InformationWeek

March 12, 2001

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Web Kiosks Spur Spending In Stores

Units let retailers expand offerings and provide customers with more information

By Terry Sweeney

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magine tripling inventory without building a single new store or addition. That's what Kmart Corp. did with in-store kiosks that link shoppers to its Web site, BlueLight.com.

"A typical Kmart holds about 75,000 items. BlueLight.com holds 240,000," says Steve Chaffin, director of in-store marketing at BlueLight.com LLC and known internally as the kiosk king. Kiosks let shoppers locate items that may be difficult to find or receive a virtual rain check if the item is out of stock. "BlueLight.com virtually extends Kmart store shelves," he says.

Those extensions are prompting many retailers to take a hard look at Web kiosks. BlueLight is clickable from the 3,600 Web kiosks inside 1,200 Kmart stores across the country, Chaffin says. The rest of Kmart's 2,164 stores will be outfitted with kiosks this year.

Early experience from Kmart and others shows that kiosks often prompt customers to spend more time and money in stores. Kiosks also provide salespeople and customers with mountains of information, including product specs, warranty information, and pricing comparisons. They're also relatively cheap to activate and manage, since in most cases they're just another terminal hanging off an in-store intranet.

These self-service kiosks are outfitted with a browser and essentially act as a gateway to the retailer's online merchandise. Sometimes they're located near the store's front door to encourage visitors to log on; other times they're in the most heavily trafficked departments.

In addition to listing the physical and virtual inventory, kiosks may also contain side-by-side comparisons of product types and pricing information from competing retailers. Kiosks also have been outfitted with gift registries, replenishment lists, affiliated services, and frequently asked questions--anything to automate customer-service functions in an era when the cost per transaction for a live person to service a customer can get very expensive.

Photo by Natashia Fuksman "Kiosks can be highly effective. They can help consumers find products that may be in the store but are hard to find," says Randy Covill, a senior analyst for retail applications services at AMR Research. "Kiosks help consumers find products in another store in the same chain; they also give retailers a backup in case products aren't on the shelves but can be shipped from a distribution center. They greatly increase convenience of shopping."

Kiosks also make good business sense for retailers. Online sales, including those from kiosks, typically have higher margins than sales from other channels. Kiosks give retailers more insights into their customers' shopping habits and desires. And they help customers learn more about a dishwasher, a table saw, or a bassinet, essentially qualifying themselves for the purchase before setting foot in the appropriate department or store.

"We want to make it as easy as possible to shop us, and we know that with major appliances, about 10% of purchases in store are influenced by Sears.com," says a spokeswoman for Sears, Roebuck & Co. Sears already has or is installing multiple kiosks in its 860 full-line stores. "We have [sales] associates across the country with stories of customers with printouts wanting more information and asking to see products first hand."

Other industries also are adopting kiosks. Continental Airlines Inc. and Delta Air Lines Inc. are among the airlines that now use kiosks in airports for ticketing and boarding-pass distribution. Convention centers in many major cities contain kiosks with some combination of Web access, fax machines, telephones, and automated teller machines. Libraries are leading the Web kiosk charge in the otherwise pokey local government sector. But whether it's Crate & Barrel's bridal registry, Barnes & Noble's title search and gift delivery, or online-only colors for T-shirts at Gap.com, retailers are at the forefront of Web kiosk adoption.

Consumers can enter a store, shop online via a kiosk, then pick up their purchases in the same store that day if they're in stock, or within a few days if they need to be shipped, says Dennis Bowman, CIO of Circuit City Stores Inc. in Richmond, Va., which has multiple kiosks in more than 40 stores. But he acknowledges that both customers and salespeople use the kiosks' information-gathering function the most. That's understandable considering CircuitCity.com carries 2,600 consumer electronics products and about 250,000 music, movie, and game titles.

Early adopters, including The Home Depot, Japanese 7-Eleven stores, and Recreational Equipment Inc., began installing kiosks as far back as 1997. None of the retailers interviewed would break out kiosk-derived revenue from online sales, but they say online sales annual growth rates more than justify the existence and expansion of kiosks in their stores.

"We know the average ticket size in our stores and in our Web stores," Bowman says. He refused to specify which was larger, but he says that the average online purchase was close to that of a physical store, if not larger. "By comparing order size, time spent, product profitability, and return rates between those two channels, we can determine whether we'd benefit or lose from blending them together in Web store kiosks," Bowman says. "We can benefit using the traditional measures of retail success," such as whether salespeople find it helpful or if customers use it and are satisfied. "We try to correlate usage with average sales and order size," he says.

Photo by Mark Ostow Companies shouldn't expect deploying kiosks to generate a huge windfall or send their earnings per share skyrocketing, says Michele Rosenshein, an analyst with Jupiter Research. "We would caution retailers who think they're going to get a big bump in sales." Sales from online and kiosks for REI, in Sumner, Wash., are about the same as one of their physical stores, she says.

Staples Inc. in Framingham, Mass., reported $45 million in sales from its Staples.com site in 1999 and projects $450 million for 2000, figures that include kiosk sales, says Scott Floeck, VP of information systems.

To further bolster online sales, Staples has boosted available stock-keeping units from 8,000 in the stores to 100,000 online. In addition, the site and the kiosks have expanded Staples' ability to offer more than 65 professional services for functions such as payroll, Web design, legal, and insurance, "anything you'd require as a small business owner," Floeck says. "We're in the process of transforming our business as a destination for services. We're very encouraged by the number of hits."

Staples' diversification approach stands in contrast to other retailers, who look to kiosks as a way to deepen customer relationships. Jupiter analyst Rosenshein views kiosks as a customer-service aid for items such as window blinds or big-screen TVs--essentially any item that requires more information than a purchase such as potato chips or a CD.

Distribution is a secondary benefit of kiosks, which Rosenshein says is important since about 75% of all retailers can't track their customers across different channels. But those retailers able to track using multiple channels find customers using multiple channels buy 20% to 30% more than those buying within a single channel, she says. "A customer who purchases from two channels is worth more than one," she says, "and three beats a dual-channel customer."

Not all retailers are rushing to deploy kiosks. Noticeably absent from the kiosk mix are higher-end retailers such as Bloomingdale's, Nordstrom, and Saks Fifth Avenue. These stores traditionally don't market to the do-it-yourself crowd that kiosks attract, AMR's Covill says. "The real advantage of a kiosk is to promote self-service among consumers and provide them with a higher level of service than they've ever had in a less-expensive arena," he says. "Neiman Marcus customers aren't cost-conscious and are very service-minded."

But more retailers may be enticed into activating kiosks in the next 18 months. Kiosks are being groomed to be more than glorified Web browsers. Retailers are experimenting with touch screens and slots for credit-card swipes. Some can envision using Bluetooth wireless technology so that customers can use handheld computers as they walk through a physical store.

PC chat, audio, and video channels are also on their way if customers need to consult a service rep or view some sort of informational promo piece from the kiosk. Still, retailers and analysts emphasize there's lots of work to be done with regard to customer reaction to these various interfaces.

In-store kiosks let retailers leverage all their channels. "As a consumer, I'd like to go to a kiosk and be able to access my order history, answer product questions, and get discount information, whether it's for a purchase from the hard copy, mail-order catalog, or the Web site," says Covill. "If the kiosk can provide that sort of integrated information, that will be a big hit for consumers and deliver a lot of traffic for the retail stores. That multichannel approach can be a common touch point for all consumer needs."