Forget demographics, think 'customer cohorts' - Lands' End gets to grips with knowing its customers better. (Just don't mention Kohl's...)

It's not just about the demographics; it’s about really understanding the cohorts of the customer.

Knowing your customer has always been a retail north star, of course, but never more so than today when the Holy Grail of personalization has been provided a potential new enabler in the shape of generative AI technology. At US retailer Lands' End, that’s being put into practice as the firm celebrates its diamond anniversary, according to CEO Andrew McLean: 

As a digitally-native company, we are prioritizing our focus on innovation to improve execution across the enterprise, including taking advantage of emerging technologies, like generative AI. Whether in customer service and engagement, data analytics, decision-making or go-to-market strategies, our increasing use of these technologies is driving efficiency and effectiveness in our work. For example, we have developed an internal app for our merchants and designers that uses ChatGPT to analyze our customer data to identify gaps in our assortment to improve buying decisions. 

McLean also highlights efforts to place the customer at the center of the retailer’s decisions, citing the way the firm has ramped up its efforts to leverage the proprietary data from its buyer file to better understand its customers. This has had positive results, he says: 

I think we understand our customer really well. We really got to grips with the database. 

That has led to the notion of customer cohorts mentioned above. McLean explains: 

Rather than focus on demographics, we're instead zeroing in on the behaviors of our key customer cohorts. We have prioritized two high-value customer cohorts to target, each defined by a unique set of characteristics. We have defined them as ‘resolvers’ and ‘evolvers’.

Resolvers are the largest cohort of our existing base. This customer is a solutions-oriented dresser that prefers classic styles and values quality other trends. They shop primarily on necessity two to three times a year.

Evolvers have the second-largest cohort and a potential area for growth. This customer is discovering and refining their style as an ongoing journey, and they dress what fits their current moment in life. When compared to ‘resolvers’, they gravitate towards trend and quality, of buying potential and spend more. This evolved approach of keying on behaviors enables us to define, prioritize, reach and cater to the customers that matches to Lands' End most while also focusing on expanding our customer base over time.

The Kohl's problem

All good stuff, no doubt, and urgently needed. The retailer’s Q2 numbers last week left little room for cheer across any cohort as the firm turned in a loss of $8 million, compared to a $2.2 million loss for the year ago quarter.  Overall revenue was down 7.9 percent year-on-year to $323.3 million. 

Meanwhile global e-commerce sales decreased nine percent year-on-year. The US e-commerce business saw sales decrease four percent compared to the second quarter of 2022, while the European e-commerce business was down 21% year-on-year. And revenue from third-party online marketplace business was down 11%, with the finger of blame being pointed at the retailer’s partnership with Kohl’s. 

This probably shouldn’t come as a surprise as Kohl’s reported a 17% decline in its own digital sales recently. This was attributed by the company to the impact of eliminating online-only sales promotions in order to “simplify our value strategies”. According to CEO Tom Kingsbury: 

Most of our decrease came from digital, and that was somewhat self-inflicted because we have reduced the amount of online-only general public offerings. We, obviously, moving more to omni,  to have two different pricing strategies just wasn't good…as far as digital goes, we see it improving as we progress through this year. And then obviously, we anticipate back to growth in 2024, once we ‘anniversary’ all these online only promotions that we had.

But given that similar marketplace partnerships with Targets, Macy’s and Amazon are delivering for Lands' End now, the ‘Kohl’s problem’ is one that needs addressing. McLean says: 

The top line results for our third-party business are not where we want them to be. But consistent with our B2C strategy, we focused our online marketplace offering during the quarter on quality of sales, improving gross margin and better inventory turn and freshness. The results were productive with Target and Macy's throughout the quarter.

Demand at Kohl's changed mid-quarter, transitioning from strong performance to a significant decline during the final weeks. In conversation with Kohl's, we choose to stick with our plan and protect our focus on gross margin. Our marketplace strategy provides strong sales and margin opportunities, and we plan to strategically grow these existing partnerships and explore new opportunities to expand our brand reach.

For now, McLean remains loyal, despite the negative impact on his own business: 

We like our relationship with Kohl's. It's another Wisconsin company. We've been together for a long time. We really introduced this new journey with them in our sort of digital ecosphere and it's been very powerful and it's grown well.

We found ourselves in the quarter faced with a dilemma, that as we continue to improve our margins and our pricing and our quality and our newness in our core business, Kohl's was still at a point where they really wanted to be focused on an older strategy which involved more discounts. 

That's their choice, of course,  but presumably this is not a situation that can be allowed to run on indefinitely? McLean comments: 

We like the product strategy that we have, we like the pricing architecture that we're building, and we're going to do whatever it takes to protect that. With Kohl's, we see a long-term opportunity here. This isn't something that is going to be on the wane forever. They are at an inflection point, we are at an inflection point. We wish them really well, they are a great group of people, for the future. And we will find a way to continue our partnership, evolve it, and build it.

Specifically to [the] marketplace, we feel really good about where we are with the growth in Target, the growth in Amazon and the growth in Macy's. And I think it's only a matter of time before we really start to see that growth come back [to Kohl’s] because I do think the strategy that Kohl's is going to go after will need brands like Land's End.

My take

The Kohl’s partnership looks increasingly like a self-inflicted wound in Lands' End’s omni-channel retail strategy. This isn’t sustainable and there will need to be an urgent improvement in the fortunes of the former. That, alas, isn’t something many people would ready to bet the farm on right now.