Incremental Online Sales: Nordstrom

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Earlier, we reviewed financial results at Williams Sonoma. The data clearly indicated how important catalog is to the growth of the direct channel.

Nordstrom is a highly profitable multichannel retailer, one that took a very different approach to catalog.

In 2005, the brand decided to eliminate $36,000,000 of ad-spend on a targeted direct-to-consumer catalog business that featured merchandise for a niche of women's apparel consumers. (FYI, data in the table above are freely available via Nordstrom 10-K annual reports).

Had this happened at a company like Williams Sonoma, where catalog items ARE the brand, a catastrophe would have occurred.

But at Nordstrom, where the catalog items were a subset of all items offered in stores and on the website, something different happened.

The catalog strategy was discontinued on June 30, 2005. Notice that catalog + internet sales in 2005 only grew by one percent. Yet, in 2006, even though half the year was comped against a prior year that had a significant catalog investment, catalog + internet sales grew dramatically. Nordstrom Direct management figured out how to leverage the marketing tools and merchandise assortment available to them to grow the business, in spite of the dramatic loss of catalog advertising.

Furthermore, we are all aware that Nordstrom retail comps were spectacular during this time period, opposite of what industry experts might suggest would happen if $36,000,000 of catalog advertising were removed from the multichannel ecosystem.

This leads me to my point. At Williams Sonoma, catalogs ARE the store, the website, the brand. Catalog marketing is critical to the success of this multi-brand organization.

At Nordstrom, however, traditional catalog marketing was discontinued. After a brief blip, business came roaring back.

This is why I advocate that catalog marketers have an "open mind". You may desperately need catalog advertising to grow your online business. Or, like Nordstrom, you may not need catalog advertising to grow your online business, you may be able to cross the digital divide, and utilize online and multichannel retail marketing to fuel your online business.

Listening to pundits leads you to the conclusion that you have no choice but to maximize your catalog advertising efforts. Instead, listen to your own business instinct, and the needs of your customer base, and chart a course of your own. Industry experts are only experts to the extent that they have seen various business models succeed. The Nordstrom example runs counter to what most industry experts are used to seeing.

The Marketing Digital Divide And The Catalog Industry

In the first quarter of 2007, sales of music compact disks declined by twenty percent verses last year, as consumers continue to abandon album-based compact disks in favor of ala-carte purchases/sharing of digital music files.

The music industry strongly believes that free file sharing is responsible for the decline in CD sales. The labels are flexing their muscles where they can, to maintain their system of monetizing music even if it means heavily penalizing a new channel where music fans are enjoying music.

The crash of television and radio, the ascension of the internet, and the convenience of the iPod changed the music industry forever. Multichannel Forensics suggest that consumers "transfered" their behavior from CDs to MP3s during the late 1990s through the past few years.

Once consumers landed in a new world of music, they stayed there. In Multichannel Forensics, we call this "isolation". No matter how hard the music industry tries to bring consumers back to the old method of monetized music, the effort is futile. Consumers have moved on.

As consumers, we have a unique, God-given ability to identify trends in the marketplace. We can literally see the future, and react accordingly.

As business leaders, we have a unique, God-given ability to identify trends in the marketplace. We can literally see the future. However, we don't react accordingly. Instead, we dig in our heels, and demand that consumers and business partners come back to our way of thinking.

My beloved catalog industry falls into this category. Our customers can see the future, and are anywhere between 20% and 80% of the way toward evolving their behavior. At this time, customers are generally in "equilibrium" --- the state where they go back and forth between channels. They use catalogs and purchase over the telephone. They use catalogs and purchase on our websites. They ignore our marketing activities, use Google, and purchase on our sites. The combine our marketing activities with Google, and purchase on our sites.

Google recognizes this, and gobbles up properties that allow them to have an end-to-end marketing relationship with our future customers. Their version of an end-to-end marketing relationship does not include paper.

Over the next five years, our catalog customers will leave "equilibrium" mode, shifting to "transfer" mode. They will define a new way of interacting with brands, a new way of shopping. When that happens, what will become of what has been known for more than a hundred years as "the catalog industry"?

We can dig our heels in, and continue lauding the importance of sending paper to our customers as a way of generating sales. In this process, we must fight postal reform.

We can also give up. We can sell our businesses, getting out before big changes happen.

Or we can build a five-year plan for the future of our industry. We can be like a pilot, who takes an airplane down from 30,000 feet to a gentle landing. We can work with our customers as we reduce our dependence upon catalogs, building an infrastructure that allows customers to pull information from us.

We must thoroughly evaluate how Zappos, Endless, Piperlime, Blue Nile, and Amazon drive sales without paper. We need to emulate what they do well. We need to use our experience to capitalize on what they don't do well. We must chart a path to the future.

Folks in the music industry are actively talking about a path to the future. It's our turn to do the same. It will require a leap of faith, right over that pesky 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.

The Marketing Digital Divide

I am coming around to the idea that a "Marketing Digital Divide" is happening all around us.

I like to read the point of view of many different marketing folks. This morning, this article arrived via Google Reader, from Andrew Chen. Andrew didn't gain his experience in the catalog industry. His marketing skills were honed in Seattle and Silicon Valley, during the internet era.

His article is titled '10 Obvious Strategies To Ruthlessly Acquire Users". Here are the ten strategies that he outlines.

1. Email/IM features for invites and content
2. Blog/MySpace widgets
3. Auto-invite for email, social networks, etc
4. Auto-embed for blog widgets
5. A/B tested signup pages
6. Smart adwords buying
7. Viral referrals
8. SEO/landing page generation
9. Push through RSS/Email, etc.
10. Reduce user "drag" through the entire funnel

Do the phrases "Instant Messaging", "Widgets", "MySpace", "Social Networks", "Auto-Embed", "Blogs" or "RSS" appear anywhere on your list of customer acquisition strategies, if you're a Multichannel Cataloger or Retailer?

Remember, Andrew calls these "obvious" strategies. Imagine what his list of less-than-obvious strategies looks like.

How many of my loyal readers, direct marketers with decades of experience, view these strategies as "obvious"?

This is the essence of the "Marketing Digital Divide". A generation of marketers are honing skills in a realm most Multichannel Catalogers or Retailers cannot envision. It seems to me that the "MDD", as I'll call it, is accelerating. And if you don't practice any of the items Andrew outlines, it becomes harder and harder to see them, to understand what is being done.

This might be a great time for Millard, or Mokrynski, or MeritDirect, to reassign job responsibilities to small number of individuals. These individuals could focus on Andrew's list. These folks could test Andrew's proposed strategies with progressive Multichannel Catalogers and Retailers willing to experiment. These individuals could spend time with "Web 2.0" folks, if you will, folks who are practicing these activities --- and then transfer the knowledge back to progressive Multichannel Catalogers and Retailers.

The Marketing Digital Divide isn't too big to cross, yet. With postal reform bearing down on catalogers, with Google dominating the online advertising space with their acquisition of DoubleClick, it's a great time for our list industry to build out solid Web 2.0 divisions that help transfer skills across the Marketing Digital Divide (MDD) to Multichannel Catalogers and Retailers.

What are your thoughts? Does the Marketing Digital Divide (MDD) exist? Are catalogers and retailers falling behind?