Why have direct commerce sales held up better than overall retail sales?

First, I suppose I should document the inference in my question that direct commerce sales have held up better.  Based upon Retail Sales data from economy.com, the following facts are in evidence:

• Current retail sales (actually, Aug 2009) are just a little below what they were in Oct 2008.  But they are also about the same as they were in Dec 2005 / Jan 2006.  Overall, a drop of 7.5 percent from their peak in Nov 2007.
• In contrast, current direct commerce sales (Jul 2009), which also peaked in Nov 2007, are down only 2.25% from their peak.

Why?

I suggest there are two reasons:

First, the decline in retail sales driven by the general downturn in the economy has resulted is even less staff at retail stores, resulting in even poorer customer service, resulting in more customers being driven away from stores.

Second, direct commerce has always been driven more by convenience than by price.  And affluent consumers are more interested in convenience than price.  So, affluent consumers, who are less affected by the economic downturn, have sustained sales at direct commerce businesses to a greater extent than retail stores.

The Implications

My concern about this is the longer term effects, when retail managers recognize that their retail store sales will recover regardless of the poor quality of their customer relationships.  If they can get by with fewer staff now, can they get by with fewer staff later?  Maybe, maybe not.  But I bet they’re going to try.

This is just one reason why joblessness recovers more slowly than the economy.

This also explains the continuing pressure on businesses of all types to move to the internet for their core business functions — it allows them to accomplish as much if not more with the same or fewer employees.

Filed under: Uncategorized, convenience, Direct Commerce, economy, retail sales, sales

Even Younger Demographics Prefer Direct Mail

That’s the headline of an article in Chief Marketer, today. The article, by Peter Meyers, reports on the results of a survey asking about what communications channels people prefer.

Meyers reports that nearly 60 percent of 18-24 year olds prefer paper mail to electronic mail in numerous product categories.

Now, as a 58 year old, who has been in the direct marketing business for 30+ years, I’m kind of glad to hear that. But I also note, personally, that while I like to get catalogs (because they’re better for browsing and shopping), I prefer email for single item promotions.

But the real question is not what 18-24 year olds say they prefer, but rather to which do they respond at higher rates. Those of us who have been in direct marketing for a long time learned a long time ago, that it’s not what people say they will do, it’s what they actually do, that counts.

I’d love to see some good test results on this issue, but no one has published the real stuff yet. Maybe soon.

Filed under: Direct Commerce, Uncategorized

The Changing Demographics of Direct Mail

I carefully chose the phrase, direct mail, rather than “direct commerce”, in part to make the point that the difference between these two is growing.

Personally, I’m certainly from the paper mail generation. But I’m also an early adopter of new technology, so I have all the latest gadgets (or at least, some of them) and I often prefer electronic mail to paper mail — even for invoices and bills. I send fewer paper greeting cards and more and more electronic greeting cards. But I still enjoy getting paper catalogs and flipping thru them. That still seems more natural than browsing an on-line store.

But I’m unconvinced my grandchildren will continue these habits.

As a result, I wonder how direct marketers should be modifying their marketing channels based upon the demographics of prospective buyers.

Teenagers must still often be reached via mail, because they have to “sell” their merchandise preferences to parents who may not be as technologically astute as they are. And this may stretch thru the college years, as well, up until young adults become truly independent of their parents.

But at what point is that transition complete? When should you start trying to reach customer more exclusively on-line and via email?

And perhaps even more difficult, is how to market new merchandise to previous buyers. Less of a problem if your SKU base is small. But if you have a large SKU base, how do you select the SKUs / styles / products to highlight in your electronic promotions?

That’s the inherent conflict between electronic promotions (which need to be more narrowly focused) and paper-based promotions (which may be more broadly inclusive). Electronically, we can only highligt a few products and hope we hit the right button, or the customer decides to proceed to browsing. On paper, we have to pick the cover and high visibility pages, but we can sell multiple items on multiple pages — a much wider margin for errors in judgement without leading to poor results.

Remember, a web store is still more of a buying channel, than a shopping channel. And email is easily and often ignored.

There is movement in the list industry towards appending email addresses to buying history, just as we have paper mail addresses with buying history. This is a very important trend, but we have a long way to go.

One conflict between good email targeting and “privacy” is that, in response to privacy concerns, we have “self-regulated” our industry into a box where email addresses are never shared, so our customers get blasted by junk email at a level that’s even worse than the junk paper mail they complained about for so many years.

As an industry, we need to make sure we’re as diligent about collecting email addresses as we used to be about collecting paper mail addresses — and we need them linked to each other.

And frankly, I suspect new technology devices will make it as easy to truly shop at a web store as it is to browse thru a retail store or flip thru the pages of a paper catalog.

Time will tell. But isn’t if fun to speculate!!

Filed under: Direct Commerce, Uncategorized

Branded Operations

I was with a client yesterday and was reminded about an article I wrote a couple of years back, entitled, Branded Fulfillment. My client and I were discussing the perspective that marketing types bring to the table when discussing prospective outsourced solutions.

Regrettably, all too often, both marketing and operational executives view outsourcing only as a way to cut expenses — and if you can’t cut expenses, then just continue to do it yourself.

And equally regrettably, many outsources see their business the same way.

The result is that prices for outsourced services are under immense pressure to at least stay flat, if not move downward. And I understand that, and think it’s fair — up to a point.

The responsibility of Operations is not just to execute or deliver whatever Marketing wants, it is to deliver on the promise of the Brand. I admit, if your Brand is not important to you, then just go for lowest possible cost. But if your Brand has value to your business, then there are additional considerations.

• What kind of experience do your customers expect of your Brand?
• How tolerant will your customers be of operational errors, such as miss-picks, misships, damaged parcels? What are your current KPI’s in these areas?

Would expect LLBean to offer the same Brand experience as Nordstrom? or Saks Fifth Avenue? or Tiffany? Of course not.

And that one question should point out the need make sure your direct-to-customer operations deliver on that Brand promise.

Outsourcing can save money in some areas and may cost more in other areas by offering superior service at a cost that may be higher, but may be worth the price.

And the calculation of “effective cost” is much more complex than most accounting types appreciate. Here’s just one example of what I mean:

Let’s suppose for a moment that your current internal fulfillment operations have a overall shipped order error rate of two percent. That is, two percent of the orders you ship have something wrong with them when they leave the shipping dock.

It would not be unusual for that 2 percent to account for 10 percent of the customer service calls.

If an outsourced solution handles customer service inquiries at a cost that is 15 percent higher than your internal cost, but at the same time reduces the shipped orders error rate to 1 percent, then you save money (specifically, you save 57.5 percent of the customer service cost related to these calls).

So, just remember that calculating the cost to fulfill the promise of the Brand is more than just about dollars and cents, it’s about customer retention, customer satisfaction and customer expectations — if your direct commerce operations don’t meet those criteria, the cost in dollars won’t matter.

Filed under: Direct Commerce, Uncategorized

Retail Customer Service is driving my wife to the web

I don’t know if our experience matches yours, but here’s the scoop:

Customer service at several of the national chain department stores where my wife and I shop is simply atrocious. We’ve gone into a variety of departments ready, willing and able to buy, but couldn’t find what we were looking for. So, we start looking for a clerk to help us. The only clerks we find are often anchored to the check-out counters, and that, in itself, is understandable.

But there is no one else available to help.

So, faced with such a dilemma, we often find ourselves leaving the department store seeking a smaller “niche” store, or returning home to search the web — where at least we have access to many tools which will help us find what we’re looking to buy.

I’ve long contended the web is a buying medium — in the sense, that if I know what I’m looking for, at least in general terms, it’s often easier to find and buy it on the web than it is at the mall or shopping center.

Thus, in the face of at least flat, if not declining, retail sales, ecommerce & mail-order sales have continued to grow at relative to overall retail sales. The details of this are available at my web site, where you can download a chart of Retail Sales by Month, or a spreadsheet file of the actual data.

I wonder if retail stores could organize their inventory sufficently to enable a computer-based local search of what SKUs are on-hand and locate the product on a map of the store. Wouldn’t that be cool?

Filed under: Direct Commerce, Uncategorized

New York extends the definition of tax nexus

Under the headline, NY online retail tax approved, DM News reported pending legislation in New York that would require online retailers with no physical presence in the state to collect and remit sales tax on any sale delivered to a New York address.

Based upon the article, the nexus theory is that retailers, such as Amazon, derive sales thru affiliates which do have a New York physical presence.

This raises many issues — political, legal and pure business.

Political — another example of liberal Democrats who seek any and every opportunity to levy a tax on anything.  They’ve been trying to find a way to so this for years.

Legal — there seems to be a rather obvious legal problem with a state taxing interstate commerce, a privilege restricted by the U.S. Constitution to the purview of the federal government.

Business — does paying shipping and sales tax have the effect of depressing online sales activity.

There is nothing to be done about the political implications — Democrats will always try to tax whatever they can get away with taxing.  And Democrats will likely continue to dominate the State of New York for the near term.

Even the DM New article references the likely legal challenge to the law.  Good for whomever takes it on.  I hope they win and the law is voided.

But adding a sales tax will likely have a depressing effect on some online sales.

All direct commerce sales — whether via a catalog or online — are about convenience more than price.  But price is still a factor.  I suspect lower-valued sales will be effected.  Higher valued sales are likely to benefit from “free shipping for orders over $X.”  Thus, once you get over $X, a buyer is faced with paying the same sales tax they would pay if they bought it locally at a store, and the convenience and price ratio is really unaffected.

However, if a buying transaction does not benefit from “free shipping”, I suspect the imposition of sales tax can almost double the non-product expense related to the purchase.  So, a $50 purchase + $3.75 tax + $5 shipping becomes a $58.75 expense.

My rule of thumb is that if tax + shipping + handling is more than 10 percent of the value of the products, then sales may be negatively effected.  

I think this is also likely to be a major factor in shopping cart abandonment rates online.

But what do I know???

Filed under: Direct Commerce, Uncategorized

It’s hard not to comment about this

The AB&C Group, a third-party fulfillment and customer service provider, shut it’s doors Friday, March 14, 2008. Multichannel Merchant carried a story on March 19, questioning what would happen to their clients.

Now, in the name of full disclosure, I must state that I worked at the AB&C Group from 1993 to 1999. When I left, I was Chief Operating Officer.

In 2006, Blue Sky Brands bought the company from it’s sole shareholder.

Blue Sky Brands was funded by venture capital. At the time of the AB&C acquisition, they owned at least two catalog titles, Paragon and Bits & Pieces. Since the acquisition, they’ve acquired additional company-owned titles: National Wildlife and Wintherthur. They continued to service clients they had before the acquisition and picked up additional clients along the way. Most recently, the Smithsonian Catalog moved to AB&C in the summer of 2007.

Informal reports I heard suggested that the company-owned catalogs did not perform well during 2007Q4. Although the AB&C employees, with whom I’ve spoken, said the company maintained service levels for both internal and external clients thru the holiday period.

The cause of the company’s collapse is apparently the failure to secure the additional financing needed to maintain operations thru the traditional valley of late Q1 and Q2.

I don’t doubt that report.

AB&C’s collapse is sad to watch, both personally and professionally. Personally, because a bunch of hard working people lost their jobs, thru no real fault of their own.

Professionally, because it’s another black mark on the outsourced fulfillment industry. The clients who were at AB&C are faced with rushing to find new vendors, rushing to just survive. It will not be a pretty transition.

I consult in what I call Direct Commerce Operations — and the outsourced segment of this industry suffers from under-capitalization and relatively low margins. Not a very attractive investment for venture money.

I certainly don’t know the details behind AB&C financial ills, but, if venture capitalists are going to continue to invest in this space, they need better advisors — for the sake of their investors, their portfolio companies, the clients of those companies and the employees of those companies.

Filed under: Direct Commerce, Uncategorized

What I see in the crystal ball?

Direct commerce operations is certainly a diverse marketplace. Especially because of range of businesses which fall within its boundaries. And this range is defined, at the very least by these factors:

• the size of the business, whether measured in dollars or transactions
• the management philosophy of owners or corporate leadership
• the existing assets of the business

Interestingly, there seems to be little persistent consistency among how companies involved in direct commerce handle their operations requirements.

Some large companies run it in-house and some outsource it. Most very small companies have to run it themselves, because they’re too small for an outsourcer to take them on. Mid-sized companies go both ways as well.

And every company I’ve ever worked with wants to get some outsourcer to assume as much of the risk as possible, without fair compensation for the risk they take on.

But with all that said, I think we’re going to see three things happen more often in the next few years:

Hosted order management applications

There is a lot to be said for having control of your order management system. Unfortunately, many on the marketing side, so not fully appreciate the importance of the OMS to the customer care function and to the marketing analytics function.

But OMS’ are very complex systems and require more attention and more experience than most companies have or can buy. Many OMS systems I’ve examined closely still don’t handle the FTC Mail Order Rule properly.

As a result, I’m encouraging client to look at hosted solutions for the OMS. There are a few out there. And in many situations, they are the best available solution.

Separated DC & CC operations

For sometime, there has been somewhat of a working assumption that it was best if the distribution center operations and the customer contact center operations were managed under a single roof — at least for direct commerce purposes.

The problem this sometimes results in is that sometimes, the companies who you can get both services, can’t scale both operations adequately to meet peak season volumes.

Separating these operations to outsourced solutions who specialize enable you to use larger service providers with more diversified resources to manage peak.

One-stop shops will continue to serve a narrowing market

One-stop shops, by definition, provide order management, distribution and customer care services. There are many small operations around the country. A much smaller number provides services to mid-sized businesses which want to outsource. An even smaller number provide services to very large companies who want their direct commerce operations run outside of their normal distribution / customer service operation.

Due to the overall mediocre performance of many of these one-stop shops, the market for their services is going to continue to decline.

I’m curious to know if you see things differently.

Filed under: Direct Commerce, Uncategorized

2007Q4 was mixed for fulfillment operations

It’s always a little dangerous to generalize about an industry as diverse as direct commerce operations. But at the very least, I can say there were some significant break downs at some fulfillment operations, both in-house operations, as well as outsourced operations.

I’ve received promotional offers of “20% my next order” to compensate me for messed up or delayed orders from one merchant (even though I had no problem with my order). Their email even cited all of their problems, as they apologized and made the offer.

I’ve also been given confidential reports from merchants about how serious their Q4 problems were. Miss-picks. Inadequate capacity planning for contact centers and distribution centers.

None of the problems seem to be really new or different — just more of the typical problems in such operations — unreliable volume forecasts, unrealistic expectations about productivity in the DC, unrealistic expectations about call patterns or average-handle-time, and poor inventory management. Even an occasional break down in order management applications.

I also think the problem is exasterbated by the continuing explosive growth in online commerce. In the face of declining same-store-sales in 2007Q4, many merchants continued to see growth in their online store sales. Driven by convenience, poor in-store customer service, and uneven inventory availability.

But I think the root cause is poor communications. Marketers don’t want to fess up to changing forecasts, because of their revenue impact. Contact center operators don’t want to admit being understaffed. Buyers don’t want to admit to being unable to manage the product supply chain. DC managers think they can simply throw bodies at any problem.

And on top of this, often there is insufficient management attention to the discipline of information flow and key performance indicators.

We all need to share more information and be more candid about what the facts really are.

Filed under: Direct Commerce, Uncategorized

Five Steps to an Optimized Customer Experience—and a Stronger Brand

This title is from an article in Multichannel Merchant by Scott Glatstein. It’s a well written piece and the link behind Scott’s name will take you to the full text of the article at Multichannel Merchant.

His five steps are:

• Identify your reasons to believe.
• Identify customer touchpoints.
• Determine the most influential touchpoints.
• Design the optimal experience.
• Align the organization to consistently deliver the optimal experience.

You should read the complete article to appreciate Scott’s perspective. My focus is just on the last point.

All the efforts to “design” the right customer service experience fails if your people don’t deliver it to your customers. That’s why is must emanate from the top. And persistently so. If anyone doubts the importance of good customer service to the CEO, then your chances of actually delivering it to your customers declines.

Good customer service must be a pre-occupation of everyone in the company — manufacturing, purchasing, marketing, operations, customer service personnel — whether the staff in on your payroll or outsourced. Everyone needs to get the same message about customer service.

If the CEO asks the order picking staff what the definition of good customer service is, will they know the right answer? It needs to be on everyone’s mind, all of the time.

Filed under: Direct Commerce, Uncategorized