In its second-largest acquisition, Amazon buys the company for $970 million.
It may come as a surprise to consumers to find that less than 10% of retailing web sites have real-time inventory. “When we started our web site in 1998, we got lots of positive comments from customers who liked the real-time inventory function,” says Dennis Bowman, senior vice president of Circuit City Stores Inc. of Richmond, Va. “But in 2002, it has become the expectation of web customers.”
Customer expectations aside, the number of retail sites that offer real-time inventory is surprisingly low. Geri Spieler, research director for The Gartner Group Inc.’s GartnerG2 retail services group, says the 10% of sites that offer real-time inventory is up fivefold from a year ago.
As the web becomes a mainstream retailing channel, part of its success will hinge on making the online shopping experience as much as possible like offline. Providing real-time inventory on the web goes far toward contributing to creating that experience. It is a lot like having items on display on retail shelves; it tells the customer the item is there to be bought. “It’s like picking up a sweater from a shelf in a store,” Spieler says. “No salesperson will take it away from you once it’s in your cart and say, ‘We’re out of this.’ If it’s in your cart-online or offline-you’re expecting to be able to buy it.”
While most retailers have not measured the impact of real-time inventory reporting on sales or conversion rates, most believe that it has affected their web success. They rely on the kind of early feedback that Circuit City received. Or they extrapolate from what’s happening in the market. “We pioneered real-time inventory,” says Monica Luechtefeld, executive vice president of e-commerce at Delray Beach, Fla.-based Office Depot Inc. “But today the gap between us and our competitors is much closer because the customers have said it’s important to them.”
As more consumers shop the web, the demand for real-time availability of inventory is sure to go up, market analysts say. “The web creates a strong sense of immediacy,” says John Marrah, president of Ecometry Inc., which provides multi-channel enterprise software to the retail industry. “When a customer goes to a web site, there’s an assumption that what they’re looking at is in stock. You create a significant deficit of goodwill if the consumer finds that assumption is not true.”
The black hole
Projecting real-time inventory to the web is not all that difficult for catalog merchants who fulfill orders from one or at least a limited number of warehouses and where at most a couple thousand telephone customer service agents have access to the inventory data. But one of the new avenues to success on the web is to allow customers to pick up items in stores-and that’s where the real problems arise. “Now you need the visibility with the store-and the activity between the shelf and the point of sale has always been a black hole for retailers,” says Donny Askin, founder and CEO of CommercialWare Inc. “There’s a real difference between a retailer’s ability to sell the last item in a warehouse and the last item in a store.”
Bowman says Circuit City knew pretty much from the start of its web venture in 1998 that it needed to make store inventory available to the web. “We had the notion that we had to win on the web by leveraging the store structure,” Bowman says. “We could not compete against the pure-plays on their own turf and win. They were the darlings of Wall Street and had money to spend like crazy on marketing. We had to change the turf to something they couldn’t compete on. For us, that was leveraging the stores.”
Circuit City already had the good fortune to have designed its store system so that a relatively light POS terminal feeds data to a store server, which then maintains the inventory counts. The store inventory is updated at the server once a day and the terminals report sales to the server throughout the day. The server decriments the inventory each time an item is sold. Inventory counts are updated chainwide at the end of the day. Circuit City developed that system a decade ago to allow one store to access another store’s inventory so that if the first store was out of an item a customer wanted, it could check availability at nearby stores. “That required store-level, real-time inventory,” Bowman says.
Now, when a customer on the web wants to know if a certain store has a particular item in stock, the web can inquire at the store and report availability to the customer with a high degree of confidence-accurate 98.5-99% of the time, Bowman says.
One of 600
If that store has the product, the store holds it for the customer to pick up. “We extended that concept to the point where we consider the web to be one store out of 600,” Bowman says. Web-enabling the store servers so they could talk to web shoppers took a team of 12 about four months to complete, Bowman says. The biggest challenge was security, making sure servers weren’t open to hackers even as they were available to the web store, he notes.
Circuit City has been successful enough with its pick-up-at-the-store strategy that 50% of web customers pick up their purchases.
While Office Depot is not offering pick-up-at-the-store, real-time inventory is no less important for it and perhaps almost as complicated as tracking store inventory. Office Depot, where Internet sales accounted for 14.3% of revenue last year, fulfills web orders nationwide from 20 distribution centers. “We made a very conscientious and strategic decision to spend the additional time and energy to integrate into the web site all of our warehouse inventory management systems, rather than have them stand alone and do batch inventory reporting to the web,” Luechtefeld says.