Lands End's omni-channel turnaround continues - with a surprising new partnership to come

Profile picture for user slauchlan By Stuart Lauchlan March 19, 2020
Summary:
A strong end to a year that's seen Lands End turn around its flagging fortunes - and a tie-up with Kohl's to come later in the year.

LANDS END STORE

As we noted back in January, Lands End has been one example of a US retailer that has shown signs of life in its omni-channel transformation. Having been damaged by association with - and dependence on - failing Sears, the company has managed to shake off that burden, ending its most recent quarter by having completely closed down all its in-store concessions.

That cause for celebration has been somewhat undermined by the decision to shutter temporarily Lands End’s 26 own-brand shops across the US in response to the Coronavirus crisis, but this too will (let’s hope) pass. So what’s next? In January, CEO Jerome Griffith talked up the brand’s shift from being an e-commerce company that didn’t behave like an e-commerce company. That work continues and the intent to expand offline with its own stores is also still on track. Griffith says:

As we have said in the past, our objective has been to make Lands' End product available to our customers wherever, whenever and however they want to shop. We've enhanced the shopping experience through improvements to the functionality, speed and search capabilities of our Web site. We are expanding our retail presence, opening new stores offering a convenient customer experience, including kiosks, which should provide access to our full assortment online.

He adds:

Our goal is to serve our customer no matter how and where they shop us. We remain committed to enhancing the shopping experience across our business, whether it's in our digital or physical channels. Our mobile experience remains an important priority, as we know this is our customers preferred way to shop. We are upgrading the mobile experience particularly with navigation, checkout and payment processes, all with increased speed.

As for the store expansion program, that should see up to 20 new stores being opened in 2020, says Griffith:

Our retail stores serve as an important extension of our e-commerce business where we can improve convenience and personalized service, as well as further expand our brand awareness. We know our customer appreciates the store experience as she wants to feel and touch product as well as receive personalized service. In addition, our stores are customer service centers that are part of our customers’ interaction with the brand. Building on a successful in-store kiosk launch, we are adding kiosks as well as ways for customers to connect with service specialists while in stores.

Partnering

The Sears experience hasn’t deterred Lands End from partnering with other retail brands, including Amazon. Griffith explains:

We also look for ways to expand our reach across other marketplaces and through strategic relationships and collaborations. Amazon has been a great distribution channel where we have seen approximately 50% of our total purchases driven by new customers and more than one quarter from lapsed customers. We will also provide an assortment of key items on Amazon, which continues to attract new customers to the brand.

Tapping into Amazon’s platform reach is a move that many retailers have chosen to make, of course. More intriguing, in light of the bad experience with Sears, is a decision to move into an alliance with Kohl’s. From the second half of this year, the entire Lands End range of casual clothing will be available on the Kohl’s website as well as in-store at an initial 150 Kohl’s outlets across the US.

It’s being pitched inevitably as a win/win for both brands. Kohl’s CEO Michelle Gass says:

The addition of Lands’ End, a market leader in the classic, casual lifestyle, into Kohl’s brand portfolio further strengthens our product leadership and our ability to deliver unmatched national brands to Kohl’s customers. Lands’ End brings its strong brand recognition, leadership in casual style and fit authority, and gives new and existing customers something to discover at Kohl’s.

For his part, Griffith sees the partnership as a coming together of equals:

Kohl's and Lands' End share a lot in common. We both have Midwestern roots and values with our headquarters just two hours apart in Wisconsin. Many of our customers are Kohl's customers. And more importantly, given that the Kohl’s customer shares many of the same demographic features of the Lands' End customer, we have an opportunity to expose our products to many more potential customers who do not yet know our brand or haven't purchased Lands' End in a long time. We view this as the logical next step in our distribution strategy and Kohl’s represents a meaningful opportunity to drive brand awareness and incremental sales.

I think the biggest opportunity right now with Kohl’s is going to be having our full line of product up on Kohls.com, so that’s going to get a lot of eyeballs. And in-store, there are going to be very small stores focused on key items and focused on seasonal products. There are a couple of our strengths..’On the water’ [clothing] is a direction for us and a big product strategy and ‘On the weather’. So you’ll see swimwear collections in there, seasonally appropriate; you’ll see outerwear collections in there, seasonally appropriate; and a small selection of our best key items.

An online tie-up makes sense, but given that Lands End has only just managed to break free of the Sears baggage, the in-store concessions aspect of the new arrangement raises a quizzical eyebrow. Griffith argues this is not the same sort of deal:

If you contrast with Sears, there’s a couple of differences. One is, there was never a big crossover with the Sears customer and the Lands’ End customer. When you looked at the demographics, they weren’t similar, but there is with Kohl’s. We see that a lot of Kohl’s shoppers have the exact same demographics as what we do. So that’s a big plus for us. And I think the other thing is we’re going to be sized appropriately. Our Sears shop-in-shops were absolutely huge, which cost a big inventory investment. In this case, we’ll be much more focused with just best sellers from our lines, both annually and seasonally.

Tech spend 

Elsewhere investment will continue into exploiting analytics to define strategic direction, says Griffiths:

We continue to improve our use of data in defining our product offering. As a current example, data showed us that our swimwear customers want product year round and that she wants key items that she can mix and match. We use this data to write the size of the product offering by season over the year.

Within digital, we continue to accelerate the use of our comprehensive data across the organization. Our insights and former product decisions drive our promotional strategies and refine our customer acquisition and retention initiatives. We’re fine-tuning our approach with an increased focus on driving repeat purchases across our customer base while continuing to target new customers.

As we acquire new customers, we are expanding the application of our predictive analytics efforts to drive their next purchase effectively ramping up our efforts to convert them to highly valued repeat customers. Essentially, we look for similar shopping behavior patterns between new customers and existing customers in order to create comprehensive and integrated digital campaigns.

While this application is being applied to new customers, it is still in early stages and we are beginning to see higher repurchase rates from these new customers and greater dollars spent. We also continue to benefit from our strategies to stay relevant in online searches while also leveraging media, including Facebook, and connected TV smart devices to highlight our brand messaging.

There’s also the inevitable machine learning play in place:

We continue to use AI to test and learn and are gaining further traction in improving the effectiveness and profitability of our promotions and markdowns. Our successful price clarity program has contributed to higher conversion. We will continue to test and learn in order to drive profitable growth as we better understand our customers’ purchasing motivations.

And there are some key tech pushes in place to optimize operating costs, says Griffith:

We continue to see opportunities to reduce costs through better leveraging of our IT investments, particularly with our order management system which we are currently in the process of implementing.We're also looking to other areas to improve costs and drive efficiencies in our process. We are selectively using avatars in place of live models for some of our Web site photos. This will allow us to update the Web site faster, expand the number of available photos and drive cost efficiencies.

We're utilizing 3D digital modelling in our sourcing process which increases speed to market and lowers production costs. We will also benefit from the opening of our own buying office in Hong Kong as we no longer leverage Sears resources. We expect this transition to drive cost improvements next year as the new team become fully operational by the end of April.

My take

As I’ve said before, it’s been good to have a positive omni-channel retail turnaround story to track after so many ‘falling off a cliff’ puns. Lands End’s Q4 numbers are indicative of what’s taken place - revenue up 9.4% year-on-year to $549.5 million and net income up 57% to $25.52 million. That was enough to send the company’s share price up 43% following the release of the results. As also noted before, it’s still too early to claim that Lands End is completely on solid ground yet - and the Coronavirus impact has yet to be accounted for. But CEO Griffith can push ahead into whatever 2020 has in store in the knowledge of a job well done…so far.