Listening to the customer's digital signals - Lands End's data scientists focus on search is paying off

On the face of it US retailer Lands End might have been expected to get a rough ride yesterday after turning in another quarterly revenue decline, this time 3.1% down year-on-year to $298.3 million. But in fact the company’s share price soared, although the stock remains around 70% down over the past year.

So why did Wall Street give Lands End a break? In large part it was down to some convincing rationales for the revenue drop, including a $19.9 million decline due to closing 110 Lands End stores inside Sears, as well as a 46% reduction in the net loss to $3 million. The firm also factored in the cost of launching Delta Airlines uniform production. All this left CEO Jerome Griffith able to state:

Our sales increased 5.5% when adjusted for Sears closures and the lapsing of the Delta launch. This growth was led by the ongoing momentum in our global e-commerce business, which grew over 7%. In addition, our US company-operated retail stores once again delivered strong comparable sales growth at 7.5%.

In other words, the underlying story is looking better than it has for a long time and it’s time to focus on strengths, most notably on the digital side of the business, where e-commerce accounts for over 90% of direct-to-consumer sales. Griffith argued that selling online is part of Lands End’s heritage and that data science is providing added clout:

We are driving new customer acquisitions through digital strategies, investing in digital search to show up when our customers purchase intent is high, and the results reinforce that we are making the right steps with our buyer file growing in the mid single-digits and new customer acquisition growing in the high teens last quarter through algorithmic targeting of key items to relevant lookalike audiences.

A lot of work goes into capturing and understanding the needs of the digital customer, he added:

We know our customer has a short consideration to purchase cycle. She is shopping because she wants to buy. So we win when we show up in her search results. As we have seen, our customer who initiated the search is three times more likely to purchase than a customer who does not search.

Search insights 

Such is the importance of search that the firm has rolled out a proprietary internal search engine. This has provided some valuable insights that have shaped corporate strategy according to the CEO:

Our data science department continues to improve our ability to leverage product interest data and product purchase data, which is then applied by our design and merchandising organization to better align our assortment with customer demand and create more productive inventory.

He offered an example to substantiate the benefits:

Our internal and external search data from 2018 made it clear that we had an opportunity to sell traditional winter goods, such as turtleneck, cashmere and flannel, well into the Spring. We offer these traditionally seasonal products to our customers later in the year. While the target audience is much smaller base than the peak season for these items, we sold several million dollars of counter seasonal merchandise in the second quarter. We're still testing our always on assortment. 

Listening to the digital signals our customer sent, we noted that there would be the opportunity to invest more in warm weather goods, such as shorts, tanks and tees in the June, July summer sale time period. Categories such as women shorts saw a triple digit lift in demand during that time period. A clear indication of ‘buy now, wear now’ is increasingly how the customer chooses to shop.

The past year has also seen the introduction of machine learning sorting algorithms. Griffith said:

This sorting capability is particularly helpful for customers who prefer to browse rather than search. As mobile traffic continues to grow, we understand just how important a personalized product assortment has become. And we believe that our algorithms, which we continue to fine tune, are contributing to our high conversion rate. Since we are not restricted by a store footprint, we can give our digital customer her favorite key Lands' End items whenever she's ready to purchase.

Another important stat cited by Griffith is that half of digital traffic comes via smartphones, making this a priority platform for investment:

We believe these investments in mobile are paying off as we continue to see conversion move along the positive trajectory, contrary to everything we hear about mobile conversion challenges within the retail industry. Currently, our mobile conversion is over 2.5 times the industry average rate of approximately 1.8%.

Stores

Despite the skew towards digital, Lands End does still have offline plans for stores as the Sears in-shop outlets close down. On this front, the company has a different challenge to other retailers which have been trying to consolidate and rationalise their real estate.

For Lands End, the task ahead is to build to an optimal fleet. The current total stands at 21 company-owned outlets with plans for a further four to open by the end of 2019. By 2022, the target is to have 70 Lands End physical stores in place.

There is a major benefit in this situation. While rival retailers are embarked on multi-year programs to upgrade ‘tired’ legacy stores, Lands End can build in the latest in-store digital tech from the get-go, with kiosks being a good case in point according to Griffith:

Our in-store kiosk provides our customers with a gateway to our entire assortment and our associates are able to recommend selections that are now available in our stores. As an example, we have seen a significant increase in online sales taking place in our stores during this back-to-school season. Students can try on their school uniform for fit and comfort, then order the appropriate style and size with their school's logo from our in-store kiosk. And every online purchase made in-store is shipped free of charge from our Wisconsin distribution center.

My take

it's possible that Wall Street might just be desperate for any sign of good news in a turbulent retail sector, but Lands End was well-received yesterday. And to be fair, there are more signs of life than there have been for a while and the digital exemplars are convincing. As is by now traditional, the land’s end pun needs updating - this time, I reckon the firm has taken a couple of big steps back from the edge.