I recently read an article in the Restaurant Finance Monitor entitled “A Dog’s Tale.” The article describes in sobering detail the grim reality faced by many companies in restaurant industry. Simply put, there will always be a portion; some say 15% of your portfolio that never make a dime. These locations are commonly referred to as dogs. Does this sound familiar to you? Within the article were some memorable quotes such as senior management spends a lot of home office time trying to resurrect the dogs. Month after month they study comment cards from customers of the dog stores even closer than the comments from the good stores to glean the magic bullet that will turn around the dog stores. Again, does this ring any bells? Are you spending a disproportionate amount of your time so consumed with the middle and bottom third of your portfolio that you’re profits are eroding by neglecting your “rock star” locations?

What if there was a solution to the problem? What if there was a way to replicate your top performers scientifically by utilizing the most powerful asset any retailer can own: a detailed psychographic profile of your customers. While this article discounts the ability of customer analytics to correct the problem of always having unprofitable stores, I disagree. Over the past 15 years Buxton has developed and successfully implemented a methodology that enables retailers to open “home runs” every time. Need proof? Look at the performance of some of our clients. Most notably California Pizza Kitchen. Customer analytics is a powerful tool that when used in conjunction with senior management’s expertise can lead to a reversal of this dog’s tale. Beginning with a focus on understanding who your customers truly are from a demographic and psychographic perspective, you can understand the composition of your core customers in any market and understand their value to you at any distance from any location. Is customer analytics a “magic bullet?” For those who utilize it successfully I suppose they would say it’s the closest thing to it. At a minimum I would argue it can teach an old dog some new tricks.

As I continue to write about the importance of data, I continue to learn more each day. By collecting data, a prominent hair care company was able to understand the difference between their one time user and their multiple time user. This information was then used to mine their house file to determine which one time users were most likely to become multiple users.

What a home run. Think about the possibilities. There isn’t a retailer today, in this tough economic environment, that couldn’t use more of their best customers, and they are already coming into your store. By defining your best customer and searching your data warehouse for people that look like these customers you increase your possibilities geometrically.

And all of this starts with collecting information at the point of purchase. Here’s a little hint on how to successfully collect data at the POS: Tell your employees why you are going to collect the data and how it helps them and the company. Employees want their place of work to be the best. They want to succeed. No one ever started a job with the idea that it would be awful. If we do a good job of keeping our employees informed of our purpose and how it will help them, the customer and the company I can assure you of a winning situation.

Winning at retail is simple, but you have to do it every day.

“Winning is not a sometime thing; it’s an all time thing.” - Vince Lombardi

Lately news that the sky is falling abounds. Rebate checks supposed to bolster retail spending have been consumed by ever increasing gas and food prices. Very little has made its way to the coffers of American retailers.

(Simpleminded right wing economics it’s finest. For those of you old enough… is this the “trickle “ in trickle down economics.) In this environment one would assume that there is massive retrenching across the board and a paring down of all expansion plans. Fortunately, I have a job which exposes me to scores of progressive retailers who have taken Vince Lombardi’s mantra to heart. Rather than stick their head in the sand and pray for the world to get better, winners are forging ahead. More often than not, they are using the power of customer analytics to improve SSS and hit home runs out of the box every time.

When is the best time to expand? To some it’s when everything is perfect. Consumers are fat with cash, ample credit abounds, and SSS are at all time high. That’s the easy way. For winners, they have a plan for when the macro-economic conditions aren’t perfect. They get smarter but utilizing the customer data they have on hand to make better decisions. What are you doing with your customer data? Sitting on it? Might as well throw it away.

I am consistently amazed at the number of high profile brands - some legendary - who have no idea who their customers are. Granted it’s important to me that they know because that’s my job. This “build it and they will come” philosophy may have worked in the past, but are you willing to bet it will in the future if current economic conditions continue?

Retailers who will win and are winning in this environment have

1. in depth customer profile of their customers
2. knowledge of drive time trade areas around all of their locations
3. understanding of the real estate variables which when present correlate to improved performance.

How can anyone run a multimillion or billion dollar business and not understand the target audience? Aligning marketing, real estate, operations, and merchandising around the customer is imperative in today’s economy.

I have always been an independent when it comes to politics, always voting for the person I feel would do the best job regardless of their party affiliation. Recently I received a direct mail piece regarding a particular party’s views. This would have not bothered me except that 1) It was mailed to my parent’s house and 2) It was mailed to my maiden name.

Now, you are probably thinking, “So what, big deal.” The big deal is I haven’t lived with my parents in over 10 years and I’ve been married for 6 years of that. I am also registered to vote under my current residence in a completely different city than I was originally registered to vote in. To me it sounds like this party has a lot of money to spend, but they certainly aren’t spending it on cleaning their databases and knowing who their best voters are. They are asking me for my support, but they really don’t have any idea who I am. Had they taken the time, they would have realized I moved and that I got married. Customer Analytics can be used in a variety of different ways. If politicians maintain an accurate list of who their supporters are, they can probably analyze the data to determine who else would be likely to vote for them. So much so that if they really did their homework, they might be able to sway the vote in their favor. Whether you are running for office, opening a new location, or trying to drive existing customers to your current location you should know and understand who your best “customers” are. If you don’t, it could cost you their business and lower your return on investment. Because this organization didn’t bother to know who I am, their piece of mail never was opened.

Not all demographics are created equal.

If you were using demographics alone to open new locations, you would typically look at things like property value and median income in addition to population. If this is the approach you take, you aren’t alone but there are hidden pitfalls in only using demographics. For example, imagine your target demographic profile is $75,000 in median income within 3 miles of a site. If you are in Fort Worth, TX this might be your ideal target but if you are expanding into other areas of the country, $75,000 in median income on the East or West Coast won’t get you the target customer. The same is true with property value as well.

The solution? Psychographics. Psychographics not only takes into account the demographics of a household but more importantly the purchasing behavior. Furthermore, psychographics are portable so a Segment 1 in Manhattan, KS is the same type customer as a Segment 1 in Manhattan, NY. This unlocks areas of the country for your concept to expand into with confidence that your “target” customer is present knowing that a “target” might have difference demographic profiles but the same spending patters which is all you need to open a successful location!

I am at the age where friends and family members are starting families, so I have found myself on numerous occasions shopping at Babies “R” Us. This company is clearly collecting information on their customers. How do I know? A few months after the first time I gave them my phone number for my first purchase, I all of a sudden received a direct mailer offering coupons and discounts off certain merchandise. Some people hesitate to give out accurate information as they don’t want to be contacted. I am not one of those people. Collecting customer information to better target market, not only helps the retailer, but usually benefits the customer too. While I might not be the “best” customer for Babies R Us, as I don’t have kids, they know I’m shopping there enough to give me an incentive to come back more often. Understanding your customers can only lead you in one direction - Success.

As reported in Retail News Today – Tuesday, July 1, Steve & Barry’s LLC is “contemplating a full liquidation should it not find emergency financing.” The article also states that they are “readying plans to close more than 100 of their stores.” I suspect the two are interrelated but I’m not a banker. A quick trip to their website reveals the following and I’ve taken these excerpts from the “Our Story” section.

Steve & Barry’s promises “to provide premium apparel at impossibly low prices” with price points “typically 50% to 90% less” for the same quality clothing as the competition. How do they do it? They say “We’re a company of engineers. We aspire to re-imagine the company daily.” Here I was thinking they were in the retail business.

Further investigation of the website shows banner ads for Iron Man, The Incredible Hulk, Sarah Jessica Parker (actress), Bubba Watson (golfer), Laird Hamilton (surfer), Venus Williams (tennis player), Ben Wallace (basketball player), and Amanda Bynes (I’m too old to know her “demographic”). So the $40 million dollar question: which is the tentative amount of their debtor-in-possession financing plan IF they file…is this; exactly who is the customer here? There is an overriding theme of value to be had which, as any consumer will tell you, is a strong lead. That much I get. But I’m not a fan of Sex in the City or pop culture, and quit reading Iron Man and Hulk comic books after puberty. In my opinion re-imagining the company on a daily basis may have well proven to only confuse the customer in the end. I do wish I had Laird Hamilton’s abs and hair, and Bubba Watson’s swing however.

To quote Warren Buffet, “Wide diversification is only required when investors do not understand what they are doing.” Words of wisdom for investors and retailers alike.

Have you ever wondered why the PGA Tour starting keeping statistical measures in 1980 when the PGA Tour has been around for almost 80 years? Driving Distance, driving accuracy, greens in regulation, putts per round, etc. Well the answer is quite simple… They started measuring statistics so that given any player or course one can rank their performance to their peers and or venues. They are now measuring apples to apples not idealistic thresholds or ones own perceptions with no universal measuring stick.

The same is true with retail. How you ask? Through the use of Customer Analytics retailers can not only ensure successful expansion strategies and execute accordingly, but also measure their performance of existing locations.

With a volatile and uncertain economy, measuring performance of locations compared to past performance is the outward standard and a must. But what if that retailer’s standard was based on factors other than real estate or operations? For example, a retailer’s top unit may all of a sudden began under-performing past standards, but its performance measure using customer analytics and a Buxton model says the site is performing up to expectation and not below performance measures. The short version of the disaster waiting to happen says the retailer closes an average unit because they are trying to survive in the economic landscape and not a location that was miserably under-performing it’s performance variable…What you have is bankruptcy on the horizon because you are not comparing apples to apples and making a strategic decision on a organization benchmark variable.

Retailers need to have a benchmark as to their overall performance as an organization just like a PGA professional has to be able to measure themselves against their peers. How else will you be able to improve or stand out?

Since the PGA has starting recording statistical measures the overall quality of players and courses has only improved.

Now retailers… Don’t wait until it’s too late!

The top story from this week’s latest “Growth Chains” edition (Nation’s Restaurant News) caught my eye. Expanding chains unearth real estate bargains by not breaking ground. Kind of catchy.

The story goes on to tell about the opportunities that exist in taking over space from now defunct concepts, many of which are former restaurant locations. It also speaks to the changing landscape when it comes to competitive bidding from contractors that are now seeking work since the housing industry has slumped. All told, these factors are “providing rare values for operators that are able to expand in the troubled economy.” Really!

Call me a cynic, call me a salesman, but is anyone thinking about why the restaurant failed in the first place? It’s certainly possible that the wrong concept was in the wrong location to begin with and switching from steak to chicken is the right move. It’s equally possible to consider that the operators of said dead location simply failed to execute. It happens. However, it’s also reasonable to at least consider that maybe, just maybe, what that market didn’t need was another restaurant at that location to begin with.

Regardless of which of the camps above you fall into, there is a fundamental answer to each question and they all can be found under the banner of customer analytics. As all of these dearly departed have learned, there’s more to the success equation than finding suitable digs for their new home. The site may well be a diamond in the not so rough. A comparatively small investment on the analytics side, an investment that is significantly less than the cost of the new store itself, will provide the real answer.

To quote my buddy… again… “It’s expensive to guess and it’s cheap to know.”

The story of the growth of Wal-Mart is legendary. By listening to their customers this company has become the largest retailer in the world. They always kept their eye on the ball and never accepted excuse for sales loses.

Management long ago figured out that there were two ways to grow the business, either add more stores or add more product categories. The most dramatic new product category Wal-Mart brought to their stores was grocery sales approximately 25 years ago. In typical Wal-Mart fashion, they opened a couple of experimental stores called Hyper Mart, spent several years learning the grocery business, and put in the best systems to maximize their operation.

Target grows their business the same way. While they have also successfully entered the grocery business, the power of Target is their sense of style and fashion, and their ability to execute at the store level with great selection and outstanding pricing.

While both Wal-Mart and Target have made specialty retailers work harder, Wal-Mart has been more successful in the grocery battle and Target more successful earning business in the specialty areas.

One hard goods specialty retailer realized that Target was eating their lunch but did not know what to do about it. They had data, but not specific enough, they thought, to know exactly which customers they were losing to Target and exactly what merchandise they were not selling because of the Target foray into their business.

After a long session with our research and Customer Analytics team we were able to see very specific merchandise trends (with regional variances) when there was a Target in the trade area and when there was not. While we could not see these customers walking into Target and walking out with merchandise they should have been buying with our hard goods retailer, we were able to draw very strong conclusions.

Now, a merchandise and marketing program can be put into place without discounting the entire store and without marketing to the entire trade area. Strong value added ideas can be shown to the customer to bring them back into our clients store with products that they have also shown a tendency to buy.

Before having the knowledge you can gain by mining you customer data, you could only defend your store with huge price cuts or expansive advertising. Now, by mining your customer data you can surgically respond to a problem and hurt the competition without them even know what happened.

Specialty retailers must be nimble on their feet and smarter then their direct competitors and the Big Boxes in town. Using Customer Analytics can help you solve those problems.