First up, it's important to recognize that despite claims to 'global' the survey is heavily U.S. centric with few European or Asian owned brands appearing in the results. We can argue the pros and cons of this outcome but then the general expectation is that U.S. brands are (generally) leading in technology investments that have a positive impact.
Second, I am always dubious about claims that one technology element impacts financial results to any great degree. As any CIO will tell you, it is the orchestration of relevant technologies that matter.
Third, personalization has been a topic of conversation among retailers for some time although it is often buried within the context of omnichannel efforts, an area on which Stuart Lauchlan has focused the last three or more years when he reviews selected retail results.
Finally, it's important to understand the methodology used. Sailthru scores the survey participants according to four vectors: website, email, mobile and 'other.' The precise methodology is unclear but says:
We browsed websites, signed up for emails, and downloaded mobile apps. Then we began analyzing what came next. Were the product recommendations relevant? Did newsletter content reflect our browser history? How integrated was the entire experience across different channels? In other words, did they show us that they know us?
Read into that what you will but let's give the benefit of the doubt, assuming that there is a consistency in the manner in which the numbers were produced.
From my point of view, personalization 'should' be a leading indicator for future growth so with that in view, I ran my financial slide rule over a sample of recent results to gauge whether personalization, as defined by Sailthru really, is having the impact expected. The results suggest the answer is a guarded 'yes.'
In order, Sailthru lists Sephora, The Body Shop and Walmart as its top three. How do they stack up?
Sailthru loves Sephora because:
- Seamless integration across all channels, including physical stores
- Best-in-class mobile app leads in customer experience and personalization
- Tri-tiered “Beauty Insider” program is abundant with lavish rewards and gifts
- All the bells and whistles, like virtual try-on, foundation match tools, and more
Turning to the company's financials, these are buried inside LVMH's financial reports. LVMH has undergone something of a revival after issues associated with its luxury brands. In July, Lauchlan noted:
Brands such as those under the LVMH umbrella have been built on the exclusivity model and the ‘shopping experience’. That experience has, on the few occasions I’ve come across it, seemed to be based on elitist attitudes to the customer.
Sephora doesn't quite fit into that mold and in the latest letter to shareholders, the company said:
Sephora achieved sustained growth across all areas of operation. With omni-channel at the heart of its strategy, online sales advanced rapidly. At the same time, Sephora expanded and renovated its store network.
How does this compute? In the Louis Vitton part of the group, revenue was up 15%, in the group that includes Sephora? Up 9%. For me, the tensions that Lauchlan uncovered speak to bigger issues and, in one important sense, reflect the sub-markets in which LVMH plays. When viewed overall, I can argue that Sephora, which is part of a group that includes Le Bon Marché, was a drag on top line revenue although that will wash out following some restructuring. On the other hand, that same group was the best performing unit at the operational level, showing profit up an eye catching 39% but way below the overall result.
The Body Shop
Sailthru says this:
- Recommendations for a shopper’s specific skin type
- Gorgeous, well-designed website with “recommendations for you”
- “Love Your Body” rewards club for exclusive perks
This one is a bit more difficult to parse since L'Oréal sold The Body Shop to Brazil-based Natura about a year ago. However, in February 2017, Lauchlan noted:
When global beauty firm L’Oréal provided a corporate update last week, much attention was paid to the poor performance of The Body Shop part of the business and the decision to explore ‘strategic options’ for the division. The prospect of a sell-off there inevitably caught the eye of market watchers, but away from that headline there’s a compelling story of digital transformation in action and delivering benefits.
In August, Lauchlan noted that:
L’Oréal has been a strong champion of digital transformation for many years, with CEO Jean-Paul Agon seeing the firm’s future as being:
a digitally augmented beauty company.
To that end, the firm has dabbled in a number of customer-facing initiatives over the years, such as trialing interactive kiosks in New York back in 2013 or rolling out a virtual app in 2015. But earlier this year, the firm upped the stakes with the acquisition of Modiface, an Augmented Reality (AR) and Artificial Intelligence (AI) firm out of Canada.
It is perhaps an indicator of the vagaries of these types of survey that L'Oréal didn't figure in the Sailthru results, not even among those that didn't make the cut of its Top 100. Back to Body Shop. By March of this year, Natura was hopeful. According to a Bloomberg report, Roberto Marques, chairman of Natura said:
It’s time to bring the brand’s "voice" back and create a more "activist" approach, including greater connection with youth, said Marques, who leads the board that governs brands for Natura Cosmeticos SA. A team has been formed to handle the brand’s retooling, and marketing expenses are expected to increase. Margins were already hit in the last quarter of 2017 with greater marketing costs and higher executive compensation on the back of good results.
Sailthru is clearly picking up on the recent work but we have yet to see how that impacts revenue and operating margin.
Walmart is one of diginomica's most reported retailers. We've watched closely as Walmart hummed and hawed around the digital story and in particular how it has struggled to compete with Amazon. Nevertheless, we have seen signs that Walmart is developing a coherent strategy but...trying to make sense of how Walmart succeeds is a LOT more than picking one or two standouts from an earnings report. For example, on the August 2018 analyst call, CEO McMillon said:
We’re also expanding our omni-channel capabilities and innovating to save customers time. We’re leaning into automated pickup towers for general merchandise. Two years ago, we had no pickup towers and by the end of this year, we’ll have more than 700… We’re continuing to innovate with trials of self-driving cars in Arizona for our grocery pickup customers and automated picking capabilities for grocery pickup in our store in Salem, New Hampshire. Overall, our omni-channel initiatives are contributing to comp sales growth and providing customers with new levels of shopping convenience.
What does Sailthru say?
- Modern digital properties, with significant in-store features
- “Popular near you” and “Buy together and save” recommendations
- Seamlessly integrated mobile app with Walmart Pay, a biometric fast checkout
Walmart remains a work-in-progress but we have to score this one as representing good progress.
What about laggards and anomalies?
Outside Sailthru's Top 10, Amazon came in at a miserable no.50. That surprised me given that company's dominance of the online market. Having thought about it though it makes 'some' sense. It constantly amazes me how much Amazon pesters me by reminding me of stuff I've viewed int he past, how much it wants me to buy again, even though some purchases are clearly one-off. I mean, how many stapling machines do I need?
Another weird one was Williams-Sonoma - didn't make the cut, while Pottery Barn, a brand W-S owns made it at no.42. In March 2017, Lauchlan noted:
We know how and why our customers shop in every channel across our brands and we will continue to aggressively invest to expand our additional leadership. In 2017, we will continue to invest heavily in digital technology in a fragmented and evolving retail environment where customers are targeted by multiple retailers. We are investing in powerful ways to increase brand level awareness and convert awareness to purchase.
When we say digital leadership, e-commerce, that includes everything from the technology supporting a friction-free shopping experience to our investment in driving new customer acquisition and engagement online.
To expand our digital leadership we [have] accelerated our investments in technology and advertising to drive new customer acquisition, conversion and an improved shopping experience.
Most recently, Williams-Sonoma reported solid results although results were mixed with Pottery Barn and Pottery Barn Kids Teen leading growth, well ahead of the main Williams-Sonoma brand.
There is no question that personalization matters and yet it is a complex problem that takes a lot of work. However, it is not THE thing that matters but part of a series of tech driven activities contributing to the overall customer experience. Retail has plenty of nuances so, for example, we don't yet know the extent to which personalization and subscription services interplay with one another. In May 2018, George Richter of OcenX said:
It’s important to know that this isn’t an either-or situation: A subscription is not a retail competitor; it is simply an additional channel. Some people prefer to shop online rather than go to stores and spend time standing in line, while others prefer to head to the mall or the grocery store with a list in hand.
In our increasingly digital world, a true omnichannel strategy centered on the customer appears to be in order for retailers.
Richter quotes Under Armour as one of the leading experimenters in this sub-channel. Under Armour appears at a miserable 82 in the Sailthru list and perhaps part of the reason is that it has been focused on a massive restructuring rather than paying attention to the omnichannel experience. Even so, that doesn't mean it has totally lost the personalization plot. A successful subscription service isn't possible without having a solid personalization strategy in place.
Despite these caveats, it will be useful to follow how these Top X lists perform over time and especially when comparing to reported results with all the reading between the lines that's needed to fully understand business drivers.