There has been significant debate recently surrounding the metrics used to evaluate retail performance.
Historically, comp store sales performance (i.e., the revenue growth companies experience from stores open at least one year) reigned supreme.
Then along came e-commerce in the 1990s, and new wrenches were thrown into the discussion. Terms like digital comps, GMV and customer lifetime value started to enter the retail lexicon, bringing with them corporate meeting jargon that still makes some old-school retail leaders go apoplectic trying to make sense of it all.
The digital and physical worlds have since then collided. Legacy brick-and-mortar retailers have their numbers while the young, left-brained digital guys and gals have their own metrics, too — so how do we make sense of it all?
First, the industry has to pause, take a deep breath and say to itself that neither side is right or wrong. The world is just different now.
Second, neither side’s metrics should go away. The pundits who argue that retailers should neither report performance using old-school metrics nor evaluate performance by segregated channel metrics miss the bigger picture. These metrics are still vitally important when used in the right context.
Third, the real answer lies in deemphasizing everything that came from standalone bricks and clicks and instead in rallying around new longer-term, North Star metrics that paint a clearer, faster picture of a company’s long-term health.
The most important metric to indicate long-term health and where a retailer or even an entire retail vertical is headed?
First product searches.
I know, it sounds crazy. But I am not thinking about today. I am thinking about 2030.
Retail innovation cycles every 30 to 40 years. One can go back to the 19th century and see the trend. The last two big innovations were the shopping mall and the rise of mass merchants in the late 1950s/1960s and then, of course, e-commerce in the 1990s.
The next great innovation is due sometime between 2020 and 2030 (my money is on the creation of the first personalized physical store).
First product searches will be the leading indicators that predict who will thrive in this new era because first product searches indicate a consumer’s affinity not just for a digital retail experience but for a physical retail experience as well.
First product search trends, not quarterly store or digital sales performance, over time will better highlight a retailer’s true staying power. They could become the first indication of what will separate the haves from the have-nots as the future of a «New Retail» unfolds because they represent the strength of a consumer’s love for a brand.
A number of interesting studies and discussions over the last few months elucidate this point, with the data from these sources being important not only for what it shows but for what it does not show as well.
Let me explain.
The survey that gets the most attention is Survata’s annual survey of first product searches that begin on Amazon. Forty-nine percent of U.S. consumers go to Amazon first when looking for products. Thirty-six percent use search engines like Google. Only 15% go to actual retailers or brands themselves — and this statistic is trending down year-over-year, too.
Translation: When consumers know what they want, they go to Amazon in droves.
Other studies, like this one from JollyGoodGifts.com, which I like for its great visuals, also corroborate these findings. The JGG survey shows that Amazon may be winning the battle even more than Survata posits and that Amazon also performs better with younger generations (those 18-24 years old) and female shoppers — the latter being the most important cohort of shoppers because they make up the majority of U.S. retail spending.
The implications of these data points are huge and build off one another:
- Amazon and Google have become America’s virtual malls (i.e., the place where consumers go to find out more about what they want to buy or to buy what they actually want).
- Consumers seek out branded retailers’ digital experiences less and less every year.
- Any raw increases in searches for brands or retailers year-over-year, either on Google or on Amazon, given the first two points, would then probably be a strong indication of these brands’ or retailers’ overall health prognoses for the long-term.
First product searches are then like an objective net-promoter score without the survey bias (I can hear the financial analysts on Wall Street already putting this data into their predictive models).
Even more important, though, is what the data above does not show, which is what I will geek out on further now.
Dig deeper, as I learned from Mike Mallazzo at Narrativ, and not only can this data be used to understand total level search proclivities, but it can also be dissected to understand a retailer’s strength and position categorically, too. For example, these statistics are compiled at a total level, so it raises the question: Is it right to conclude that the behavior is the same across commodity searches, beauty searches or apparel searches?
Probably not. And what the answers to questions like these could reveal about who is searching where and for what could be really indicative of the relative strength of different retailers and brands across categories.
You might be thinking, «Sure, Chris, this is great, but how should we think about this when consumers aren’t sure about what they want?»
Great question: enter Facebook. The added layer of Facebook is fascinating, especially given the rumor yesterday of an Instagram shopping app.
Facebook and its properties right now are distinctly absent from all the survey data mentioned above. Unlike Google and Amazon, where consumers have to search for products explicitly, Facebook has an advantage in that Facebook knows what consumers want implicitly, simply by virtue of consumers scrolling through their Facebook feeds, liking/sharing pictures and posts, and commenting on events year after year.
Facebook and Instagram portend a world where consumers’ implicit desires can be understood and where the act of «searching» becomes something different entirely. Consumers will just see things they like via social media, get inspired and go right to purchase. The middle steps will be gone.
This advantage is powerful. It is why Amazon has worked, albeit unsuccessfully, to get its own social network, Amazon Spark, off the ground. The implicit understanding of consumers’ desires before consumers even know what they desire themselves, based on the casual day-in-and-day-out behavior inside a social network, is a decided long-term data advantage. Try as Amazon or Google might, replicating Facebook’s nearly two-billion-user population is damn near impossible.
Facebook no doubt recognizes this long-term advantage. Its marketplace is gaining momentum, and if Facebook is smart, there is no reason not to believe that Facebook will take a page from Alibaba overseas and attempt to disrupt B2C commerce as we know it and create a new outlet for «search» altogether.
The world is changing fast. Take one look at some of the cool new startups in this sphere as well, and one can already see this microtrend starting. Fascinating companies like MeSpoke or Threads are about to supercharge social commerce.
MeSpoke «shrinks the find-buy cycle» by giving every person in the world the opportunity to become a brand’s or a retailer’s incented social evangelist. MeSpoke’s proprietary technology captures metadata from pictures of products, and then, if a scrolling consumer is interested in buying a given product, he or she gets taken directly to the manufacturer or the retailer. It’s like a Facebook ad on steroids, only each user has chosen who to follow already and the actual «advertisement» is an afterthought. MeSpoke could become a completely new way to think about product discovery, inspiration and selling.
Similarly, Threads reimagines the world’s commercial tools to create a captive experience inside of social messaging apps. Threads ventures into the world of chat commerce, offering a curated selection of products and personalized service through mobile messaging apps. Google and Amazon have no foothold in these types of spaces currently, so it could mean big things for how searches for products will be conducted when people still desire something to inspire them.
I highlight these examples because social feeds, messaging and how individuals look for and consume products are on the precipice of changing commerce dramatically.
Where searches are happening and how they are happening will take on greater importance and become retail’s new canary in the coal mine. As first product searches at a retailer’s site or of a retailer on Google or Amazon start to wane, it is likely that so too will that retailer’s or brand’s financial performance deteriorate over time as well.
Footsteps to stores, traffic to websites, while important, only give a cloudy view of the past. They do not point to where the future is headed months down the road. Companies, like many have over the past few weeks, can gloat about 40% digital sales comps quarter after quarter, but how does anyone know what this statistic really means?
How the growth was acquired is still nebulous. Was it through price? Was it through assortment growth? Was it categorical? Or was it coming from a place of objective brand love?
Until there is better visibility using more transparent metrics like those discussed above, we really have no idea.
The industry and individual companies not named Google, Amazon or Facebook are instead left flying blind, hoping the canary does not smack itself headfirst into a wall on its way out of the mine shaft.
Disclaimer: This article should not be construed as investment advice; it is solely the opinion of the author.
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