming to commerce. Fast fashion represents the top-of-the-first-inning in commerce urgency. Would you be more likely to visit a store if the store was going to sell out of what you want soon, or would you be more likely to visit a store if you know the pair of Dockers will be there on sale forever? And if Dockers will be on sale forever, why not just buy 'em online and cut the store out of the equation altogether? The future of retail success will borrow liberally from the tactics that sports teams use to be successful.

Acquisition: The story of e-commerce in 2017 is the end of customer acquisition, which led to "brands" being acquired. VCs aren't dumb - they can see when things are slowing down, and they sell to those who do not see when things are slowing down. E-commerce is hitting a wall, and needs a "next breakthrough" to continue the historical trajectory. This breakthrough will be independent of the choke hold that Facebook / Google / Amazon have on customer acquisition.

Loyalty: Loyalty is being misread by an entire industry. Across my client base, the average annual repurchase rate for 12-month buyers is 37%. This means that maybe 5% or 10% of the customer base is loyal, everybody else is being churned (hopefully in a profitable manner). And if we work terribly hard, we have 13% of the file in loyal status instead of 10%. In other words, loyalty doesn't solve our problems. Low-cost / no-cost customer acquisition solves our problems. And we're not focusing on that, are we? And I get it, you'll say that my client base is "biased" low because they aren't succeeding. So let's assume that the annual repurchase rate for 12-month buyers is 45%. The story does not change, does it?

Forecasting: The smartest companies are forecasting what the next five years look like, by product category, by marketing channel, and in total. Based on the forecasts, they are taking proactive action today to prevent problems tomorrow - ask the e-commerce brands who sold out to large brands what their forecasting algorithms told them, ok? "Forecasting" is the discipline we need to focus on in 2018. Agreed?

Optimism: For the first time in maybe five years, I am filled with optimism. I can see the future happening right in front of us. I mean, when Duluth Trading Company posts 28 consecutive quarters of sales gains and they're a midwest-based catalog brand (gasp), then anybody can make magic happen (of course, you'd have to do something interesting like they do, so that's where the thesis breaks down). My online clients are doing AMAZING things. The future is bright. Next week, when we come back to work, we'll focus on fixing our businesses, ok?

         
 
 

Two Recent Requests

There were two recent requests for information ... so I thought I'd pass each along to you.


Request #1: A vendor asked if it were possible to see what my five-year forecasting framework looks like - in case there were an opportunity to build the framework into existing analytics software. I prepared this document to outline the methodology (click here). If you are Google or Adobe or somebody else and you want to partner on transitioning the methodology to your application, email me your thoughts (kevinh@minethatdata.com).


Request #2: A professional asked if I sold the programming code I use to perform my project work? The answer, of course, is "maybe". All of my methodologies are outlined in my booklets (click here to see Hillstrom's Fix It, for instance). But let's try something. If you click here, you can download the SPSS code I use for my Rolling 12 Month File Analysis. If you like what you see and would like to purchase all of the code for my "Fix It" framework, contact me (kevinh@minethatdata.com) and we can chat.

         
 
 

Test Outliers

I've been recording my blood pressure readings. Let me show you the last seven systolic readings.
  • 135
  • 162
  • 120
  • 110
  • 127
  • 117
  • 124
One number sticks out, right? It's that 162 number.

Here is the average including the 162 number.
  • 128
Here is the average excluding the 162 number.
  • 122
Which number is "right"?
  • 128 or 122
If you have a credible reason for throwing out the 162 figure, then 122 is right. If you have a credible reason for keeping it, then 128 is right.

The same logic applies to the tests you perform.

We all see our tests ruined by outliers. Here's a common one. Here are average order values for customers who purchased in a test.
  • $119.
  • $84.
  • $99.
  • $79.
  • $143.
  • $21,477.
Why in the name of Snedecor and Cochrane would you include the $21,477 order in your results?

Well, you'd keep it in there if 15% of all orders were $21,477 or greater.

But if 0.1% of all orders are $21,477 or greater? You adjust it down ... change it to $150 or whatever the 99th percentile is for average order values.

I'm confident few of you are adjusting for outliers.

And then you wonder why your test results are all over the board?

I know, I know, you don't have the coding chops to remove outliers, and you don't want to invest a half-year learning how to code, so you want a rule-of-thumb that you can apply. Ok, try this one on for size. If you are concerned about large orders influencing your test results, analyze response-rate / conversion-rate. If response/conversion results are significantly different than spending results, you have an outlier problem. If you have an outlier problem?
  • Measure the difference between response/conversion. Say it is 6%.
  • Average your average order values between test/control groups.
  • Apply the "average" average order value to both groups.
  • This leaves you with a 6% difference in spend between the two groups.
Thoughts?

         
 
 

Late To The Game On Craftsy

Not sure how I missed this one over the past half-decade, but that's the point of this post.

Click here to visit Craftsy ... sold to NBC Universal for a reported $230,000,000.

Videos / Tutorials / Commerce.

Mind you, anybody could have done this.

I mean, who wouldn't want to take a quilting class with Kate Colleran (click here)? You mean you don't know who Kate Colleran is? Neither do I! And that's the point. Who are the stars in your industry? And why don't you have relationships with the stars in your industry? What's stopping you?

Now, the reported sale price suggests that late investors aren't getting all their money back. Pay close attention, dear readers, as e-commerce brands are being sold right and left. Customer Acquisition is drying up. Google/Facebook have locked it up, and you don't get a key to the lock (but you do get to pay to have the key turned every day). Facebook owns Awareness, Google owns Intent, and Amazon owns your Product Category. The only way to beat that is to do something unique and special, something that isn't easily copied.

It's your job to beat Google/Facebook/Amazon. That's why you are being paid a credible salary.

And there are enough "Craftsy" style brands out there to demonstrate that there is a path to the future.

         
 
 
 
   
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