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Five Recession Lessons from an E-commerce Old-Timer

Regular readers of this column have probably noticed that my posts of late have been absent of any news or discussion about the current economic climate.  Don't worry, I'm not in denial.  No question it's difficult out there. E-commerce, while still growing has slowed significantly and probably will continue to do so.  The news every day cites retail sales plummeting and consumer confidence doing the same. 

As I have thought about what, if anything to say about the current state, I've been drawn back into my own history of prior downturns and burst bubbles.  While the seriousness of this downturn will likely surpass the others, I suspect that some of the things I learned along the way still apply.

I confess that some of this learning has come from making my own fair share of mistakes when trying to deal with cut budgets, nervous e-commerce teams, demanding consumers and even more demanding executives and shareholders.  That said, I recall some great work and groundbreaking best practices coming from e-commerce teams in their darkest days. The key is focus and prioritization - and being sure that you keep the right people around.

1) Take advantage of the fact that momentum is no longer driving your business:  For those of us in e-commerce, let's face it.   No matter how hard you've worked or how great your site is,  a healthy portion of the good business you've experienced over the last few years has been from the pure momentum of the industry.   With that no longer a factor,  you have an opportunity to think about the things you will need to do to strategically drive growth vs. draft off of the wind at your back.  Those are two different ways of working that need to be treated as such.  And, no, just adding another free shipping promotion is not a strategic solution.   When this recession/downturn/whatever is over, your business will be in a different place than it was before the downturn.  Your customers will have adopted new behaviors and will see the world differently.  Try to give yourself the time for strategic thought - you are going to need it.  Get an outsider's point of view or someone to help you think through the important issues.  Strategy may have been a luxury before, but it's essential now.

2) If you have to cut, be decisive about it:  No one likes to cut initiatives or people, but the biggest mistake is cutting "across the board" without a real strategy.   Too often, every department or functional area is asked to sacrifice one person, but the workload remains the same, causing burnout and lousy execution.  It probably makes more sense to eliminate specific work and then reorganize based on the new work vs. trying to all of the same work with less people.  It's harder and takes more strategic thought to do it this way, but you'll have more focus and better execution.  In fact, you may be able to eliminate organizational "layers" and fast track on innovation.

3) Cut idea generators vs. executors:  This one is tough, and probably controversial, but  I have never worked in or for an e-commerce organization that has been lacking for ideas.  Typically what's lacking is a sense of priority on those ideas and enough skilled e-commerce designers, copywriters and engineers to execute on the ideas.  Yet, I find it interesting that in downturns, the people really making the website hum can be the ones to go, while the idea generators often stay behind, frustrated that they can't get things done.  Be careful to stay balanced across the idea thru execution chain.  And don't worry, the ideas won't dry up:  the executors usually have a bunch of good ideas too, no surprise.

4) Prioritization is more important than ever: If you are being asked to operate with less money and less people, that means that unless you had a bunch of unproductive people or marketing programs (not likely) that you are not going to be able to get as much done.  In an older post, I referenced a favorite Meg Whitman quote of mine about strategy being about what you're NOT going to do.  Take it to heart and be decisive.  It will help focus the team and you'll execute better.

5) Whatever you do, don't give up a good web analyst:  In the data rich environment of e-commerce, an analytics specialist is the window to your customer's mind.  They can unlock the hidden opportunities and zero in on your site's trouble spots.   They can help you see where customers are screaming for more or voting "no".  In a previous post, I told the story about how a slashed marketing budget forced site usability analysis to the forefront and saved the day  by getting more customers to convert on less site traffic.  Bottom line - you can't live without  a good analyst when times are tough.  With prioritization more important that ever (see point #4 above), your analyst is the key to doing it intelligently.

A Sign of The Times: Premium is Out of Fashion, We're "Trading Up" to Cheap

Here's an interesting retail phenomenon: Gas prices are competing with environmental issues and social networking for headline space theses days.  Consumers are cash strapped, but maybe they're willing to pay a premium to be cheap.  Case in point:

My husband travels to California regularly, and Hertz is his preferred car rental company. He typically places a reservation on their website a few days before his trip, usually for the least expensive car available.

Well, guess what Hertz's cheapest car is at the Burbank airport?    The Ford Expedition.  It has to be one of the largest cars they have. Certainly one of the least fuel efficient as well.  Hard to believe that it is actually cheaper to rent a full size SUV than an economy car.

So, we can assume that Hertz is making the car cheap to rent because no one's renting it.  But are people not renting it because a) the refueling charge will be high due to the fact that the the Expedition guzzles gas?  or is it because b) no one wants to be seen driving a car that is environmentally irresponsible?  Maybe both.  My husband says it's "b" (he passed up on the bargain and chose a smaller car to avoid being seen in the land yacht).

While this is a totally anecdotal incident, the irony hit me: At Hertz,  it's now actually cheap to rent something that should be expensive, possibly because the values associated with the expensive car have fallen out of fashion.....and even people who are feeling the impact of a tough economy are willing to "trade up" to a cheaper car.

Will we start seeing aspirational advertising about driving economy cars showing how sexy, smart and sophisticated we are for choosing the Hyundai or Ford Focus?  Will "economy" cars start to cost more than cars less fuel efficient, like they do at Hertz?

Unless premium products are in synch with the premium values of the customer, they won't get very good mileage, in more ways than one.

Attention Merchants: Retail Therapy is For Real, So Stock Up On Lipstick

In the beginning, man created the wheel. And shortly thereafter, someone (probably a woman) put a shopping cart on top of it.  (After all, why waste a perfectly good wheel?)  From there, consumer behavior (otherwise know as shopping for fun) was born.

No shock, an article in the WSJ last week, The Neuroscience of Retailing confirms that there really is such a thing as Retail Therapy. No surprise to those who have shopped to feel better for the last 21 centuries, but we now have scientific evidence that shopping is fun.  Or at least it makes our hearts beat faster and our brains release serotonin.  Don't believe it? Just try shopping with a heart monitor and eye camera strapped to your body, like the subject in the article did.   And she was in T.J. Maxx.  Just imagine what happens when she's in a designer boutique. Call the paramedics.

Alas, with high gas prices and the economy in a downturn, many retailers are in a slump. But just think about the customers; they're slumping worse, poor things, depressed that they can't shop as much as they used to.

The answer? It could be as close as the cosmetics counter.  A recent article in the NY Times, Hard Times, But Your Lips Look Great discusses the "Lipstick Index".  Theory behind the Lipstick Index says that in times of economic hardship, we still need to satisfy our shopping habit. We still need to feel good about ourselves, even when world events or economic conditions make it inappropriate.  In other words, lipstick and small indulgences experience an up-tick in sales when the rest of the retail world lags.   

While there is not scientific evidence to support the Lipstick Index like we now have with Retail Therapy, my merchant common sense indicator says there's something here.  A friend of mine who worked for a large lingerie retailer confessed shortly after  September 11  that online  sales in the days immediately  following  the attacks were almost uncannily robust. Same principles apply. Something small, comparatively inexpensive and a bit self- indulgent.

So, as a retailer facing tough times, what's your "lipstick"?  What's that affordable, irresistible item that someone can buy, even if their gas bill has tripled and they didn't get a raise?  We used to point to a $4 Starbucks latte' as the affordable indulgence; but with more than three locations on every street, Starbucks hardly qualifies as an indulgence anymore. That means there's room for someone else to be the retail therapist and help people feel good, even when they can't afford it.  Chances are, if you can make them feel good when they don't spend a lot, they'll come back to you for a bigger dose of serotonin when the economy improves.