Hint To L.L. Bean: Giant Whooshing Sound In Chicago

L.L. Bean to open a store in Chicago, courtesy of DMNews.

Hint: The giant whooshing sound L.L. Bean leadership and database marketing professionals could hear is the transfer of catalog and online customers from the direct channel (online, catalog) to the retail channel.

One of my five favorite projects of all time was understanding the shift in customer behavior at Eddie Bauer when new stores were opened in new markets (the forerunner to Multichannel Forensics).

As is often the case in Multichannel Forensics, direct-to-consumer channel customers make a bold move to retail. The new retail customers are unlikely to buy online or via the catalog. This pattern happened at Nordstrom, and consistently happened in the Multichannel Forensics projects I worked on in the past year. Retail is a drug ... for customers and executive leadership.

There are exceptions to every rule, of course. Ultimately, all one really cares about is driving incremental profitable revenue, even if cannibalization of the direct channel occurs. The analytical folks at L.L. Bean have a reputation for understanding cannibalization issues. This particular challenge is tailor-made for Multichannel Forensics.

One Positive Day, December

We read a lot of information about how big companies mess with customers. Here's an example of how L.L. Bean made a situation positive for a customer, courtesy of The Consumerist website (a site with over 200,000 visits a day, not counting RSS readers, wow).

Online Advertising And The Marketing Digital Divide

Using SpyFu, one can get very rough estimates of what leading brands spend on online advertising on a daily basis. The data is prone to errors and inaccuracy, but can be used to view general trends.

Take three companies that thrive on catalog marketing, namely L.L. Bean, Lands' End, and Pottery Barn. Here is what SpyFu suggests these companies spend in online marketing, on an annual basis.

• Annual Average Spend Across These Brands = $10,201,000.
• Average Annual Clicks Generated From The Advertising = 12,015,000.
• Average Cost Per Click = $0.87.

Next, look at three large retailers, namely Macy's, Nordstrom and Neiman Marcus. Here is what SpyFu suggests these companies spend in online marketing, on an annual basis.

• Annual Average Spend Across These Brands = $23,550,000.
• Average Annual Clicks Generated From The Advertising = 33,312,000.
• Average Cost Per Click = $0.78.

Finally, look at two larger-sizes online pureplays, namely Zappos and Blue Nile. Here is what SpyFu suggests these companies spend in online marketing, on an annual basis.

• Annual Average Spend Across These Brands = $40,654,000.
• Average Annual Clicks Generated From The Advertising = 63,483,000.
• Average Cost Per Click = $0.68.

Notice that as we progress from companies with a catalog heritage, to companies with a retail heritage, to companies with an online heritage, the amount of online spend dramatically increases --- and, the average cost per click actually decreases. This is counter to what analytical folks expect to see happen.

I tried to pick companies that had annual traffic that was directionally similar. How the businesses use advertising to drive web traffic is very different. What this does show is that there may be a marketing digital divide. There may be a way for catalogers and retailers to migrate advertising online, and actually see better returns on investment.

As postage escalates, traditional catalogers have an opportunity to emulate the techniques that the folks at Zappos and Blue Nile use. Over the next five years, there is an opportunity to transition advertising strategy from print to online. There is an opportunity to cross over the marketing digital divide.

L.L. Bean

Let's fast forward to January 1, 2009. Mailing catalogs is now cost-prohibitive, due to a 300% increase in postage brought on by another round of postal reform.

You're an executive at L.L. Bean, the venerable catalog giant located in beautiful New England. You just completed fiscal 2008, a year in which you drove $900,000,000 in net sales via your website, and $600,000,000 via the telephone. Maybe you spent $250,000,000 marketing catalogs to your customers.

Take away the catalogs, and the expense associated with them.

Here's a series of questions for you:

• Could you re-allocate $250,000,000 via online marketing? Where would you spend it?
• Do you have any confidence that e-mail could replace catalog as the primary sales driver? How would you change your e-mail strategy?
• Your website generated $900,000,000 in net sales in 2008. What is your forecast for web sales in 2009, sans catalog?
• You generated $600,000,000 in net sales in 2008 via the telephone --- folks who read the catalog, and called a sales associate to place an order. Without a catalog, what is your sales forecast for 2009, over the telephone?
• You had 115,000,000 website visits in 2008. How would you change your marketing strategy to capitalize on this enormous informational resource known as www.llbean.com? How much would your traffic change if your catalogs didn't exist?

Of course, the USPS isn't going to make catalog marketing impractical in 2009.

That being said, if you went through this exercise, could you recover your sales via the marketing techniques that Amazon or Zappos or Blue Nile uses --- companies on the other side of the Marketing Digital Divide?

At minimum, your executive team should have answers to these questions.

Positive News: Multichannel Marketer Innovation

I'm going to start each month with good stories in the world of multichannel retailing. The good news could be about people, marketing activities, or strategies.

Here's a few things I noticed this evening on various multichannel marketer websites.

Ann Taylor has a nice "Trends" landing page. What I like is that Ann Taylor has a point of view about their merchandise. Ann Taylor competes in a very challenging market, with numerous direct competitors, and pressure from the high-end and low-end of the market. I like that they are trying to differentiate themselves from their competition.

L.L. Bean's homepage prominently features catalog requests and e-mail signup above the fold. When you have the type of traffic that L.L. Bean has, it is important to try to build a relationship with visitors. Bean is not shy about encouraging the random visitor to engage.

Visit the homepage of Urban Outfitters. Check out the upper right hand corner of the screen. If you don't have anything in your shopping cart, Urban Outfitters scribbles out the View Basket tab, circles the word "empty" on your shopping cart, and points an arrow to the cart. I visited the homepage, and noticed this immediately. Clever! Move your mouse along the links across the top of the page, and see what happens.

Gymboree has a survey on the homepage. Using the phrase "We Listen", they offer you the opportunity to answer four questions about what you think about their Easter line of merchandise. It would be fun to segment those who fill out the survey, and understand if the commenters are high-value customers, and then link that data to actual visitation, shopping cart, and purchase metrics.

At the top of Lane Bryant's homepage, you see two flags. If you are a Canadian visitor, you can click your flag, in order to see merchandise denominated in Canadian currency. It's always good to make your site friendly to our friends living north of the border.

Patagonia has the courage to publish a voluntary recall on their homepage.

Are there any multichannel retailers you would like to praise, multichannel retailers who are doing unique and innovative things?

Virtual CEO: L.L. Bean

The Harvard Business Review publishes free weekly podcasts. Podcast number nineteen featured an interview with Leon Gorman, Chairman of L.L. Bean. Mr. Gorman spoke about L.L. Bean's multichannel growth strategy, which includes retail expansion on the East Coast.

Mr. Gorman states that sales via the online channel have exceeded sales in the catalog channel, and that he believes customers need catalogs, websites and retail stores in order to have a comprehensive multichannel shopping experience.

Time for you to play Virtual CEO. If you were CEO of L.L. Bean, and had access to an additional twenty million dollars, how would you invest that money?

Would you mail more catalogs? Would you invest in online marketing? How about traditional advertising channels like television, radio, newspapers, or magazines? Would you build new stores? If you chose to build new stores, would you build them in the Northeast, where L.L. Bean has brand recognition, or would you push the L.L. Bean retail chain to new markets like Chicago, or even Denver?

Realistically, L.L. Bean has maximized its direct-to-consumer audience. If Bean wants to grow, it almost has no choice but to invest in the retail channel. It should be fun to watch the evolution of this business. It's a shame they aren't publicly traded --- if they were, we'd have access to more financial information!