Catalog to click: Lands' End prioritizes marketplaces, data
Digital commerce drives 90% of the apparel brand's revenue.
Photo by Markus Spiske on Unsplash
Digital commerce drives 90% of the apparel brand's revenue.
Under a recently-hired CEO, Lands’ End is set to rally around initiatives that optimize digital sales, and use data to reach customers across categories.
“It's worth noting that while we seek to meet customers where they are, over 90% of our revenue comes from a click,” CEO Andrew McLean, a former American Eagle executive who joined the brand in September, told analysts on the company’s recent earnings call. “So, we will continue to emphasize digital channels for serving existing and new customers. At Lands' End, we're customer-obsessed. The key to executing this product strategy is making sure we reach our customers in the right cadence with the right products at the right time, helping them to build their basket across categories.”
With an assortment that stretches across apparel, outerwear, swimwear and home goods, Lands’ End has a history of mail-order shopping and direct engagement with its customers through its famed catalogs. In an era of digitally-enabled commerce, this strategy is evolving with the goal of reaching customers who are shopping in multiple channels, and introducing new ways of harnessing proprietary data to understand how to reach them.
“Our focus will be on deepening relationships with existing customers while simultaneously bringing in new customers to the brand,” McLean said. “This will involve qualitative and quantitative assessments that are just kicking off, which will provide us with an even better understanding of our customers, including how they view our brands, what other products and product adjacencies they may be looking for, and how we can best engage with them.”
When it comes to channel expansion, one area of particular interest is third-party marketplaces. As Retail Dive pointed out, sales through online channels at other retailers are a bright spot for the brand.
In the fourth quarter of 2022, third-party revenue increased 8%, far outpacing an overall decline in ecommerce revenue of 6%. The growth on marketplaces was driven in particular by fleece and outerwear sales at Kohl’s. The company also sells through Walmart, Target and Amazon. In the second quarter of this year, it plans to add a presence on Macy’s recently-launched third-party marketplace.
McLean said these marketplaces represent an opportunity to pick up new customers, which it has been acquiring at rates in the “low-teens.”
“I think there's opportunity to continue to grow that and refine that with the data we're bringing to bear,” McLean said.
With that data, Lands End is seeing opportunities to market additional products to a customer who enters the business through a discrete category. For instance, a customer may seek out the brand for swimwear, but can be engaged with additional products like hats, slides and swim dresses. Using data, Lands’ end can understand patterns, and apply tools to put these products in front of the right customer through marketing.
“We moved in the fourth quarter to an AI-integrated system for email, and within that system, we're able to look at these customer cohorts and look at the behaviors that they exhibit...more specifically,” McLean said. “So, we're guessing less and being more specific and accurate and thoughtful going forward.”
The retailer's marketplace is expanding quickly.
When it comes to ecommerce growth, was the pandemic a blip or a new trendsetter?
As we move further from the height of COVID-related closures, it’s a question that will start to be answered through the lens of history.
So far, the narrative of ecommerce growth in the U.S. from 2019-2022 has gone like this: Ecommerce’s share of overall retail saw a huge spike at the height of the pandemic in 2020-21, when goods in general were in demand and online shopping was necessary to preserve health and safety. Experts looked out and saw a permanent exponential change in the penetration of ecommerce as a share of retail that would last beyond the pandemic. Then, in 2022, everyone went back to stores and the trendline came back to 2019 levels. Growth was no longer exponential. There was still growth, but it was not happening as fast as during the pandemic period.
With this in mind, it’s worth pointing out that 2023 is the first year that there likely won’t be a pandemic-influenced swing to influence ecommerce growth. It is also a year where demand has suffered challenges amid inflation and interest rate hikes.
So as we seek to determine the importance of ecommerce to overall retail, it’s worth it to continue taking a close look at what growth trends retailers are seeing now, whether ecommerce is remaining resilient amid consumer pullback and how retailers are preparing for the future.
The latest example arrived this week from Macy’s. It’s a fitting one for the times. Overall, Macy’s is seeing a slowdown as consumers pull back on discretionary purchases, with sales declining 7% in the first quarter versus the same quarter of 2022. Digital sales were down 8%.
Macy’s is particularly susceptible to the macroeconomic headwinds that many brands and retailers are facing, as spending among the middle-income consumers it counts as a primary customer base is particularly softening, said GlobalData Managing Director Neil Saunders.
But while ecommerce is slowing overall, the importance it gained to Macy’s business during the pandemic is remaining in place.
In 2019, ecommerce made up 25% of Macy’s revenue, CEO Jeff Gennette told analysts on the company’s earnings call. That jumped to a high of 44% in 2020. By 2022, digital reached 33% of sales after the pandemic boom. In the first quarter of 2023, it remained at 33%. So, while the trend line dipped after shoppers returned to stores, ecommerce share still settled in at a higher post-lockdown point than it was before the pandemic.
This came in a quarter in which traffic was “relatively good” across both online and in-store, Macy’s CEO Jeff Gennette said. It was “flattish” online, and slightly up in stores.
“We do expect that this is the reset year with the penetration between them,” Gennette said. “But we do expect more aggressive growth in digital in the future versus stores as we think about '24 and beyond. And that's going to be foisted by a lot of ideas and strategies.
Over the last year, the retailer has made investments in boosting ecommerce, even as shoppers returned to stores. In a bid to boost the assortment of goods available online, Macy’s launched a marketplace in September 2022 that welcomes goods from third-party sellers.
The marketplace had an “outstanding” first quarter, said Macy’s President Tony Spring, who is poised to succeed Gennette as CEO next year. Gross merchandise value increased over 50% when compared to the fourth quarter of 2022, while the average order value and units per order for marketplace customers was 50% above those not shopping at the marketplace.
Macy’s is continuing to build the marketplace even as it racks up sales. The retailer added 450 brands, ending the quarter with 950 brands.
This is helping to draw in new customers, as well as younger existing customers who are buying more items, resulting in increased basket size.
“We're very excited as to how marketplace is really attracting the Gen Z customer, particularly in categories where it was not economically feasible for us to carry in the past,” Gennette said.
In the end, Gennette said a strong digital and social presence is key to attracting younger consumers. That's a different type of shopper than other age groups.
“We know the younger customer starts first online,” Gennette said. That behavior will still be in place as the generation gets older, and gains more buying power in the process.
Going forward, Macy’s is seeking to expand the model to other retail banners in its portfolio. Bloomingdale’s will open a marketplace in the early fall.
The Macy’s ecommerce trajectory isn’t that different from the wider U.S. ecommerce narrative detailed above. With one quarter of 2023 data, there is evidence that ecommerce share settled out at a higher point after the pandemic than where it started before COVID arrived. There is flattening now, but the retailer is taking it not as a sign of a slowdown, or a signal to change course. Rather, it sees changing consumer behavior as a reason to build for the future.