“You have to spend money to make money.”
This phrase is commonly thrown around business-oriented conversations and it is met with mixed reviews. Even with first-person accounts of having found success through this approach, not everyone buys into the concept that continued heavy investments will proportionately yield revenue.
I think we can all agree that aimlessly throwing money at stagnant revenue is not a smart tactic. However, major market shifts often require business model adjustments; especially when such shifts trend toward advancements in technology.
Regardless of the size or scope of a brand, using data-driven insights to identify growth opportunities AND focused strategic adjustments will offer the highest likelihood for success. Past experience and informed opinions are certainly valuable, but in a highly competitive market there is no replacement for accurate, reliable data to guide decision making.
As the consumer marketplace continues to expand online, brick-and-mortar shopping experiences are becoming less and less relevant. That’s not to say they are obsolete, but online purchase options offer a more convenient experience for today’s modern consumer.
The proof is in the numbers. US Department stores held 3.6% of the total retail market in 2005, compared to only 1.9% in 2015. In order to effectively identify and adjust to the cause of this decline, a careful review of industry data and internal revenue statistics becomes increasingly necessary.
One example of a legacy department store experiencing retail industry growing pains is Macy’s. Sales during November-December 2016 dropped nearly 3 percent compared to the same time the previous year. However, online retail sales have risen 11% from 2015-2016 which identifies both a point of weakness and a significant growth opportunity.
Business that are averse to evolving with changing consumer demand will likely experience lost market share, and legacy brands who find themselves less agile than disruptors in an increasingly saturated digital marketplace struggle to keep pace.
So, it seems the answer to whether or not it is necessary to spend money to make money is; it depends.
For an entrepreneur hoping to enter a competitive market, spending money that they don’t have clearly isn’t a wise strategy. Instead, it makes more sense for a young brand to work within budgetary restraints and maintain an agile strategic approach. Continually tracking and evolving a business model can yield the desired result, which requires more business intelligence than monetary investment.
On the flip side, a legacy brand that has an established market presence and significant value in tangible assets faces different challenges. Adjustments to an established business model take much more planning, effort, and financial displacement. To maintain relevance in a changing marketplace, it does require investment in new technologies and loss of short-term revenue. In this case, money does have to be spent in order to maintain market share and relevance.
Industry experts project online sales to jump from $385 billion in 2016 to $632 billion in 2020. In response, according to Business Insider, “Macy’s will close 68 of its 880 store locations as part of a company-wide restructuring that will shift more resources to its online efforts.”
Based on market analysis it’s easy to see why Macy’s made this strategic decision, and while sights are set on future revenue growth the brand will invariably experience short-term losses. The restructuring will cut 10,000 employees and shift $550 million to its digital businesses.
The upcoming initiatives for Macy’s will be focused on mobile commerce, marketing data and analytics, and in-store pickup options for online orders.
The decision to pursue these specific areas was not based on instinct or opinion; they were based on data-driven insights and factual results of a detailed market analysis.
One of the many attractive aspects of e-commerce is the increasing availability of online shopping and purchase data. This information will help guide targeted marketing efforts, inventory management and production, seasonal trends, and the effectiveness of promotional campaigns; among many others.
So, is it true that “you have to spend money to make money?” The short answer is, sometimes. One thing we know for sure is that data-driven insights from detailed analytics are the most accurate, reliable way to identify a root cause and formulate an effective business solution.
To read more about Macy’s going digital: CLICK HERE
To further grow your own market share by better understanding consumer demands, give us a shout. Helping businesses strengthen their value proposition by leveraging the value of market data and customer feedback has been our passion for over 30 years; and we love what we do.