InformationWeek
Defining The Business Value Of Technology
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Sept. 11, 2000 |
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Specialty Stores Fight Back
Retailers are using the Web--once considered a threat--to increase business
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ast Christmas season, the owners of a shopping mall outside St. Louis so feared the threat of online commerce that they tried to prohibit mall merchants from displaying their Web addresses in their stores. That was then. This year, the nation's two largest shopping-center developers, Simon Property Group Inc. and General Growth Properties Inc., are working to wire more than 500 malls with broadband Web access and helping merchants build Web sites so shoppers can buy online in the stores as well as at home.Once placed on the endangered-industries list because of the perceived threat from pure-play dot-com retailers free from the burden of brick-and-mortar overhead, traditional specialty retailers have bounced back with a vengeance by embracing the Web. Retailers have honed multiple-channel strategies that let shoppers use cyberspace or physical space--or, better yet, a combination of the two--when researching and then making a purchase. Even the oldest and most venerable retailers, such as 163-year-old Tiffany & Co., sell on the Web and use their online presence to bring more customers into their stores.
"In some of the business press, we've gone from being a dinosaur to being a visionary in about six months, without changing our strategies or philosophies," says Ron Griffin, senior VP and CIO at Home Depot Inc. in Atlanta. "We've always believed that the Web helps us increase the bandwidth of the business and leverage all of our physical-store capabilities. Compared with pure dot-coms, that gives you an incredible competitive advantage."
That phenomenon has been called "revenge of the giants." While notable dot-com retailers such as Boo.com and Toysmart.com have closed their cyberdoors in the past six months, the Web sites of established physical-world brands are garnering more and more eyes and online sales. In 1999, online sales of brick-and-mortar brands more than doubled to nearly $20 billion, accounting for 59% of total retail sales on the Web, according to Boston Consulting Group research conducted for Shop.org, an industry trade group.
But simply selling goods online, in most cases, isn't the primary purpose of a traditional retailer's Web site. More important goals are increased company sales, repeat business, and customer satisfaction with a channel that features detailed product information, new services such as online gift registries, and the ability to order an item online and pick it up at the store. "We didn't do E-commerce to dramatically increase sales," says Tiffany VP of IT Bob Davidson. The New York company launched its Web sales site in November and has sold jewelry items for as much as $15,000 online. "To us, it's an added channel of customer convenience. The real goal of the site is to get you to the store and walking out with that blue box with the white ribbon." Case in point: Tiffany offers an online "How To Buy A Diamond" guide that Web users can print out and bring to the store.
"A customer who shops in more than one channel buys four times as much as a single-channel customer, and that is just a huge difference," says Cathy Hotka, VP of IT at the National Retail Federation, a trade group. "The old conventional wisdom was that people would shop in the store but buy on the Web, where they could do price comparisons. But the reality is the opposite. They're going to the Web for information, then buying in the store."
Office Depot Inc., the InformationWeek 500's top specialty retailer (see sidebar story, "E-Commerce Pays Off For Office Depot"), is a pioneer of the multichannel strategy. The Delray Beach, Fla., office-products retailer will sell more than $900 million worth of products online this year and is "Webifying everything," CIO Bill Seltzer says. But the company has never viewed the Web as a replacement medium. "We don't want another channel; we just want a single company view for the customer," Seltzer says. "E-business really has been used to change the organization; it's not just about selling on the Web."
Leveraging the advantage of multiple channels presents myriad business and IT challenges, especially the integration of legacy applications, such as warehouse and in-store inventory databases, with the Web. "Companies are really struggling with the complexities of multichannel retailing," says Greg Girard, VP of retail application strategies at AMR Research. "No one has figured out the best practice yet."
One of the keys to success is making use of existing applications. For example, even though most people think of Home Depot as a walk-out-with-the-merchandise retailer, it already has a huge infrastructure for delivering goods to homes, contractors' offices, and job sites. The dollar value of items delivered last year by Home Depot, Griffin points out, exceeded the total sales of Amazon.com Inc., which were $1.64 billion.
For eight years, Home Depot has run its homegrown Special Services application on Hewlett-Packard D270 terminals in its stores to handle will-call and to-be-delivered orders. "It's really a customer-relationship management system that we built before they invented the term," Griffin says.
This summer in its Las Vegas stores, Home Depot began testing a system that connects its Special Services application to a Web interface based on BroadVision Inc.'s One-to-One platform. The integrated system gives customers the choice of having orders delivered for a fee or picking them up at the store of their choice. Depending on results of the Las Vegas pilot, Home Depot plans to roll out the system in several other locations by year's end.
Another specialty retailer, Ace Hardware Inc. in Oak Brook, Ill., has spent the past year deploying online systems to all four of its constituencies--employees, retail stores, suppliers, and customers. "The Internet is my life these days," says Chris DeBoo, manager of corporate IT operations.
As a cooperative, 75-year-old Ace provides services to its 5,100 independently owned stores in 62 countries. Those stores can use an extranet called AceNet 2000 to check stock reserves and place orders. For suppliers, Ace is testing a private Web portal called Vendors.com with leading manufacturers such as Black & Decker, duct-tape maker Manco, and Master Lock. They can conduct vendor-managed inventory with an E3 Corp. application that generates electronic data interchange purchase-order documents for transmission on Ace's EDI network from Sterling Commerce.
For corporate employees, the Ace Online intranet offers features such as Web-based collaborative budgeting. And for customers, Ace launched an E-commerce joint venture about a year ago called OurHouse.com. The site sells some 20,000 Ace products online and offers additional customer services such as links to local painters and contractors. Ace recently began rolling out 2,000 in-store kiosks for brick-and-mortar shoppers to buy online ("Ace Hardware Uses Kiosks As Virtual Shelf Space," July 31, 2000). "The real power of E-commerce is not just the ability to sell a book or a wrench on the Web," DeBoo says. "It's about improving relationships and business processes--and we're still in the early stages."
Tiffany also knows about improved relationships. When the company decided to build an E-commerce site last year, it brought the IT and marketing departments together to work on a system for the first time, Davidson says. Marketing chose a list of five Web-site-design agencies for the company to work with, then had IT interview and qualify the agencies for technical proficiency. All five made the cut, and the joint marketing-IT selection team picked Oven Digital in New York. In another company first, Tiffany--which has avoided joint-marketing deals with other retailers to protect its own brand--recently began listing its bridal registry on WeddingChannel.com.
Tiffany built the Web order-entry system to be consistent with its existing IBM AS/400-based catalog-sales system "so the people in the warehouse don't even know if it's an E-commerce or catalog order," Davidson says. Tiffany doesn't disclose its total online sales, but overall revenue in the first half of 2000 jumped 23% to $715.2 million, and profit soared 78% to $69.6 million.
The Web allows new forms of online collaboration between specialty retailers and their suppliers. It's bringing a form of collaborative planning, forecasting, and replenishment. Companies such as Burlington Coat Factory Warehouse, Office Depot, and Williams-Sonoma are using a $250,000 online application from MarketMax Inc. that allows retailers to work with their suppliers via the Web to plan merchandise assortments and in-store displays in individual stores.
The goal is to bring the supply-chain process for nationwide retailers closer to customers' tastes, which can vary greatly by region or even by neighborhood. Suppliers can also help retailers place high-margin items--flavored cooking oils, for example--next to high-volume but low-margin goods such as pots and pans. "Improving overall margins is really the point," says MarketMax CFO Don Peck. "It's about getting the consumers what they want, rather than the buy-and-hope approach."
In the end, successful specialty retail is all about information--whether it's delivering better data on customer preferences to company buyers or taking the gift-registry concept to new levels by using IT. Last Christmas at two malls in Atlanta, Simon Property tested a new technology called FastFrog in eight specialty stores ("The Landlords Of Cyberspace," July 24, 2000). Around 10,000 teenagers were given Symbol Technologies Inc. wireless scanners to zap bar codes on clothing, CDs, and other gifts on their holiday wish lists. The lists were recorded on the FastFrog.com Web site, where the kids could download them for their parents or E-mail them to friends and relatives. This Christmas, Simon will test a similar technology for older shoppers called YourSherpa.com.
"Projects like that are a great way to make the mall relevant in the E-commerce age," says the Retail Federation's Hotka. "Some mall operators are building Web sites where you can order products from different specialty retailers and pick them all up at a central location at the mall. You get the convenience of online shopping, but they still get you to come in and smell the Cinnabon buns."
Illustration by Jeffrey Fisher
Photo of Davidson by Giorgio Palmisano
Photo of DeBoo by Jeff Sciortino
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