The e-retailer reports a $126 million net loss, stemming from a $640 million year-over-year increase in spending in the quarter on technology and content ...
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"Our move to the web worked because it was endorsed by our board of directors and encouraged by our CEO, and support was top-down and bottom-up," Luechtefeld says. "We started training and motivating our front-line employees, our call center employees and our outside b2b sales team. We started with the employees closest to our customers."
Longer customer uptake
Although training store employees was a way to introduce the web channel to shoppers, it was still difficult to persuade customers accustomed to store and catalog shopping to use the web. "The first few years were challenging," Luechtefeld says. "It took longer than expected for our customers to understand and see the value of the web in a multi-channel environment."
More retail chains are following Office Depot’s lead in focusing on a web-centric multi-channel strategy, a move that should result in consistently higher increases in online sales, experts say. But retailers have to make tough decisions about which parts of their operations to upgrade, and how far and fast to change. The choices can get tougher as the more progressive multi-channel retailers get further ahead.
Today, online sales have grown to the point where the web channel is commanding more respect from big retail chains. "It’s no longer a no-brainer to invest in a new store instead of the e-commerce channel," Okamura says. "Now the overall U.S. online retail market is heading over $100 billion a year, so the business model is changing."
Technology systems have also evolved in recent years to the point where they can better support big retailers in an integrated multi-channel environment, experts say. "Two or three years ago, there was no technology that could handle the e-commerce volumes of big retailers," says Tricia Walker, retail consulting partner at Accenture Ltd. "But now e-commerce technology is getting more robust, able to handle larger volumes across multiple channels."
Win or lose
Among the key things that differentiate big retail chains, adds Okamura, is the degree to which they deploy the best technology mix for both their store and web channels. "In the early days of e-commerce, it could be overwhelming to navigate a 50,000-SKU online store," he says. "But with new site search, comparison shopping tools and other technology, retailers can guide a smooth shopping process within a vast online selection."
To make its channel integration work, Office Depot uses a mixture of in-house and commercially available technology. It uses IBM’s WebSphere as its e-commerce platform, a customer data warehouse from NCR Corp. that gathers data from each shopping channel, web analytics from Coremetrics Inc. and site search and navigation technology from Endeca Technologies Inc. The in-house IT team has added special features like the online configure-to-order tool.
For Luechtefeld, Office Depot’s experience with the web has come full circle. After applying the experience it had built up in store and catalog retailing to launch the web channel as part of an integrated multi-channel environment, it continues to improve that environment by extending the capabilities of the web to other channels.
Office Depot’s combination of web technology, she says, helps it to both better understand its customers in each channel and tailor an online as well as multi-channel shopping experience to their needs, going beyond the kind of service it offered in the pre-web days. "We develop a profile of a customer’s primary shopping channel, the time they spend in it as well as in their secondary and third channels, and use that to assure that we’re timely and efficient in the way we talk to them in each channel," she says. "The more they shop with us, the more personalized it will be."
Office Depot will never stop seeking to improve its customers’ online as well as offline shopping experience, she adds. "We need to continue to innovate, add new technology and functions," Luechtefeld says, adding that Office Depot constantly checks out new technology applications. "But the pace that e-commerce technology continues to evolve is amazing. Our challenge is to choose the technology that is most beneficial to customers."
As other chains follow Office Depot’s lead in building a customer-centric strategy that capitalizes on growth in online sales as part of an effective multi-channel strategy, retailers who fall behind should heed a fair warning, Okamura says. "The losers will be retail chains who can’t afford to develop an e-commerce channel that integrates with their overall environment," he says.
Building on strengths
The office supplies business lends itself to a multi-channel environment, and experts say it’s no coincidence that ranked just after Office Depot in 2004 online sales is rival Staples Inc., where online sales grew 25% last year to reach $3 billion.
Among the advantages they’ve enjoyed is their history of catalog sales, which has helped them to understand how to combine the direct-to-consumer model with a store chain, says Neil Stern, principal of retail consultants McMillan/Doolittle. "Office supply merchants are clearly leaders in integrating multiple channels, coming to terms with the role of a web site and the function of stores," he says.
Channel consistency was high in the minds of Office Depot’s executives as they prepared to launch their first online channel, for b2b customers in 1994. "We had been working with our business customers for a long time, we knew them well and knew how to make a compelling shopping experience for them," says Monica Luechtefeld, executive vice president, business development and information technology, and e-commerce chief. Making the experience compelling meant saving them time picking out and ordering products, having the right products based on customers’ interests, and providing customer service that could cater to a shopper’s personal needs based on purchasing history.
Office Depot figured these same customers would expect a continuation of that level of service in the new online channel. "If I were a business customer shopping on our web site for the first time, I wouldn’t expect my history of sales to begin with my first online purchase, but to go back to include my past orders in stores and catalogs," Luechtefeld says.