InformationWeek 500: Many Happy Returns For Lowe's And Shoppers

FRAUD BLOCKER
In a survey of 26 Lowe's stores between January and May, the new system declined 8,665 returns for reasons such as attempted fraud and bad checks written on original sales. Across Lowe's 1,395 stores nationwide, that would equate to more than 1 million rejects per year. Those theft-deterrent and -detection measures help reduce inventory lost to shoplifting and let Lowe's keep prices affordable so it doesn't penalize honest customers because of the acts of thieves, Stone says.

There have been other benefits for customers as well. The average time to make a return has been cut by 90 seconds per visit. And this hasn't been lost on Lowe's bottom line: Labor time at Lowe's returns desk has been reduced by an average of 30 hours per week per store. An associate first scans the items being returned and then scans all the receipts, if the customer still has them. The system then searches for matches of all items and receipts and pulls up the corresponding invoices, along with the forms of payment used. If there's trouble making a match or if it's a return without a receipt, the customer can provide the bank card, credit card, or checking account used, or phone number if provided at the point of purchase, to look up the invoice. All returns are made to the tender type they were purchased with.

Stone won't say how much the project cost, but he said the investment was "relatively modest" and in the lower one-third of the business programs in the IT budget. That's because the system leverages Lowe's existing IBM DB2 database, which houses encrypted transactions to protect data, including credit card numbers, for up to two years from the point of purchase. The system also uses smaller Sybase databases in each store that handle temporary transactions.

With the old system, all sales and returns were handled in one program on the DB2 database. Lowe's created two applications for each of those processes, written by its system developers using Cobol and C languages. With the new returns application came new tables and screens that tie it closely to the business process. "Having two focused applications optimizes business processes," explains Kelly McCray, Lowe's IT strategy analyst. "The two systems interface with each other and share a fair amount of common data, but tying them to specific business processes gives more flexibility."

To optimize performance, Lowe's took a tiered approach to its returns database design, separating it into two subsets of data tables: those for returns between zero and 90 days of purchase, and those for returns from 91 days to two years. The tier with the pre-91 day returns was tuned for optimal performance, since most returns are completed within that time.

Every week, between the time the last store closes in Hawaii and the first one opens the next morning on the East Coast, any transaction chain-wide that hits the 91-day timeframe is transferred to the second set of tables. "One thing we continue to work on is optimizing data-table migration," says McCray. "You have to be mindful that if you're going to build these sophisticated data tables, you need the horsepower to manipulate and move them." This work includes building indexes to support the transfer of data and predefining some of the transfer logic, McCray says.

Lowe's learned a few lessons in the process of rolling out the new system. For one, it began doing more testing of the software to work out kinks such as missing data or incorrect item numbers before each store implementation to avoid having those problems crop up once the system was in operation. That became increasingly important once Lowe's realized that implementations didn't perform the exact same way in every store; there were issues related specifically to states where stores are located and unique store requirements.

THOROUGH UNDERSTANDING

LESSONS LEARNED DIG DEEP Lowe's understood the business process before developing the technology to improve it. SEPARATE DATA Splitting sales and returns data into two apps let Lowe's tailor the apps to those business processes. DON'T SKIMP The retailer performed ample software testing, especially when dealing with rollouts at many locations. USE LEVERAGE Lowe's improved business operations more inexpensively by leveraging existing databases and other systems.

The project succeeded because Lowe's considered business processes first and technology second. That boiled down to understanding customers' purchasing and return patterns, and how associates go about processing returns. While that seems logical, many IT shops have gotten into trouble by developing a new system for their companies without fully understanding the business issues. Because it paid attention to the business processes, Lowe's designed the system specifically to handle the complexity of returning items from several different shopping trips that may have used different payment methods, such as a gift card for part of the purchase and a credit card for the remainder.

"What we may think of during conceptual systems design may not be how things are executed day to day," McCray says.

CIO Stone says one of the biggest benefits of Lowe's returns system is that it's used for sales transactions made on the company's Web site and through its call center. It also serves as a "building block on which we can build additional, more innovative processes to better serve our customers in the future," he says.

Indeed, customer intimacy is about more than just good customer relations. It's about knowing who your customers are, their buying habits, and how to create hassle-free shopping experience. It's also knowing who your customers aren't and finding ways to avoid scams that drive up costs and ultimately impact valued customers.