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?

Williams Sonoma / Pottery Barn And Multichannel Growth

The DMA is selling a research report suggesting that "Retailers Have Multichannel Skills But Need Help Integrating Channels". The conclusions are based on questions brands answered in a recent survey.

Is there any place we can verify the claims outlined in the report?

Let's look at long-term sales trends from a respected and profitable multi-brand retailer, Williams Sonoma (WSM), owner of the flagship Williams Sonoma brand and the popular Pottery Barn brand.

One can go back to at least 1991 to understand how Williams Sonoma grew sales in the direct-to-consumer (catalog + website) channel and in the retail channel (here are results from the past five fiscal years).

Williams Sonoma introduced the e-commerce channel in 1999. In the table below, annual results are listed, as well as pre-internet and post-internet results:

Williams Sonoma: Comp Store And Direct Channel Growth
Year	Direct Growth	Retail Comps
2007 (Nine Months)	2.9%	0.5%
2006	4.5%	0.3%
2005	13.6%	4.9%
2004	17.1%	3.5%
2003	20.8%	4.0%
2002	10.2%	2.7%
2001	8.4%	1.7%
2000	33.1%	5.5%
1999	34.2%	6.4%
1998	15.7%	5.0%
1997	11.2%	2.8%
1996	11.9%	4.6%
1995	16.2%	3.4%
1994	55.0%	16.5%
1993	23.9%	13.8%
1992	-0.2%	2.1%
1991	-3.8%	0.5%
Results: 2000 - 2007	13.5%	2.9%
Results: 1991 - 1999	17.1%	6.0%

It isn't a stretch to suggest that Williams Sonoma and Pottery Barn do an above-average job of integrating channels, per the recommendations offered in the DMA research report.

And yet, during this era of multichannel goodness, direct-to-consumer sales are growing slower post-internet than pre-internet. Retail comp store sales are growing slower post-internet than pre-internet.

Some of this is due to scale --- as a business grows, it becomes harder to grow sales as a percentage of prior year sales.

Could some of this be due to a failure of perceived multichannel best practices? Adding an e-commerce channel to an established catalog channel should result in new customers, a new audience, and much improved growth, right?

Instead, we see slower growth rates.

We're also told that catalogs and e-commerce drive comp store sales increases. Pages circulated increased a total of 36% in the past four years, but comp store sales increases are, at best, tepid.

Williams Sonoma is a respected brand with increasing sales and robust profit, profit levels that any company would be proud of. Williams Sonoma exhibits most of the multichannel marketing behaviors and cross-channel integration that we're told we must employ to be successful.

To date, multichannel best practices at Williams Sonoma have not translated to incremental increases in direct-to-consumer sales or retail comps.

Why do you think this is the case? Are the multichannel experts missing something? Is Williams Sonoma an anomaly? Is there a multichannel brand that executes multichannel marketing well, demonstrated via publicly reported sales and profit increases?

Incremental Online Sales: Nordstrom

Click on the image to enlarge it.

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.

Incremental Online Sales: Williams Sonoma

Click on the image to enlarge it.

Catalog purists looking for a poster child for catalog productivity need look no further than Williams Sonoma.

Williams Sonoma is a multi-brand retailer with stores contributing the majority of sales.

The best part about Williams Sonoma is that they openly share catalog and online information in their annual reports. In addition to sales information, management tells us what percentage of online sales are believed to be incremental to the business, verses the percentage driven by catalog mailings.

During the past four years, Williams Sonoma estimates that 45%, 40%, 40% and 55% of online sales are truly incremental during 2006, 2005, 2004 and 2003.

The graphic at the beginning of this article restates catalog and online sales during the past four years, given the estimates management provides us.

This means that, since 2003, the following trends have occurred:

• Telephone Sales decreased by 13%, an annual drop of about four percent.
  
• Online Sales increased by 138%, an annual increase of about thirty-three percent.
  
• True Catalog Sales increased by 26%, about eight percent per year.
• True Online Sales increased by 95%, about thirty percent per year.
• Catalogs Mailed increased by 15%, about five percent per year.
• Catalog Pages Circulated increased by 35%, about eleven percent per year.

The comparison that "seems reasonable" is a 26% increase in true catalog sales on a 35% increase on catalog pages circulated. This ratio is about what one would expect to observe, given an annual increase in inflation of 3%.

In other words, Williams Sonoma is observing a true catalog productivity decrease (26% increase in sales on a 35% increase in pages circulated), though the change is reasonable.

If we can believe the estimates Williams Sonoma provides in their annual reports, this suggests that management is managing the the catalog and online sales transition in a reasonable manner. Non-competitive businesses could/should speak with Williams Sonoma management about how they are approaching this "channel-shift" challenge.