No Time For Gloating

On the opening morning of the Retail Systems 2001 conference in Chicago in June, a featured panel of six industry CIOs began with a reading of the names of dot-com specialty retailers that have disappeared in the past 12 months--in alphabetical order. The litany of RIP's included BabyCenter.com, Boo.com, Eve.com, Furniture .com, and so on down the list. With few exceptions, 2001 clearly has been a year of triumph for the established-brand, clicks-and-mortar companies over Web-only startups.

The threat of "being Amazoned" may be passing, but savvy IT executives in retailing aren't kicking back and gloating. Even with constricted IT budgets in the economic downturn, they're pressing ahead with aggressive cross-channel integration and Web strategies that also drive online customers into shopping malls and stores. The most-effective IT users are pushing hard to know their customers better with customer-relationship management initiatives while paring back inventory costs with more sophisticated supply-chain collaboration strategies.

"With the death of so many dot-coms, there might be a tendency for established retailers to relax and say 'whew,'" says Ken Harris, senior VP and CIO at Gap Inc. "But this isn't the time to sit back. No matter what's happened with dot-coms, Internet technology has changed things forever in our business."

Most Internet activity in retail has rightly focused on the customer's experience, but Web technology has made a big difference inside organizations as well. At Staples Inc. in Framingham, Mass., an initiative known as "internal E-Business" has made every in-house application available over the Web, providing a simple, consistent application interface across the growing company. "In the past, we could make up for a lot of application development sins with enough user training," says Brian Light, Staples' senior VP and CIO. "Now, with 55,000 employees, that's just not practical. The things we deliver to the business need to get better and better, and be much easier to use."

Early next year, apparel seller Lands' End Inc. in Dodgeville, Wis., plans to begin rolling out a Web-interface-enabled application for its 3,500 call-center employees in six locations, three in Wisconsin and three overseas. The system, developed internally with application development tools and methodology from Trilogy Software Inc., will replace a legacy CICS-based mainframe order-entry system. With virtually all of Lands' End's $1.46 billion in revenue coming from catalog and Web sales, the company's call centers are as mission-critical as it gets. The new system will let those who process phone and Web orders transform themselves from order-takers to true customer-relationship managers.

"Right now, they're kind of on their own, paging through our catalogs when a customer asks about other related products," says John Loranger, VP of information services. Lands' End is wary of pushback from aggressive up-selling and cross-selling, but will begin to recommend "great go-togethers" based on data-mining information.

Lands' End's online consumer sales reached 16% of revenue in the fiscal year ended Jan. 26, making it the world's biggest apparel seller on the Web, according to the National Retail Federation trade association. "If you think about it, we've had the perfect Internet business model for 30 years," Loranger says. "We've never been anything but direct to the consumer."

Most big-box specialty retailers have spent the last 12 months honing their Web sites as tools to make their primary channel--the store--easier, simpler, and more convenient for customers. In-store pickup of Web-purchased items and in-store return of unwanted ones, once a leading-edge, differentiating feature, is now a requirement.

To consumer-electronics retailer Best Buy Co., a buy-it-online, get-it-at-the-store transaction is child's play. The Eden Prairie, Minn., retailer plans its strategy around customers who might research DVD players on the Web, drive to the store to touch and test them, then go back online, use the company's price-comparison "bot" to ensure that Best Buy is living up to its name, click to buy, then drive back to the store to pick up the purchase. More than half the U.S. population drives past a Best Buy location every day.

"The customer's in charge. We let them shop and buy whatever way they want," says Scott Lien, IS leader of the 1,800-store retailer, which acquired the Musicland and Magnolia chains this year. "We see all different buying behaviors and they vary not only by customer, but from purchase to purchase by the same customer."

Kinko's Inc., a specialty retailer of a different stripe, has offered different forms of printing services online since 1995. Web-based revenue will account for about 10% of Kinko's business this year, and its core online service is Print-to-Kinko's, or "P-2-K." Launched in July 2000, the service lets people order most of Kinko's specialty print services remotely by sending their documents electronically via Kinko's Web site, E-mail, or Internet. Customers can receive their orders by FedEx or pick them up at selected Kinko's stores; all 1,000 North American locations will participate by year's end.

Like many retailers, Kinko's folded its originally separate Web business group back into the parent company this year. "The association between the Web and bricks parts of our business has to be extremely tight," says Fred Herczeg, senior VP of technology and CIO of Kinko's, in Ventura, Calif. "Any retailer that doesn't allow in-store returns of Web purchases, for example, is making a horrible mistake."

Cross-channel integration also demands close attention to sales-force compensation, so that a purchase at an in-store Web kiosk, for example, gets credited to that location's revenue total. "Otherwise," says Staples' Light, "our people would be stacking PC boxes in front of the kiosks so that customers can't use them."

In that scenario, customers clawing through the boxes could be easily identified as likely online buyers. Fortunately, retailers are using more leading-edge CRM techniques and technologies than that. Lowe's Home Centers Inc., for instance, collects some form of data on 30 million customers who've opted to be identified (out of 50 million total), enabling it to match nearly 60% of its sales transactions to a specific customer using a 16-terabyte NCR WorldMart data warehouse. "Anytime you can gain visibility into customers and who and where they are, it allows you to make better merchandising and store-assortment decisions," says Steve Stone, VP of MIS operations at Lowe's, in North Wilkesboro, N.C.

Before anyone invented the term CRM, very high-end retailers such as Tiffany & Co. had been collecting individual purchase data and marketing to a segment of well-heeled customers. The technique is called "clienteling," and Tiffany can even cull microfilm-and microfiche-based customer sales records back to 1956. It now uses a customer data application, based on the Opus Millennium Store System from Cornell-Mayo Associates, to match customers to specific store locations and purchase patterns. But it's an inexact science, admits Bill Haines, group director of systems development at Tiffany, in Parsippany, N.J. "Matching retail transactions to specific customers, accurately and consistently, is a challenge," he says. "And even if you do that, what people buy and what people tell you they like are often two different things."

As even big-box retailers seek more detailed knowledge of individual customers' buying patterns, the use of analytics--algorithms for regression analysis of reams of sales transaction data--is on the rise. "It's about to be one of the big buzzwords," predicts Cathy Hotka, VP of IT at the National Retail Federation in Washington. Best Buy, for example, uses data and statistical analysis tools from MicroStrategy, SAS Institute, and SPSS to identify product "add-on" patterns, then shares the results with suppliers such as Palm, Panasonic, and Sony so they can better tailor future promotions and special sales.

"We're well on the path to really being an infomediary between our vendors and the end customer," Lien says. "The days of just being the product-delivery mechanism are over. We can add much more value to the vendor relationship with detailed customers sales information."

Tight collaboration with suppliers, through highly structured data-sharing techniques such as collaborative planning, forecasting, and replenishment, was originally the domain of huge general merchandisers such as Wal-Mart Stores Inc., working with consumer packaged-goods companies such as Procter & Gamble Co. But leading-edge specialty retailers such as Best Buy have major collaborative efforts under way as well. The primary goal may be supply-chain efficiency and reduced inventory costs, but accurate replenishment has a huge customer service payoff, too. "The worst thing that can happen to a specialty retailer is tempting a customer into the store and not having what they want," Hotka says. "You could lose that customer forever."