Is Lands End's cliffhanger crisis over as retailer finds firmer ground for uni-channel growth?

Profile picture for user slauchlan By Stuart Lauchlan December 6, 2019
Summary:
Lands End looks to have taken a data-driven step back from the edge of the cliff, but is it really on solid ground at last?

Lands-End-storefront

Can it be the case that Lands End, the beleagured US retailer whose declining fortunes have triggered many a ‘standing on a cliff edge’ headline, is at last on firmer ground?

Wall Street certainly thought so this week as the stock price soared 21% on some decent Q3 numbers that saw essentially flat revenues of $340 million and a 9% year-on-year profit boost to $3.6 million. It’s hardly stunning perhaps, but after the problems the retail firm has had in recent years, not least the crisis at its channel partner Sears, it represents an improvement.

Certainly for CEO Jerome Griffith, it’s a sign that the long-promised turnaround may be kicking in:

We continued to advance our growth strategies which remain centered on getting the product right, operating as a digitally-led company, executing a uni-channel strategy and improving business processes and infrastructure. Our mission is to deepen our relationships with the core customers while attracting new customers to Lands End.

OK, that’s ‘mom, pop and apple pie’ retail theory, but Griffith can point to some successes. For example, in terms of striking the right omni-channel balance between online and offline, e-commerce sales and offline store sales are both running pretty even, at 7.4% and 8.3% growth rates respectively. (The own-brand retail stores number is coming off a low base, of course). Griffith says:

Our goal remains to offer our product wherever, however and whenever our customer wants to shop, whether it be through our digital or physical channels. Our e-commerce channel represents over 90% of direct sales and with our strong heritage we remain committed to building upon our digital capabilities and shopping experience across our business.

As to that infrastructure comment, there is a lot of emphasis being placed on ongoing IT upgrades. The firm’s ERP rollout is now complete and work is underway on implementing an Enterprise Order Management system in the shape of IBM’s Sterling Order Manager System. Lands End plans to implement order management, call center, order orchestration and order scheduling capabilities with the Warehouse Management system (WMS) next up in early 2020. These new systems are intended to increase inventory productivity and improve the firm’s ability to offer and fulfill orders online.

Analytics 

Elsewhere there’s investment in analytics tech, says Griffith, to help determine strategic priorities and align these more closely to customer demand. He also cites what he calls “an increasingly AI-based promotional and markdown strategy” as a growth driver:

As we use AI to test and learn, we are gaining traction in driving more effective and profitable promotions and markdowns. We have also improved our price clarity experience, where we clearly display the promotional price to our customer by increasing the visibility for our customer in additional selling channels. With the combination of dynamic promotions and price clarity, we will continue to evaluate which offers best motivate purchasers, while striking the right balance between sales growth and profitability.

He adds:

We put data teams together internally and work with our data in order to understand better what the customer is actually looking for. So we're building the line, doing the line plans, trying to make smarter decisions upfront, but the bigger push is really AI-based, something we call Dynamic Promo. It's trying to maximize the gross margin and sales volume with all of your items through item numbers and also through colors and sizes. So we've been working, trying to get the algorithms just right in order to maximize price for the customer and maximize our gross margins. We've seen some pretty good headway, so far, and we'll continue to experiment with this going into the coming year. We think we want to drill down beyond just style and size and color into customer attributes as we run through 2020.

From a customer-facing perspective, improving the user experience is an area of focus:

We continue to invest in enhancing our mobile experience as we know this is how our customer prefers to shop, especially during the busy Holiday season. To this end, we implemented a mobile redesign and reengineering effort. Among the enhancements we made was a 75% reduction in load time on the product detail page, which has already resulted in a significant increase in mobile conversion rates. We have also enabled [the customer] to add to her bag more seamlessly and quickly on her smartphone by simplifying the checkout process, which should help to drive higher conversions as well as elevate the customer experience. Currently, our mobile conversion is over 2.5 times the industry average rate of approximately 1.8%.

Griffith says that new customer acquisition growth is currently “high single digit’, bolstered by data-driven digital outreach:

We continue to build integrated digital campaigns to target prospects that behave like our existing customers. We show up in relevant searches to answer questions like flannel versus fleece pyjamas and targeting media, including Facebook and Connected TV smart devices that highlight the benefits of our products. And we use machine learning, auto bidding technology and paid search to win the click at the point of purchase decision.

And despite the pain Lands End ran into thanks to its over-dependency on the Sears partnership to get to market, Griffith is open to using online third-parties to extend his firm’s reach:

We believe we can broaden our reach and enhance our growth by expanding our presence to new third-party marketplaces. We have a presence on Amazon and continue to see approximately 50% of orders coming from new customers. We are working to grow our business with Amazon, as well as expand to new partners that are brand appropriate.

My take

The ‘Sears effect’ continues to be a drag on Land’s End revenue growth - management says that it shuttered a further 89 Lands End concessions in Sears stores and without doing that, revenue would have risen by 4.7%. Nonetheless there is a renewed confidence from the top down that the worst might be over - full-year guidance to Wall Street has been upped for the second time this year.

How the firm performed over the crucial Black Friday weekend has not been disclosed as yet and could be telling indicator if this optimism is justified. But there are some savvy tech investments underway and the firm’s so-called uni-channel - what’s wrong with omni-channel? - push looks to be delivering some results. Is the company on solid ground? Maybe it’s too early to make that boast, but ending 2019 on firmer ground at any rate is an achievement.