Wednesday, November 23, 2005

Department stores discover power of email

By ELLEN BYRON (The Wall Street Journal)

Thirty-one-year-old Lyss Stern hates spam, but she eagerly subscribes to email advertisements from more than 20 retailers.

"I'll be working hard all morning and just take a few seconds to look at one when it pops up. It's like a quick shopping trip," says Ms. Stern, who heads a New York event-planning company. "It's a guilty pleasure."

On any given day, Ms. Stern will glance at email from Saks Fifth Avenue, Ralph Lauren, J. Crew, Bergdorf Goodman, Williams Sonoma and Toys 'R' Us. She quickly deletes any that simply tout a big sale. "I only read the ones that tell me what's new, what's fabulous and what's the must-have item right now," she says.

She does get some that she can't resist: When Prada sent her an email announcing the arrival of a new style of black flats in stores this fall, she immediately called the Prada store near her and asked the manager to hold a pair of nine-and-a-half's. "When I saw the email, I knew I had to have them right away," Ms. Stern recalls.

Once limited to primitive, annoying all-text messages, email ads have emerged as one of fashion's most effective marketing tools. As high-speed Internet access becomes more widespread, retailers have been able to reach more consumers with sumptuous photography and sophisticated text messages. Stores can even market at the level of the individual shopper, sending customized pitches that target shoe lovers or handbag fans based on their previous buying behavior.

"What we're seeing is that retailers are getting smarter about how they use email, not just using it more often, but using it more effectively," says Bart Sichel, an associate principal with consulting firm McKinsey & Co. "There's no doubt that promotional offers work, but at the same time, especially for the higher-end players, they're learning how to create compelling messaging, too."

When email marketing first began in the 1990s, retailers sent basic messages that referred customers to Web sites featuring postage stamp-size photos of clothes that were too small to be seen, let alone be seductive. Retailers say technological limitations were one reason that Internet sales of fashion, which consumers want to touch and try on, lagged behind other categories.

Now, retailers are crediting email marketing with being the most immediate, versatile and one of the cheapest forms of advertising. When winter struck a large part of the country in November last year, J. Crew Group Inc. was able to quickly ship an email highlighting J. Crew's coat selection, a spokeswoman says. Online sales of coats went up that day.

Indeed, this holiday season Gap Inc.'s Gap division dropped its splashy, celebrity-filled TV ads in favor of more trackable online promotions and a beefed-up magazine campaign. Gap spent more than $26 million on TV advertising in November and December last year, according to TNS Media Intelligence. It tested the holiday ads during the season and found they didn't generate a critical increase in shopper traffic in stores.

"Because the cost of (email) distribution is so inexpensive, you have the opportunity to tailor messages," says Scott Key, vice president of business development for Gap Inc.'s online division. "The click-throughs and purchases go up dramatically when you give customers a message they care about, rather than just broadcasting to them."

Retailers like the economics of email ads, especially in a holiday season as uncertain as this one. A retailer might spend as little as $2,500 to $15,000 to establish an email marketing program, according to Shar VanBoskirk, an analyst at Forrester Research Inc. After that, the costs of maintaining and segmenting the email database and executing email campaigns are unlikely to exceed $300,000 a year. Space for a prominent print ad in a high-profile magazine might cost ten times as much, she adds. Roughly speaking, it costs about two dollars to send 1,000 email messages, and $20 to send 10,000 messages, she says, not including creative costs, such as photography or a celebrity endorsement.

Do email ads work? On average, consumers open them at a rate of about 33 percent and "unsubscribe," or ask to be taken off the mailing list, at an annual rate of 9 percent, according to a Forrester survey of 137 online retailers. Shoppers "click through" to retail sites at an average rate of 11 percent, and place an order at an average rate of 4.3 percent, according to the survey.

Online sales of apparel, while still a small fraction of total revenue, are the fastest growing segment of the business for many companies. Gap's online sales have grown 41 percent over the past two years, to $563 million or 3.5 percent of total sales for the fiscal year ended in January 2005. Neiman Marcus Group's online sales rose 46 percent to $313 million for the fiscal year ended in July.

This year, online apparel sales are projected to reach $12.5 billion, up 23 percent from $10.2 billion in 2004 and almost triple the $4.4 billion retailers rang up in 2001, according to Forrester.

Email costs far less than catalogs, but few retailers see it as a replacement. Instead, they see it as a way to tempt shoppers to shop more, which pays big dividends. Neiman Marcus says its customers who shop via all three retail channels - catalogs, online and stores - spend six times as much as customers who shop in just one.

Still, email's capacity for customization is one of its great strengths, retailers say. Gap, which emails customers twice a week, usually segments messages by nine different customer groups. Segments include gender and shopping behavior, such as what item a shopper bought, in which season and at what price. It also looks at merchandise category, be it seasonal basic, fashion or a basic item that is in the store year-round, Mr. Key says.

From there, the company relies on a host of mathematical metrics as well as human intuition to determine which emails are appropriate for each customer segment. While a retailer such as Amazon relies heavily on algorithms to determine what products to advertise to a specific user, "we're more handholding about the process," Mr. Key says. Gap also asks subscribers for their email preferences on its Web site.

In early September, Gap sent its most fashion-forward customers a message touting trends for fall, such as oversized hats and sweater jackets. Another email geared toward a broader audience of female shoppers offered free shipping on orders of more than $50. Shoppers who have bought men's clothes received a message outlining three reasons why no man should be without a blazer this fall.

Other retailers have similar systems. When signing up for email from Nordstrom Inc., subscribers can choose to receive messages about women's or men's apparel, petite- or plus-size fashion. The messages are further customized according to online purchases, the company says. Shoppers who bought boots might receive an offer for free shipping on boots; a shopper who buys fashion by the label Theory could receive emails previewing a new Theory collection or even one similar to Theory.

Neiman Marcus, which sends emails almost every day to more than one million subscribers, goes a step further. It customizes its email according to categories recently browsed on the site, as well as recent purchases. Subscribers who arrive at the Web site via an email ad may find their favorite designers or items highlighted on the home page. "We know what you shopped last time, so we'll show you more of the same or something similar," says Brendan Hoffman, chief executive of Neiman Marcus Direct, which oversees online and catalog operations.

Retailers like email's immediacy. Neiman says its core luxury customers consider it a priority to see the latest styles right away - a demand the company takes great pains to satisfy. "You might get your catalog three days after your friend did," says Mr. Hoffman. "Email is much more democratic."

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