September 30, 2004, 12:00 AM

Web Order, Store Delivery

Retailers work out the bugs in making their stores part oftheir online fulfillment strategies.

By Paul Demery

It`s taken a few years and a lot of hard work, but Sears, Roebuck and Co. has an online-order/store-pick-up service worthy of bragging rights. The service, available through all of its 870 full-line stores, is setting new standards for Sears in customer service, says Bill Christopher, chief of customer care for Sears Customer Direct, the unit that includes Sears.com. "I tell people we have 870 fulfillment centers," he says.

The integration of online orders with store pick-up has attracted a positive response from Sears customers, more than the retailer had expected when it conceived of a store pick-up service in 2000. "Our early projections were that store pick-up would account for about 2% of online sales, with a high guess of maybe 10%," Christopher says. "But we completely underestimated it. From 2001 when we started, this thing took off like a rocket. It`s now about 40% of online sales."

Incremental sales

As any multi-channel retailer knows, providing ways for shoppers to interact with a merchant in more than one channel leads to more profitable customers. A recent survey by Aberdeen Group, for example, found more than 85% of retailers operate in the three channels of web, store and catalog, and that 38% of multi-channel retailers say that customers who shop in multiple channels are significantly more profitable than customers who shop in only one channel. The survey was based on responses from readers of Internet Retailer`s weekly e-mail newsletter.

Sears is seeing incremental store sales from online customers arriving at a store for pick-up-about 20% of online customers who pick up in the store buy something else, resulting in additional store purchases with an average ticket of $200, Christopher says.

Other retailers are also seeing incremental sales. Outdoor sporting goods retailer REI Inc., for instance, says it averages $80-$90 in incremental store sales each time an online customer arrives at an REI store to pick up an order. Store pick-ups account for 30-45% of orders at REI.com, and about one-third of online customers who take that option purchase something additional in the store, says Joan Broughton, vice president of multi-channel programs.

"We`ve been surprised that this service has been accepted so quickly," Broughton says, noting that REI began offering it just over a year ago, in June 2003. "It`s a combination of serving customers` needs and customers tending to be more savvy with online shopping."

To online customers, the value of store pick-ups is in avoiding shipping costs and in the ability to get a product within hours or even minutes instead of days or weeks. Large items that typically come with high shipping costs and long delivery times-canoes at REI, for example-tend to be among the most popular products ordered online for store pick-up.

The right integration

But while the value is apparent to both customers and retailers, store pick-up is not a simple service to provide. And if it`s done poorly, it can quickly alienate customers. "One of the most disappointing things for customers is to buy a product, assume it will be waiting for them at the store, but then show up and it`s not there," says Fiona Dias, senior vice president of store pick-up pioneer Circuit City Stores Inc. and president of Circuit City Direct.

Operating a store pick-up service involves having the right technology integration between an online ordering system and stores; it requires a new set of fulfillment processes; and it must address issues regarding how to award credit for final sales among different departments and employees in each channel.

And it can take time to work out bugs in the system and address unexpected challenges. Sears notes that its system is constantly evolving as it keeps shooting for faster turnarounds from the time online orders are placed to when products are ready for pick-up, and REI says many of its stores must work out the new challenge of finding space in its stores for holding merchandise customers order online.

A complementary policy

The challenges presented by a store pick-up service may be one reason few retailers offer the service, even though many online shoppers ask for it. Only 30% of multi-channel retailers offer a store pick-up service for online orders-even though 60% of online shoppers request the service, Aberdeen reported in another recent report, The Integrated Multi-Channel Benchmark Study.

Late adopters, of course, have the advantage of picking up on the experiences of the early adopters-and then going with a store pick-up system that meets the needs of their particular retail environment. Three of the leading providers of store pick-up services, Sears, REI and Circuit City, each deploys a strategy built around their operating profiles.

At Circuit City, which has set some of the highest standards in store pick-up service, its service complements its policy of keeping all store inventory on the selling floor. When a customer on CircuitCity.com clicks a link to request store pick-up, a buzzer sounds in the designated store`s warehouse or inventory receiving area to indicate that an online request for store merchandise has arrived, Dias says. The action also deletes a listing of the requested product from the store`s inventory records.

Once a store inventory manager is alerted to an online request for pick-up, he checks a computer screen for the order`s details, then either searches for the product himself or uses a walkie-talkie to contact an associate on the sales floor for assistance in setting the product aside for the online customer.

The service is designed so that online customers can usually pick up their orders in a store within 15 minutes of placing an order online, requiring order fulfillment workers to locate and secure products quickly, Dias says. "Our warehouse guys have to wear sneakers to move fast," she says.

As store inventory is deleted, Circuit City uses Manugistics Group Inc. supply chain software to send automated replenishment orders to its warehouses and suppliers. At the same time, the company instantly updates online product listings, so that stores without the products that online customers want won`t be listed among the options for pick-up locations. To make its store pick-up service even more accessible to online shoppers, CircuitCity.com, which operates with e-commerce software from BroadVision Inc., recently placed information on store pick-up on every web page as part of a recent site redesign.

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