Manifesto for a metailerMetailer: noun: Early 21c. (implied in metailing), a customer-centric merchant who blends maths and magic. A metailer combines the traditional skills of a brand owner with that of a retailer.

Michael Ross – Co-founder and Director, eCommera

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Manifesto for a metailer

Retailer: noun: mid-14c. (implied in retailing), from Old French. retaillier “to cut off, pare, clip, divide,” from re- “back” + taillier “to cut, trim” (see tailor). Sense of “recount, tell over again” is first recorded 1590s. The noun meaning “sale in small quantities” is from early 15c.

The ‘re’ in retail reflects the traditional model in which retailers first purchased from wholesalers or manufacturers and then resold products directly to consumers within a specific catchment area.

Today, with so many brand owners selling direct and so many retailers with own-brand products, ‘re’ is losing its relevancy.

The distinction between retailers and brand owners is blurring. Retailers are becoming brand owners (think John Lewis televisions and Biba at House of Fraser); and brand owners are becoming retailers (think Apple and Burberry). Although the speed of change remains uncertain, we are clearly at an inflection point in the evolution of retail. From both a business and consumer perspective, retail will look very different in the future.

At the heart of the change is the movement of retailing decisions from the store to the individual: location, location, location is giving way to customer, customer, customer. The Internet has transformed the way consumers shop and disrupted the symbiotic distribution relationship between retailers and brand owners.

For both to succeed in this new world, they need to learn from each other and, in many ways, become more like each other. In the process, they must rethink some fundamental aspects of their business.

Emerging from the maelstrom of converging retailers and brand owners will be a completely new type of player – the metailer. This paper explains the real scale of change driven by the Internet, and offers some principles to make the leap into metailing:

• How the Internet is changing the retail landscape

• How the Internet is changing operating models

• The emergence of the metailer, and guiding principles for success.

1 Online Etymology Dictionary. http://www.etymonline.com/index.

3www.ecommera.com

How the Internet is changing the retailing landscape

Retail is not just in another period of evolution – we are experiencing a fundamental shift of the entire landscape, driven by the global scale and popularity of the Internet. The new reality is:

• Unshackled customers. No longer dependent on their location, consumers now have access to an almost unlimited set of brands and products. For most categories, consumers are voting with their mouse; online is now a large and growing part of the retail mix.

• Empowered brands. Brand owners no longer need to rely on retailers and can now adopt a radically different distribution strategy based on a combination of online, flagship stores and selective wholesale distribution.

• Challenged retailers. The effects for retailers are mixed:

– The Good news… greater access to more customers. Traditional retailers are taking their operation online to benefit from access to customers outside the catchment area of their physical stores.

– The Bad news… more competition. The fight for customers is just heating up with brands selling direct, international retailers and small shops all competing for customers. This is made worse by restricted access to some products as brand owners reduce their wholesale activities.

How the Internet is changing operating models

Physical retail is characterised by a set of well understood activities and an established profit model. Today, operating models are having to adapt to:

• New activities. Online introduces a completely new set of retail disciplines– from managing paid search on Google, to optimising search results on a website, to managing fraud. These require completely new skills – pretending they are simply new ways of doing traditional retail is not a recipe for success.

• New costs. The fixed costs of offline retail have been replaced with a set of variable and semi-variable costs – from picking and packing and delivery, to returns and marketing, all of which transform the profit model.

The changing retail landscape

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Manifesto for a metailer

The emergence of metailingSo how does a retailer successfully transition to metailing? What does this mean in reality? Here we suggest seven guiding principles of metailing.

New customer orientation. The unshackling of customers necessitates a reorientation around the customer leading to:

• Principle # 1: Surprise and delight. A proposition that is world-class (rather than best in the area)

• Principle # 2: Grow by design. A new growth model driven by customer acquisition and retention, rather than new stores and Like-for-Likes (LFLs)

• Principle # 3: Measure what matters. From company-centric to customer-centric metrics.

New processes and skills. Introducing a new approach to all aspects of the business and a set of new activities which are granular and ‘interconnected’ leading to:

• Principle # 4: Measure more. From outputs to inputs: this new world requires a more granular instrumentation

• Principle #5: Back to school. A new set of skills for the CEO (and everyone else)

• Principle #6: Feet to the toaster. Hold people to account for things they can control. The organisation must align around customers and inputs.

New cost management. New variable costs requires solving new equations. This leads to:

• Principle #7: Geeks who can speak. Employ people who can understand the data, solve the new equations of retail and communicate the insight.

Metailer: a definition: Early 21c. (implied in metailing), a customer-centric merchant who blends maths and magic. A ‘metailer’ combines the traditional skills of a brand owner with that of a retailer.

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Principle # 1: Surprise and delight In a world of endless choice, how do you stand out from the crowd? Historically, retailers could thrive based on their scale and access to customers. Large brands could simply outgun their competitors with broadcast media. This is no longer the case.

There is no silver bullet when it comes to a great proposition but there are lots of examples of retailers and brand owners who have cut through the noise:• Graze.com – an innovative subscription model

for snacks• Fab.com – a highly curated design-led retail

proposition• Biba – a resurrected brand, owned by House of

Fraser, but as well articulated as any third party brand

• ASOS – a clever combination of 3rd party and own brands – the former to drive credibility, the latter to drive margin, and the combination to drive loyalty.

Metailers recognise that successful retail propositions need to be evolved (or reinvented) for the new world.

Principle # 2: Grow by designRetailers’ growth is driven by new stores and LFLs. Metailers’ growth is driven by customers. Customers do or do not purchase for a first time, and then do or do not come back. This rhythm of customer acquisition and retention is critical to understanding and forecasting growth.

Metailers understand this customer-centric growth path and the consequent trade-off of growth versus profitability i.e. how much to invest in customer acquisition and retention.

They also understand customers as individuals – their recency and frequency of visit and purchase, their last point of engagement, their products/brands/categories of interest. Marketing is then targeted at the individual – given everything we know about customer X, what is the ‘next best action’ to encourage them to purchase?

Principle # 3: Measure what mattersPhysical retail is hard to measure but easy to experience – successful retailers are good at intuiting a customer’s experience by walking the store. This does not work online. The online experience is not easy to observe but is much easier to measure. Key to measurement is re-instrumenting the business from a customer’s perspective. For example, a measurement of product availability might sound useful but page-weighted availability (which measures availability from the customer’s perspective) is better – are you in stock of the products that customers are looking at?

Many retailers measure orders in terms of the percentage of orders shipped On-Time and In Full (OTIF). Again, this is a company-centric metric which is trumped by a customer-centric metric – delivery on promise. Do customers receive their goods when promised? Metailers measure things that matter to customers from the perspective of the customer, and don’t flatter themselves by setting unambitious internal SLAs and then congratulate themselves for achieving them!

The seven guiding principles of metailing

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Manifesto for a metailer

Principle # 4: Measure moreIn physical retailing, outputs drive action – product sell-through, store LFLs (both outcomes) immediately tell a CEO whether the problem is in a particular store or category, or everywhere. The physical retail world is characterised by fixed costs, limited actions and established rules of thumb. Simple data tells the story.

The ‘inputs’ of online retail are both more numerous and more changeable. Online there are fewer upfront constraints on scope or reach. Combine this with the almost limitless possibilities for adjusting the hundreds of day-to-day activities. The consequence is that the data is considerably more complex – there is more data, more often, from more interconnected sources. The ‘outputs’ – sales, conversion rate, average order value – are as a result unhelpful, as each can be affected by a wide variety of causes. The outputs online tell you what’s happened but give no clue as to what’s actually going on.

Metailers measure at a much more granular level of detail, focusing on the inputs.

Principle # 5: Back to school Most retail CEOs would know the key terms of a retail property contract. However, Google is the landlord of the online world – and yet how many retail CEOs have the same depth of understanding of paid and natural search? How should a paid search campaign be structured? Which metrics tell you if a campaign is well optimised?

The reality is that there are a huge range of new activities in the online world. Many are a nasty combination of being analytical (lots of data to digest) and technical (new concepts to digest). This also makes it easy for people to obfuscate the truth.

Building and hiring the right skills is difficult but critical. There are plenty of ‘career Ponzi schemes’ where people have achieved a great CV in online retailing without actually having any idea what they are doing (or been anywhere long enough to observe the consequence of their actions). Metailers recognise the need to keep learning.

Principle # 6: Feet to the toasterI worked with a great online retailer who described his management approach as follows: “I have a transparent organisation, set people crystal clear objectives, and then hold their feet to the toaster to perform”.

The following example illustrates the challenge: who can own page-weighted availability; merchandisers (who manage availability), marketing (who drive external traffic) or the web site (who manage on-site traffic)? The reality is that more granular metrics are required to ensure that individuals across the business are aligned to the organisation’s goals.

In many organisations, the head of eCommerce is expected to own the online sales when, in reality, much is out of their control. Conversion rate is driven by pricing and availability, and repeat purchase rate is driven by operations.

The seven guiding principles of metailing

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Metailers align their organisations to customer-centric input metrics. They know that their people need to be made responsible for the things they can control.

Principle # 7: Geeks who can speak Navigating this new world of data is not for the faint-hearted.

To understand what is going on in a world of ‘stores’, retailers simply need to be good at stores. It’s easy to identify good and poor performing stores and understand what is working and not working. But in a world of hundreds of thousands, if not millions, of customers, one has to be good at statistics. Understanding how to make sense of large quantities of transactional data requires a different skill set. It requires new types of thinking, new models and new equations.

Many retailers navigating this new world suffer from too much doing without diagnosis, and too much diagnosis without doing…

Geeks are requisite to make sense of this world. Geeks who can speak are critical to communicate with the business to turn data into action.

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Tolstoy wrote “All happy families resemble one another, each unhappy family is unhappy in its own way”. The same is true for retail today: all successful eCommerce businesses are similar, but all unhappy eCommerce businesses are unhappy in their own way.

Look at the eCommerce success stories over the last 10 years such as Amazon, ASOS and Net-a-Porter. They all have great propositions, outstanding customer service, deep customer centricity and are all led by founder entrepreneurs.

The challenge for multi-channel retailers is to emulate this success. Painfully few have achieved it so far.

Successful metailers will be the ones who can make the transition.

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