Coldwater Creek: A Multichannel Case Study

NOTE: This is not an indictment or criticism of Coldwater Creek. This is such a powerful case of how a multichannel brand evolves that it warrants sharing.

In the late 1990s, Coldwater Creek was a growing apparel brand, defying the best practice pundits by offering apparel in catalogs without the benefit of models. Sand Point, ID was the catalog apparel capital of the Pacific Northwest.

Around the year 2000, Coldwater Creek caught the "multichannel bug". Take a peek at the image at the start of this post (source = 10K and 10Q statements from Coldwater Creek).

Let the evolution begin.

Take a look at sales generated over the telephone, sales that are generated by the mailing of catalogs. After hitting $320 million in 1999, sales have dropped like a rock --- projected to land somewhere around $64 million dollars this year. Granted, catalogs circulated have dropped by more than a third, but by and large, the sales drop represents the death of the telephone channel, a channel completely cannibalized by the internet.

The multichannel pundit would say, "Yabut, catalogs drive sales in all channels, do a matchback analysis dude". And the multichannel pundit is right.

Look at online sales. Internet volume hit $142 million in 2001, then basically stalled for two or three years at a time when the rest of the world experienced wild online sales growth. Catalog mailings did not help the online channel, declining drastically during this time.

You can see that catalog expense dropped significantly at a time when retail sales were growing significantly.

And then the bubble hit.

It's easy to see the bubble, when looking in the rear view mirror. Take a look at the explosion in sales between the end of 2004 ($590 million) and the end of 2006 ($1.1 billion). WOW. Stores doubled, retail sales more than doubled, online sales increased sixty percent, with phone sales losing four percent.

At the end of 2006, life is mostly good, though comp store sales are beginning to show signs of weakness. The stock price at the end of the fiscal year was at $25.00, down a bit from a high of $31.00.

Store investment is a multi-year process. Through the view of the glasses we wore in 2006, it would make sense to continue to invest in new store openings. Grow baby grow!!

And then the economy begins to crumble.

It's hard to separate out the effects of the economy, and the impact of going from 114 stores at the end of 2004 to more than 350 stores today (some cannibalization?) --- but the combination of factors drubbed comp store sales. Declines of about twelve percent in 2007 (the 10K statements make it hard to calculate annual comps) are matched by declines of about sixteen percent this year --- and will likely get much worse once Q3/Q4 comps are added to the mix.

In other words, over two years, same stores are generating almost 30% less business than they were two years ago, at the peak of the bubble. Allow me to state the fact another way ... if a store generated $2.5 million in sales in 2006, it is generating $1.8 million today.

This is the failure of the retail model, the failure of the integrated multichannel brand. The management consultants and vendors and research organizations who promote all this "clicks and bricks" stuff haven't always had the benefit of working in a retail environment during an economic downturn. Once you've been blessed with that experience, you view the world in a different manner.

In catalog marketing, if catalogs are failing, you quickly "flex" the business. You cut circulation and get profitable in a hurry --- hurting the top line but significantly improving the bottom line.

In online marketing, you can mix up your website, you can dynamically change your e-mail marketing strategy, you can change your paid search strategy or portal advertising or affiliate program. You can be nimble. You change, you test, you react, you evolve --- quickly.

In retail ... you commit to open stores in late 2006, based on sales projections from data in 2006 --- only to realize a distaster in late 2008. And you cannot easily get out of the stores --- stores have five or ten year leases that the brand has to honor.

The Coldwater Creek of 2008 looks nothing like the Coldwater Creek of 1999. A single-channel catalog powerhouse became a huge retail brand with catalogs supporting a website that supports retail sales. If you want proof of this, take a look at the reductions in catalog and magazine advertising expense, and look at this quote from management in the most recent 10K statement.

• "Shift in Marketing Approach: Historically, we have used a broad based marketing strategy of national magazine advertising and catalog circulation, with television advertising on a test basis. We are now shifting to a more point of sale, in-store focus. Our efforts are focused on maintaining and better engaging our best customers, as well as attracting new customers through select advertising placement. We believe this more focused approach will result in a reduction in our spending in 2008 by approximately $35 million verses fiscal 2007. During the first half of fiscal 2008, marketing expense, primarily including national magazine advertising and catalog circulation, decreased approximately $22.6 million, as compared with the first half of fiscal 2007."

When a brand evolves to a retail focus, it becomes critically important to cover the heavy fixed cost component of all retail stores. A catalog business flexes, an online business is nimble, a retail business is a beast that must be fed, or suffer dire consequences.

Corporate employees began to face the dire consequences earlier this year, with more than sixty employees in the corporate office losing their job.

Take a look at the share price of Coldwater Creek stock. Do you see a bubble here?

• January 2004 = $4.33.
• January 2005 = $13.35.
  
• January 2006 = $22.50.
• October 2006 = $31.06.
  
• January 2007 = $25.39.
  
• January 2008 = $6.74.
  
• October 2008 = $3.59.

Coldwater Creek evolved from a profitable $362 million dollar catalog business with emerging channels in 1999 to a 2008 break-even billion dollar brand with most of the multichannel bells and whistles the pundits could ever ask for..

Use Coldwater Creek as a case study for the ages.

Always remember that established channels lose ground to emerging channels during the growth stages of emerging channels.

Always remember that direct mail advertising drives online and retail sales. Direct mail is "selfless" --- hated by many customers, but a selfless workhorse within a brand.

Always remember that all forms of online marketing and digital marketing drive online and retail sales. Online and digital marketing support a retail channel.

Always remember that retail is a selfish beast, a channel that needs to dominate, a channel that does not like to support other channels.

Always remember to run profit and loss statements for new/existing stores, assuming that your business is twenty percent weaker than it is today --- if that happens, do you have a profitable retail business?

Always remember that correlation does not equal causation. We exploded our multichannel opportunities during the rise of the bubble, diving into the "clicks and bricks" theory. At the peak of the bubble, the "multichannel" concept seemed great, with sales to support theories shared by pundits. Now ... not so great. Where are the pundits when the economy goes bad?

A final question for you: Would Coldwater Creek have been better off being a profitable $400 million dollar catalog+online brand, or is Coldwater Creek better off being a break-even $1.1 billion dollar retail brand supported by a website and catalog advertising?

Your Company's Multichannel DNA

Here's what I did. I scanned the 2007 10-K statements of five publicly traded companies:

• Nordstrom (JWN).
• J.C. Penney (JCP).
• Williams Sonoma (WSM).
• J. Crew (JCG).
• Coldwater Creek (CWTR).

Within each document, I scanned terms, like STORES, RETAIL, MULTI-CHANNEL, CATALOG, ONLINE, INTERNET, WEB, MAIL ORDER, CUSTOMER, CONSUMER, E-COMMERCE, E-MAIL, and DATABASE.

After tabulating the results, I was able to rank each of the five brands on the basis of how often these terms were used. The terms reflect how the management team of each company views the world. Let's take a peek at the findings.


Stores / Retail: The results aren't surprising, with Nordstrom and J.C. Penney skewing heaviest to these terms. Clearly, these brands view themselves as retailers, not so much as direct marketers.

• Nordstrom = 68.1%
• J.C. Penney = 67.3%
• J. Crew = 56.4%
• Coldwater Creek = 53.3%
• Williams Sonoma = 51.5%

Catalog: Guess which companies used this term most often? Sure, the ones with a catalog heritage (though JCP shows how they changed over time).

• Williams Sonoma = 14.9%
• Coldwater Creek = 12.5%
• J. Crew = 10.6%
• J.C. Penney = 5.6%.
• Nordstrom = 4.7%.

Internet: This one is a bit murkier to interpret. I'll leave it up to you!

• Williams Sonoma = 11.6%
• J. Crew = 11.5%
• Nordstrom = 9.7%
• J.C. Penney = 8.1%
• Coldwater Creek = 7.8%

E-Mail: Do these companies care about e-mail marketing enough to say something about it? Nope. E-Mail marketers appear to have work to do to prove the viability of this channel to Sr. Management.

• Coldwater Creek = 3.0%.
• J. Crew = 0.9%
• Nordstrom = 0.0%
• J.C. Penney = 0.0%
• Williams Sonoma = 0.0%

Multichannel: We hear the buzzword over and over and over from the vendor community. Do the management of these brands talk about it publicly? Not really.

• Nordstrom = 2.9%
• Coldwater Creek = 1.8%
• Williams Sonoma = 0.4%
• J.C. Penney = 0.3%
• J. Crew = 0.3%

Customer: Often mentioned in context with the direct channel, this illustrates how often these brands talk about serving customers, vs. managing stores. Notice the inverse relationship with retail focus.

• Williams Sonoma = 21.4%
• Coldwater Creek = 20.3%
• J. Crew = 19.8%
• J.C. Penney = 18.8%
• Nordstrom = 14.7%

Database: Does anybody mention metrics from the customer or e-mail database? Nope! A tip of the hat to Coldwater Creek for at least having a bit of database information available.

• Coldwater Creek = 1.3%
• J. Crew = 0.6%
• Nordstrom = 0.0%
• J.C. Penney = 0.0%
• Williams Sonoma = 0.0%

Does Any Of This Mean Anything? Yes!

The management teams of each company speak publicly, in an official manner, once a year. When they speak, they signal to the public what they care about.

Nordstrom and J.C. Penney care about retail, though Nordstrom talks more about being multichannel than anybody else. Clearly, Nordstrom wants to use the direct channel to inspire retail growth, given that they don't talk about their catalog or online channels much.

Williams Sonoma management discussions are skewed toward catalog. Williams Sonoma speaks about the online channel more than anybody else as well. The DNA of this company is all about direct marketing. Even though this company has a veritable plethora of retail locations compared with somebody like Nordstrom, the way this company views the world is fundamentally different.

J. Crew has a direct marketing skew, though the skew is focused online. The web means something more to J. Crew management than to the companies that have a catalog focus.

Coldwater Creek has the most unusual DNA of the companies listed. Management appears to view channels from a marketing standpoint, mentioning catalog marketing, e-mail marketing, and the customer database more often than the rest.


The data qualitatively illustrate that the management teams, and in all likelihood the culture of each company, have a DNA that determines "who they are".

This view of "who they are" may determine how each company approaches the future. Companies with a catalog heritage will believe in catalog marketing as a solution. Companies that view the web as an integral tool will use it to drive future business. Companies that view stores as the core part of the business might use direct marketing to improve comps.

What is the DNA of the company you work for? How does your DNA shape how your company views the future?

Coldwater Creek New Store Financial Strategy

For those of you who write me looking for information about company expectations for new stores, this comes to us from the last Coldwater Creek Investor Conference Call:

"Our store economic model has been to build stores that are about 6000 square feet, achieve sales of $500 a square foot at maturity which is three years down the road and those stores pay back from an economic or cash standpoint in less than 12 months. We continue to believe in that model and in that strategy."

Coldwater Creek. Wow.

Sometimes you take a look at the financial documents provided by Coldwater Creek, and you are amazed at the transformation of what was once a humble little cataloger located in Northern Idaho.

According to management, retail is now the primary growth vehicle for this business. Already boasting 255 stores in 146 markets, the retailer expects to grow to up to 500 stores within five years.

For people like me, steeped in a traditional cataloging background, the transition out of "traditional" cataloging has been fascinating to watch. The brand will spend an amazing $32,000,000 in national magazine ads in 2007, and even tested television ads in late 2006. The catalog investment is shifting as well. Instead of investing in traditional catalogs that drive sales through a telephone channel, Coldwater Creek is instead mailing more catalogs designed to drive sales to stores --- circulating the catalogs to store markets.

Coldwater Creek also boasts an e-mail list of 3.2 million names, an amazing number for a business selling just over a billion dollars of merchandise per year.

Coldwater Creek also announced a new loyalty program, targeted to the best 250,000 households --- designed to improve retention and increase spend per household.

Pay attention to SG&A --- increasing at a faster rate than sales, due in part to national branding programs, increased store employee expenses and increased catalog circulation.

As Direct Marketers, we need to keep an eye on Coldwater Creek. They are choosing a traditional path toward growth, one not altogether different than what Sears or Montgomery Wards utilized eighty years ago, or the route that Eddie Bauer took in the late 80s and early 90s. It's a fascinating and intoxicating route to riches, as the brand determines the 'saturation point' --- the point where retail stores no longer contribute significant incremental sales. To date, saturation is not a consideration ... comp store sales have increased by more than sixteen percent during the first quarter of the past two years.

When that saturation point happens (and it will happen, ask Gap), life becomes very interesting. Increased saturation drives down comp store sales at existing stores. Furthermore, online growth stagnates, as the new stores do not contribute enough new customers to fuel online increases. A brand needs to have a magical group of business leaders to recognize this inflection point a couple of years before it actually happens.

But for now, the meteoric increase in sales at Coldwater Creek is worth praising. Sales (and stock price) reflect the fact that management saw how the world was changing (stores/online), and shifted investment toward this new reality in a timely manner.

Multichannel Business Models

Fifteen weeks as an independent multichannel strategist provide me with a new perspective on multichannel business models. I can see that there are at least six ways that retailers/catalogers are leveraging the online channel, the channel responsible for the "multichannel" moniker. Each business model has unique advantages, and unique challenges.

Model #1 = Simple Online Presence

• These businesses generate the vast majority of their sales by customers who send orders via the mail, or by calling a sales representative in a contact center. The order was stimulated by the mailing of a catalog. The online channel is not a significant driver of sales for businesses in this situation. The customer does not utilize the online channel as a shopping vehicle. At least eighty percent of the net sales happen via the mail, or via telephone. The average customer is at least fifty-five years old.
  

Model #2 = Online Order Form

• These are catalog businesses that use cataloging as the primary marketing vehicle, but provide a robust online experience that causes customers to place their orders online. These businesses struggle with the concept of being "multichannel", because all analytical work indicates that the catalog drives eighty percent or more of online sales. In reality, these businesses are not "multichannel", they are really catalog businesses that take orders online. Still, it is not uncommon for these businesses to generate half of all orders online.

Model #3 = True Catalog Multichannel Model

• It has been my experience that this is the least understood of all business models. These are catalogers that generate at least half of their annual net sales online. However, these catalogers typically believe that the catalog is responsible for driving the online sales. In reality, the online channel developed a foothold in these business models. If catalogs were not mailed to customers, online orders would happen anyway. This is very hard for catalog executives to understand, to digest, to develop strategies against. Company reporting and matchback reporting indicate that the catalog drives online sales. Mail/Holdout testing indicate that at least half of the online sales would happen regardless whether catalogs were mailed or not. These businesses have robust e-mail, paid search, natural search, affiliate, portal and online marketing programs that generate incremental sales. It is this business model that many industry experts and consultants target when they talk about "multichannel marketing".

Model #4 = Retail Business, Catalog Heritage

• These are interesting business models. Be it Coldwater Creek, Williams Sonoma, Lands' End or now Dell, these businesses practice true multichannel marketing, but with a strong focus on ROI. The catalog heritage drives measurement of all advertising activities across all channels. If an aspiring individual wanted the best multichannel lab to build multichannel skills in, I believe these environments provide the best place to gain valuable, portable experience.

Model #5 = Online Business, Retail Heritage

• A Neiman Marcus, Saks or Macy's fit into this business model. The online channel is strictly complementary to the store experience, as the stores are responsible for the lion's share of sales and profit. Management says the right things about multichannel marketing, and do invest in the online experience. That being said, the purpose of being multichannel is to do everything possible to please a store customer. This strategy leads to sub-optimization of the direct channel. Over time, these businesses will lead the online industry in "entertainment". The online channel (and supporting catalog channel) will likely become the entertainment and informational arm of the brand. Of course, a giant retail presence will cause a ton of traffic to migrate online, driving a huge volume of online sales. But the online sales will not be driven by brilliant online marketing or catalog marketing strategies. The online sales will happen because the online channel acts as the entertainment/informational arm of the retail brand experience. There's nothing wrong with this. But it does require a very different set of marketing skills --- traditional online and catalog marketers may be frustrated by this business model. Traditional analytics individuals may not be pleased with the depth of analytical insight required to run these businesses (i.e. the business is run by "brand instinct", not by analytical findings and ROI).
  

Model #6 = Online Pureplay

• These businesses are fundamentally different than the five models described above. These businesses were born online, and utilize a marketing strategy fundamentally different than other businesses. Traffic is driven by online marketing strategies. To compensate for what I call "channel disadvantage" --- not having catalogs or stores, these businesses utilize free-shipping, free-returns, and rock-bottom pricing to gain a competitive advantage. These businesses need to grow to a size large enough to overcome margin and shipping revenue shortfalls. Zappos is probably the best example of a business in this category. The online marketing departments in these companies offer spectacular laboratories for learning online marketing strategies. If I were a college student today, this would be one of my primary industries to target for employment.
  

Strategically, it is very important to understand where your business model falls on this continuum. The way you utilize multichannel marketing and advertising strategies is highly dependent upon the customer base you have, coupled with your heritage and objectives.

Cataloging makes less sense for business models five and six. Traditional cataloging strategies are frequently not congruent with brand-based retail models and online pureplays.

Online marketing makes less sense in the short term for business models one and two. These business models are supported by customers who are not willing to shop on the web without the benefit of catalog merchandise presentation.

Matchback and analytical expertise are probably most critical in business models three and four. Catalog businesses that migrated from model one to model two to model three have the best opportunity to overcome postal increases, because the customers shopping these businesses will purchase online if catalog frequency is reduced.

Your turn, my loyal reader! What e-commerce business models are missing from this list? How might you change these categorizations to make more sense?

Annual Report Update: Coldwater Creek

A few tidbits from Coldwater Creek's Annual Report:

• Continuing recognition that retail is where the growth is, Coldwater Creek plans on nearly doubling the number of retail stores over the next five years. Wow.

• The e-mail database grew from 2.9 million addresses in 2005 to 3.1 million in 2006.

• Circulation increased from 113 million in 2005 to 119 million in 2006 to nearly 130 million in 2007. Increases are in a newer title that serves a primary purpose of driving customers into stores.

• Total net sales increased from $473 million in 2002 to almost $1.1 billion in 2006, mostly due to dramatic retail expansion. This doubling in sales resulted in a 6x increase in net income. Sounds like somebody is figuring out the right multichannel equation here.

• Total direct sales have barely grown over the past four years. What a great lab for Multichannel Forensics, huh? Telephone sales have decreased from $200 million to $127 million over four years. Online sales have increased from $145 million to $264 million over four years. Management believes a large portion of the huge increase in online sales in the past year ($264 million vs. $198 million in 2005) is due to enhancements in the e-mail program (increased frequency & bigger list helped drive increases).
  

Virtual CEO: Coldwater Creek and Inventory Management

Through comments and e-mail, many loyal readers of The MineThatData Blog voiced their opinion on creating a good customer experience when items are sold-out on a website. This discussion started when Becky Carroll talked about items being pulled from her shopping cart during a recent online shopping experience at Coldwater Creek.

What has been discussed can be summarized around at least four key constituents.

First, you have the customer, who rewards outstanding shopping experiences with loyalty and word-of-mouth.

Second, you have the inventory executive, responsible for the unforgiving task of not buying too much merchandise (requiring markdowns, and less profit), while at the same time not buying too little merchandise (causing lost sales, less profit, and a reduction in customer loyalty).

Third, you have a management team that prioritizes the work of the information technology folks, ultimately determining what the online customer experience looks like to the consumer.

Fourth, you have the Chief Executive Officer, responsible for determining an incentive plan for her leaders, an incentive plan that rewards leaders for accomplishing company objectives.

In most direct-to-consumer businesses, one of the primary objectives is to maximize fulfillment while minimizing markdowns. There is a sweet spot where profit is maximized. When too much merchandise is purchased, markdowns occur.

Markdowns are horrible for a business, because the business freely gives up profit to pay for mistakes in execution and anticipation of fashion. A $100 item that has a $50 cost of goods yields $50 of profit. Marking the item down to $69 to clear it reduces profit on that item from $50 to $19. Worse, the customers who buy the item are often discount-oriented customers, meaning there are fewer loyal customers willing to pay for something at full price.

Lost sales are also horrible for a business, as evidenced by Becky's post. Lost sales can create a bad experience if not executed correctly, and can reduce customer loyalty.

CEOs like to provide incentives to Inventory Executives, incentives that protect the profit of the overall business. An Inventory Executive might receive a larger bonus payout if he hits the 'sweet spot' between lost sales and markdowns. An Inventory Executive quickly loses his job when he fails to hit the sweet spot.

As a result, the Inventory Executive has a significant incentive to endorse any strategy that protects the profitability of the business, and the long-term prospects of keeping a well-paying job. This person could encourage any activity that is, theoretically, not a great customer experience, if it means that more data is collected on items where the Inventory Executive makes a mistake.

I am not saying this is what happens at Coldwater Creek. I am saying that seventeen years in this industry help me understand what the business is up against.

So here is a challenge for all of my readers who responded via comments and e-mail on behalf of the customer (I have yet to receive one response supporting the leaders of a business).

Pretend you are the CEO of Coldwater Creek. Knowing what you now know about managing inventory, how would you set up a bonus plan for your leadership team that achieves the following:

• Protects the 'sweet spot' where your inventory team doesn't purchase too little merchandise, or too much merchandise.
• Provides incentives for your creative or online marketing team to write language that is customer friendly when merchandise is not available, or is about to run out.
• Provides incentives for your IT staff to work outside of company-stated priorities to fix problems like the shopping cart issue that frustrated Becky, while still addressing company-stated priorities.
  
• Provides incentives for your analytical folks to develop analytical tools to correctly forecast potential sales when items run out.

What would your bonus plan look like for your leadership team, to accomplish these objectives?

An even more intriguing question to consider --- what do you do when your CEO and Inventory VP don't have a passion for the customer experience, won't allocate resources to fix the problem, are not likely to be fired in the next few years, and are delivering outstanding sales and profits? Now what?

Customer Service: Do You Pull An Item Off The Website If It Is Sold Out?

The esteemed Becky Carroll at Customers Rock! describes an experience she had at Coldwater Creek.

An element of her discussion is interesting to me. What you do with online items that are sold out? In Becky's case, she clicked on sale items, only to be told that the item was not available. Other items were placed in her shopping cart, only to later disappear, because they were also sold out.

Becky describes a common problem in multichannel retailing. What she experienced, as a customer, is not optimal.

Now let's put yourself in the place of an employee at Coldwater Creek. You purchase 10,000 units of this dress. You publish the item in a catalog, you pay Google additional money for the keyword "Dresses", and oh oh, sales go crazy. Within a week, you sell out of most of the skus.

If you pull the item down from the website, you won't know how many units you 'could' have sold. Keeping the item online allows you to count the fact that you might have sold 19,000 units. Next year, you have a much better idea about how many items you need to purchase. For this reason, many employees at multichannel retailers want to keep recording the 'demand' for these items.

So --- my question for you, the loyal reader, is this: Do you disappoint 9,000 customers like Becky by leaving items online when they are sold out, or do you give Becky a better shopping experience today, but fail to purchase enough items for next year (or purchase too many), disappointing next year's customers and hurting next year's profit and loss statement? If your job security is based on correctly forecasting the right number of units, you'll want to keep those items online, so you can correct your error from this year.

I don't think there is a right or wrong answer. I do want to hear your thoughts, because it is a dilly of a pickle.

By the way, if you want a thankless job, go work for a multichannel retailer as an inventory manager. It's not a lot of fun to be wrong every single time you forecast sales.

Top Four Articles For December

Here's the content you enjoyed the most during the month of December. Not counting today, you participated in a twenty percent increase in traffic over November, so thank you!

Three sites tied for the fourth most popular post of December.

Fully Understanding The Traffic Your Site Truly Generates was written late in the month, yet is tied for fourth place. Readers enjoyed the comparison of traffic, links and RSS feeds. Surprisingly, tied for fourth was Kasey Casem's American Top 40. Readers apparently enjoyed taking a trip down memory lane. Finally, American Girl And Molly's Blog tied for fourth place. This was a discussion of the blog on the American Girl website.

Third place goes to our monthly review of Friends of MineThatData, a ranking of direct marketing, database marketing and analytics blogs.

Second place was a brief article that linked to LunaMetrics, titled Do You Like Your Web Analytics Software Package?

First place goes to Coldwater Creek, The Little Engine That Could, a discussion of the evolution of the Coldwater Creek business model from a catalog-centric business to a retail-centric business supported by a website.

The top four posts clearly represent the diversity of the audience. Multichannel topics, web analytics, blogging, peer sites, and an obscure reference to Casey Kasem generally reflect the mix of readers and topics on this blog.

J. Jill, Coldwater Creek, or an Eddie Bauer Catalog?

Today, this sale catalog came in the mail. Go ahead and click on the image. Do you see the company/brand name anywhere on the cover of this catalog?

I asked my wife who's catalog this was. She guessed it correctly after glancing at the cover for about one second. I asked her how she knew which brand published this catalog. Here is her response:

"It was either a J. Jill catalog because of the font, a Coldwater Creek catalog because of the merchandise, or an Eddie Bauer catalog because of the word 'sale'".

Your turn to participate. Is this a J. Jill catalog, a Coldwater Creek catalog, or an Eddie Bauer catalog?

Here's a more important question that you can answer, on your own, or in the comment section of this post. Is it wise for a company to not mention their brand name on the cover of a catalog? Is this brilliant marketing, or completely bone-headed marketing? What do you think?

Coldwater Creek: The Little Engine That Could

Coldwater Creek provides a great example of how management transitioned a catalog company into a retail company with an online channel, and a catalog advertising arm.

After reading comments from Coldwater Creek's third quarter "conference call", it is obvious management continues to transition this business model into one dominated by the retail channel. During the third quarter, retail sales grew by 48%, and now represents 65% of the total business. Online sales grew by 29% from last year, and now represent 67% of the sales within the direct channel. Catalog now represents just over 10% of the total business. Wow.

Over the past six years, management shifted their corporate strategy. As the company began to invest in stores, management began to tear apart the tradtional catalog marketing strategy. During the call, management stated that the catalog now primarily drives traffic to the stores, not to the catalog channel, not to the online channel. More important is the comment that the internet is independent, and has other ways of using marketing to drive sales to the online channel.

Once again, we learn that the multichannel environment is a big ecosystem, one with inter-dependencies, and interactions that pundits do not understand very well.

In the case of Coldwater Creek, a brand was built via the catalog channel. As management shifted the focus of the business from a catalog company to a multichannel company, several things occured. Customers transferred out of the catalog channel to the online and retail channels. Catalog advertising drove business to the retail channel more than the online channel. The online channel has marketing channels that it can leverage to drive its own business, independent of catalog marketing. Magazine advertising, coupled with discounts and promotions, drive business to Coldwater Creek stores. The catalog/telephone-channel has been reduced to about 10% of the total business.

Executives at multichannel retailers would be well-served to study the evolution of the Coldwater Creek business model. I'm not suggesting your business will evolve exactly like the business evolved at Coldwater Creek. But it will probably evolve in a way that is different than the pundits tell us it will evolve.