The Solutions Conundrum

by Bill LaPierre on June 19, 2016

I’m going to stick with the wit and wisdom of Frank Oliver for another week.

I learned last week that the Solutions catalog (owned by Norm Thompson/Bluestem Brands) is closing down.  I emailed Frank and asked him what happened to the “problem solver” catalog market? Frank’s reply – which I will share with you in a minute – is a perfect encapsulation of what is happening today, at least among hard goods catalogs.
Solutions-May-2016

Years ago, Solutions was a “tool/gadget” catalog, one of several that have gone away, including Brookstone’s Hard-To-Find-Tools (where Frank and I worked), Leichtung, and Plow & Hearth’s Problem Solvers.  But over time, Solutions evolved into more of a home furnishings catalog, and even offered some apparel. There are still some tool/gadget catalogs left, such as Garrett & Wade, Whatever Works, and Improvements.  However, Whatever Works and Improvements can hardly be classified as having “fiendishly ingenious” products, which is the description we used to define the ideal product for the old Brookstone Tool catalog. Like most of the other catalogs of this genre, they either drifted into home furnishings (lots of patio pillows), or sex toys (Whatever Works).

Since most of the catalogs of this genre “drifted” away from their original product mission, was there ever a market for “tools/gadgets”? Could it be sustained?   I always think of Tile Grout Whitener we carried at Brookstone (basically a bottle of “white out” with a tiny wheel applicator, which we sold for $11.95/bottle and which we purchased at  $1.19) as being a product that never went out of demand, always sold in multiple units, had great margins, but was the kind of product that upper management hated simply because it appeared too “low-end”. Was this type of thinking found elsewhere? And what impact does the online world have on these types of catalogs? Don’t people still need gadgets they didn’t know they needed or existed?

I knew Frank would offer his thoughts. But he supplied far more than what I was expecting, which I share with you here:

“Oh Billy, Why do catalogs fail?  Here’s where you marketing folks can relax and take credit for about 10-15% of the downfall.  We all know that new product drives future sales, right?  All CEOs cry for the next “iconic” blockbuster, just like the tile grout whitener.

But what do catalogs really need?  More margin dollars?  More exclusivity? More affordable price points?  More branded items? A new logo design? No, no, no.

Without a small powerful spark, our cars can’t get out of the driveway, no matter how fast they look!   What’s the spark for catalogs?  What’s the “Solution”?

Problem #1: It’s the merchant. Sadly, most buyers I have met totally lack true passion for product.  They don’t personally test or evaluate efficacy, like lemmings they believe the vendor literature.  ‘Fiendishly ingenious’ is a discovery process, not a Google search term!  We all talk so much about innovation, but I contend that inventing is really tough.  Instead merchants must be ingenious, curious and in-tune with their suppliers’ capabilities.  Without that, they are just “picking stuff“.  Product sourced and presented without passion is just more stuff we don’t need.

Problem #2: Ingenious solutions are now free.  Consider any household project or repair; do I go to Garrett Wade to find the solution?  Nope, I search  YouTube and instantly get a tutorial in graphic detail.  The “stars” of the video tell me what to buy at Lowe’s or Walmart to complete the repair.  Who needs mail order?

Problem #3: Why do tool/gadget catalogs drift to home furnishings?  When passion drifts to “taste” level, merchants spend too much time on color and pattern.  So they present uncomfortable Asian furniture in wonderful florals……. A chair is not hard to understand, but LaFuma still has a superior design to relieve lower back pain.  And it’s well worth the price if your back feels better at the end of a long day, right?  The knock-offs just look like the right design, not the same benefit (but lots more margin!)  When we prostitute product, customers fall out of love with us. Garrett Wade survives because they strive to deliver interesting, well made product that has practical benefit.  Higher priced, yes.  But “curated” and authentic old world sourcing is refreshingly unique in a sea of ‘Made in China’ crap.

So there is certainly room for more “unique solutions” catalogs/on-line products.  Having qualified merchants that can deliver that promise is the struggle.  How can I passionately sell you a Porsche, if I have never driven one?  Customers smell BS and the internet keeps everyone honest.”

Ah yes, customers can smell BS.  A succinct explanation from Frank on the internal issues catalogs deal with on the road to catalog survival.

Frank has always been a believer in the principle that there is only one way  for catalogs to acquire new customers – you have to offer something new. But he is also a believer in the idea that you have to know the product, you have to have a “passion” for the product. However, Frank is not a bleeding heart merchant who throws the word “passion” around lightly. He doesn’t cite trendy catalogs like Tom’s or Neiman Marcus when saying a buyer has to have passion for the product. To him, passion means having a complete understanding of the use of, need for and practicality of a product. If Frank were an apparel merchant, he would not only know whether a garment was “in fashion”, but would also know whether it would last, how it was made, how it would drape on a person, how it could be accessorized – all things he knew about the hard goods products with which he worked.

But not only must the merchant be passionate for the product, they have to actually be able to find new product that will sell. Being passionate and being successful do not necessarily go hand in hand. That’s were Frank’s engineering mind helped. Frank studied his “gross margin percentile” ranking reports, and watched how certain products were trending. He was constantly thinking of “line extensions” for products that were trending well, or that had reach the end of their life, but which could be replaced by the next generation of that product.

He met with each supplier to get new ideas. However, he rarely relied on “product reps”, largely because they were usually pushing products that benefited themselves, not the catalog, and there was the added cost of the middle man.

Frank’s “passion” took him far afield. I remember him going to the “Shot Show” (The Shooting, Hunting and Outdoor Show), even though we did not carry those kinds of products. Frank’s experience had taught him that these kinds of shows would produce products he had never thought of, that could be appropriate for our customers, and there were usually no other competitors lurking about, so Frank could get exclusives.

Here is an example of how the lack of good merchant talent is nothing new. When Frank left Brookstone, we hired a new buyer for the Tool catalog from Sharper Image. Everyone at Brookstone was excited by this “strategic hire”, until we discovered that this new buyer had lived in an apartment his whole life, and never been a homeowner. The National Hardware show – one of Brookstone’s largest sources of new products – was rapidly approaching, and it was decided that I would go to the Hardware show with the new buyer to add a level of “practicality” to what he might consider as successful product selections for a tool catalog aimed at homeowners. Just as we entered McCormack Center, I spotted Bob Villas and Norm Abrams from This Old House (this was when Villas was still associated with the show). The new buyer had no clue as to who either of them  were. That’s when I knew we were in trouble! As I recall, several of the products that I found at the show performed better than most of those selected by the new merchant.

The term “passionate merchant” has become overused, and should be banned from catalog lexicon. What we need are successful merchants, who possess passion as well as many other qualities, skills and knowledge of their specific product niche. If you are searching for a buyer for a home fix-it catalog, you might want to ask if he/she has ever had to replace the caulking around a window that the squirrels chewed last winter. If they have no clue what you are talking about, keep looking. Otherwise, you just end up with a merchant that is “picking stuff”.

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by Bill LaPierre

VP – Business Intelligence and Analytics

Datamann – 800-451-4263 x235

blapierre@datamann.com

Analysis for Merchants is About Insight

by Bill LaPierre on June 12, 2016

Back in January, I posted this article on my approach to merchandise analysis:  Merchandise – The Reason That Catalogs Don’t Sink Like The Titanic

At the end of that article I promised that in a future posting, I would offer a very different way to measure and view merchandise performance, one favored by my good friend Frank Oliver. He was the merchant for the Brookstone Tool catalog (about 25 years ago) when I was the marketing guy for the catalog.  I ended that posting in January with a quote that Frank sent me in an email earlier that week, offering his insight on what’s troubling most catalogs these days: “Oh Billy. Catalogs don’t sink like the Titanic with one major collision, but die from a thousand “pin-holes” flooding the company with dead inventory, annoyed suppliers and ex-customers who won’t even take the time to post a bad review on the junky products”.

It took me a while to get back to writing about Frank’s insight into merchandise performance. I was busy with many other things, and wanted to do justice to the topic, and to Frank. Compounding my delay in getting to the subject was Frank’s once a month emails covering a variety of catalog topics, all of which I realize should be incorporated into my planned Frank Compendium.

Simply because of the volume of worthwhile wisdom Frank has shared with me over time, this needs to be a multi part look at merchants, merchandise performance, and the general state of our industry.

For the past 20+ years, Frank was the merchant and product developer at Gardener’s Supply in Burlington, VT. If you caught his presentation at NEMOA a year ago, you know Frank introduced a number of innovative products in his career at Gardener’s. In his retirement, he offers me a regular sounding board for questions I have on merchandise and merchandise performance.

His time at Gardener’s and Brookstone alone should rank him as a qualified expert on merchandise. But prior to all that, Frank was a manufacturing engineer at Combustion Engineering. I think it is his rational, “engineer’s mind” that always made Frank such a great merchant, certainly for hard goods.

OK – so enough background on why I think Frank is one of the best merchants/ buyers/ product developers in the industry. Now let’s focus on his insight.

As I mentioned in my earlier posting, I look at sales/book/product as my primary method of measurement of merchandise performance. It is a precise method of determining overall product performance book to book, season to season. In combination with margin/book/product, and profit/book/product, it can reveal which product categories should grow, which should retract, and at which price points new products should be introduced.

Once, while explaining my method to Frank, he felt I was being just a little too focused on the incremental profitability for each catalog mailing. Frank believes that good merchandise and presentation analysis for merchants (maybe not for marketers or accountants) is about insight, which is typically not part of the robotic decisions made by traditional square inch analysis which so often kills new products before they have a chance to succeed.

According to Frank “merchant insight can only come from good trend and cross campaign analysis, which the discreet product sales or profit numbers found in traditional square inch analysis, simply do not, indeed cannot address.  To a merchant, ‘absolute’ profitability and sales numbers are ‘meaningless’.  Why?  Because they have no direct relation to whether that product is getting stronger or weaker.  Why?  If marketing spend goes up (meaning more circulation), line item profit goes down, with equal sales…… Did the product perform worse?  How do I trend this data when embedded variables not related to presentation strength are included? Cross campaign analysis simply cannot be done.  So what happens? Merchants start focusing on last year, same catalog, ONLY! They ignore what is happening with the product today.”

Frank believes that when merchants manage merchandise by the sales numbers alone, their catalog ends up with all black pants. The catalog – though  efficient – becomes boring, and dies a slow death. Frank is not one of those merchants that believe that if you have enough data, success will ensue, because “trends” are not always reflected in the sales data until it is too late. On the other hand, I have seen and worked with far too many catalogs where the merchants used no analytic tools/reports, simply using their “intuition” to determine which products to keep or omit, and they fared no better in performance.

So, what is the alternative? What is the analysis method that provides merchants that needed “trending insight”?

Frank uses two simple measurements. The first is Gross Margin/square inches, which he then ranks into equal percentiles from 100% to 1% in descending GM$/sq.in. order, or what Frank terms the Gross Margin Percentile ranking. (If you had 600 presentations, the top six GM$/sq.in. producers would get 100th percentile, the next six 99th percentile, etc.).

Gross-Margin-Percentile-Cha

According to Frank, “this ranking scale allows ‘apples to apples’ comparison over disparate seasons.  It also provides a means to perfectly understand product life trending, even when corporate sales are fluctuating wildly. This is not only the most powerful tool for product assortment optimization, but MOST important, everyone understands it! Moreover, raw gross sales numbers are not as important to a merchant trying to improve the overall performance of the catalog because ultimately it is gross margin dollars that you take to the bank.”

Here’s how it works. A product may have low sales in a book because it was given a poor location, with little space. But if the margin dollars are adequate, and given the small amount of space (sq. inches) assigned to it, the GM$/Sq. In will be relatively high. And when viewed in the “percentile ranking”, let’s assume it achieved 85%, meaning it performed better than 85% of the remaining products in the book – then hey, it’s a keeper. This is where the merchant with passion takes over. What does the merchant need to do to drive additional sales for that product? Increase space? Improve location? Lower the price (slightly)? All of these things could work – but the merchant may never have been drawn to this product if he/she had relied strictly on sales dollars. (Note: more on merchants with passion next week).

Frank’s second performance measure is the Power Index (Percent of Gross Margin/ Percent of Space). An index of 1.0 would indicate perfect balance.  For example, Household products may generate 12% of total GM $ using only 10% of total presentation space, a Power Index of 1.2 .  This strong index would indicate more space and new product would be devoted to this category next year.  Indices under 1.0 need more attention, less space, less product, careful growth of new presentations.

Frank’s performance measurements are really no different than the ones I presented in January and use in doing my analysis for clients. They both assign a factor to product performance that takes into account sales, margin and square inches (space). Mine also factors in circulation, and mine attempts to quantify the quantity of products to add or delete in a category. You may use something similar at your company, embedded in your “square inch analysis”.  Regardless of which method you use, you can see the obvious advantage of not simply looking at gross sales data alone. That’s like looking at response rate alone when evaluating circulation performance.

Why is there no standard method of merchandise analysis between companies? There certainly seems to be fairly well agreed upon methods of circulation analysis – why not merchandise analysis? In my opinion, one of the reasons is that the new world of ERP systems and huge databases has not been a boon to merchandise analytics. As an industry, we have come to rely too much on these systems, and most of them lack the ability to do one simple thing – track trends over time. They are great at giving you a snapshot in time, or a snapshot of a specific mailing/campaign, but lack the ability to track performance over time.

That ability becomes the second part of Frank’s analysis – building a spreadsheet that tracks the GM percentile ranking of each product over time. At Brookstone, Frank was a spreadsheet zealot (and this was back in the days of Lotus 123), enabling him to track his percentile ranking book to book. It gave him the “insight” that so many merchants are missing today.

What is also significant to realize is that Frank did this analysis himself, while finding and sourcing new products, working with vendors to improve existing products, and all the other things that merchants do. That may seem like no big deal, but in my experience, it is a rarity among merchants, who feel that product analysis is beneath them, or is simply not part of their responsibilities.

What is the best merchandise analysis option? Obviously a combination of both my method and Frank’s. When I’m asked to do a merchandise analysis by a client, it’s not because things are going well, and they want to improve their game. It’s because they’ve hit the iceberg, and are heading for the lifeboats.  My analysis is not meant to provide subtle insight – it is meant to shine a huge spot light on what should be mind-numbingly obvious issues, mainly at the category and sub-category level.

Conversely, Frank’s method is aimed at determining the performance of individual products, and shines the spotlight on those that are trending up or down.

Finally, if you combined these two methods with Kevin Hillstrom’s Elite Merchandise Program (which compares your merchandise performance against the industry, and within different segments of your buyers), you would have a truly insightful view of your merchandise performance.

And here is something to think about – catalogs go to the extreme of having multiple methods of marketing and circulation analysis. Catalogers routinely spend money on matchback, on modeling, and on demographic reviews of the customers all in the name of getting insight into their customers and their marketing efforts. But they rarely devote equal resources to getting merchandise insight, and yet merchandise performance is – in my opinion – responsible for 60% of the success of any catalog mailing.

So pick a method, keep it simple and measure performance at the product level over time. You’ll become a far better merchant.

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by Bill LaPierre

VP – Business Intelligence and Analytics

Datamann – 800-451-4263 x235

blapierre@datamann.com

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