Thinking

Shopping for data

When online retailing is in the ascendance, and the high street’s decline is accelerated by the pandemic; why are online retailers buying the competitors they’ve so successfully disrupted?

When online retailing is in the ascendance, and the high street’s decline is accelerated by the pandemic; why are online retailers buying the competitors they’ve so successfully disrupted? How can a crippled 240-year-old department store such as Debenhams be worth £55m to one of the UK’s top 10 online retailers - Boohoo? How is that explicable, given that the deal didn’t include any of Debenhams' stores or workforce?

Popular press coverage of the deal focused on Boohoo’s intent to diversify its offering. It’s online platform will become a virtual equivalent of Debenhams' bricks and mortar, as Boohoo starts allowing named brands to use its platform in addition to its own-brand products. Parallels are being drawn with Amazon’s marketplace; and this makes sense. The strategy of ‘specialise to grow, and diversify to consolidate market share’ is a well trodden path for disruptors. However, £55m creates a lot of options for consolidation; and it seems like a high price to pay to bring brand owners onto Boohoo’s platform. That sort of money might have been used to incentivise them into a deal with Boohoo directly. So what other valuable intellectual property might be included in this deal to justify that price tag? One answer is something that can’t be bought any other way - customer insight from customer data.

Whether or not they’re online, retailers have long understood the importance of customer value created by customer experience; and an explosion in the ability to capture data on customer experience is now a key source of competitive advantage for them. As a rationale, this is a start; but it does not completely explain deals such as the Boohoo acquisition of Debenhams. After all, couldn’t Boohoo have bought the data they needed?

The answer is yes, but not all of it. There is a market for anonymised insight from customer data, but the insight it provides is limited by how that customer data was analysed. Legal protections for the customer (i.e. you and me) mean that it is practically impossible for retailers to buy datasets on individual customers without some form of M&A activity. While the big picture is the end game, some of it is invisible without the specifics provided by data at the level of individual customers. In data science and predictive analytics, the big picture is all about the detail.

Which brings us to the big question… In Boohoo’s purchase of Debenhams, was £55m a fair price?

When the future is in the past, we’ll be in a better place to know; but it certainly depends on the ability of the two organisations to extract value from the combined insight of their combined customer data. This is a non-trivial exercise. Data is not objective. It must be interpreted within its context. For example, Boohoo and Debenhams are likely to have data entities that look alike, but that similarity doesn’t make them equivalent. This absence of equivalence matters because predictions and decisions will be made as a consequence; and a ‘next best action’ derived from the habits of a customer shopping on the high street, is unlikely to translate immediately into the world of online retailing. Consider something as low level as a customer satisfaction (CSAT) score - how would you use historical CSAT data from customers who bought in-store to inform your marketing of Boohoo’s platform?

Therefore, realising the value of the merged datasets depends on understanding the information contained within them. Ultimately this will require unification of more than data - one data model, governed consistently, aligned to a corporate strategy will require retrospective translation of datasets, combined with changes to technology, processing, analysis and reporting; but that could take years to complete. What value can be extracted within the first 100 days?

I expect the initial focus will be on the fundamentals of marketing and sales. Contact information is universal, and building awareness of Boohoo’s value proposition is a first step towards a relationship between legacy Debenhams customers and Boohoo’s brand. It will also act as a simple test of how readily customers will change channel from the high street department store to shopping on Boohoo’s platform. This is a quick win, and a rapid test of value, which will inform future valuations for similar deals in the wake of the pandemic.