By Joe Skorupa
It may be a little early to quantify the lift retailers get from social media networking sites, but someone has to take a crack at it. So here goes nothing. Using recent financial reports from eight retailers, Richard Hastings, a consumer strategist with Global Hunter Securities
, has devised a formula for determining the worth of each Facebook fan. This is a first step in answering the biggest question in retailing today: Whatâs the ROI for social media?
What Hastings did was find a sample group of retailers that recently reported financial earnings with break outs for e-commerce revenue. Then Hastings divided e-commerce revenue by the number of fans the retailer has on Facebook.
For J. Crew it worked out as follows: $428.2 million in sales divided by 221,741 Facebook fans equals $1,931.1 in online sales per Facebook fan. For Best Buy the figure is $1,802.4. For the Gap itâs $998.1. See a complete list below.
Still Early in the Game
Now some caveats. As an emerging phenomenon, the impact of social media is difficult to quantify, especially in terms of hard-dollar sales, and especially from an outside-looking-in perspective.
The biggest caveat I see is this: Not all online purchases are made by people who have Facebook accounts. If we had access to internal reports from the eight retailers shown below we could augment Hastings' method with additional data. But no one except Target, for example, has access to Target's internal reports about referring domain traffic, which is the number of visitors to a Web site who come in immediately after visiting another Web site, in this case Facebook.
But the assumption that the number of Facebook fans is a rough equivalent to online purchasers is an interesting one that may ultimately prove to be an accurate barometer. Here's why.
Imagine it is now 2012 and the retailing industry has been slugging it out in the social media trenches, wooing the hearts and minds of digital shoppers in a competitive way for several years.
At this point the relationship between the number of Facebook fans and a retailer's shopper base has become normalized by natural selection. In other words, thanks to the efforts of consistent and continuous marketing programs the number of Facebook fans for each retailer has an equivalent numerical value to the number of online shoppers.
This means that if Walmart has X-million online shoppers and True Religion Jeans has Y-million online shoppers, then the number of Facebook fans each will have should maintain a similar X and Y relationship. Is it possible True Religion Jeans will have twice the number of Facebook fans as Walmart? Not likely. Over time it is more likely that Walmart's Facebook fan base will be immense and True Religion's will be niche, just as they are in the marketplace today.
So, Why Focus on Facebook?
Because Facebook now has 400 million users worldwide. And it's not just for kids. The fastest growing demographic is over 35 years old. The average American now spends 7 hours a month on Facebook, according to data from the Nielsen Company. And for one week last year Facebook outdrew Google as the most visited Web site on the planet.
Hastings is a strategist and a futurist, and I give him a ton of credit for taking a first crack at determining the hard-dollar worth of social media. This is an effort that needs to be done in retailing and done quickly.
Here is what Hastings found in his initial report.
J. Crew Group
E-Commerce Sales: $428.2
Facebook Fan Count: 221,741
$ per Facebook Fan: $1,931.1
E-Commerce Sales: $2 billion
Facebook Fan Count: 1,109.663
$ per Facebook Fan: $1,802.4
E-Commerce Sales: $1,120
Facebook Fan Count: 1,122,141
$ per Facebook Fan: $998.1
E-Commerce Sales: $492
Facebook Fan Count: 962,981
$ per Facebook Fan: $510.9
American Eagle Outfitters
E-Commerce Sales: $344.3
Facebook Fan Count: 879,160
$ per Facebook Fan: $391.6
Abercrombie & Fitch
E-Commerce Sales: $249.4
Facebook Fan Count: 924.458
$ per Facebook Fan: $269.8
E-Commerce Sales: $35.8
Facebook Fan Count: 217.377
$ per Facebook Fan: $164.7
A number of observations leap to mind from this data. Here are several.
J. Crew started as a direct-sale catalog retailer and ramped up its e-commerce business more quickly than most brick-and-mortar retailers. So, it's not surprising that J. Crew has a larger amount of revenue coming in through the e-commerce channel than most brick-and-mortar retailers. It is also possible J. Crew has not yet ramped up its social-media programs, and so its Facebook fan base is low at this early stage. Fair enough. But these factors can be accounted for and will probably normalize over time.
Kohl's may appear to have a temporarily low value for Facebook fans because it recently underwent a massive and highly successful Facebook program. This effort appears to have worked so well that Kohl's social-media initiatives are now more advanced than its e-commerce efforts. From this data we can see there is some significant upside growth potential for Kohl's to seize in e-commerce.
The Best Buy looks about right, but some might say it benefits from having an e-commerce market basket size larger than the others.
Abercrombie & Fitch has not been hitting on all cylinders for the past two years, so it's not surprising to see it's not performing well in this analysis either.
And what's up with Hot Topic's tiny e-commerce sales figures? Clearly this is an area it needs to focus on.
As I said, there may be some caveats to consider with this methodology, but as you can see it produces some interesting analysis, and tracking it over time with a larger sample size will no doubt increase the accuracy of the results.
I suspect this concept will provoke some strong opinions. I look forward to hearing them and learning how you are tracking the hard-dollar value of social media.