January 31, 2006, 12:00 AM

The next surge

Technology makes the difference between riding a rising e-retailing wave and wiping out.

Along with other brands starting to experiment with a multi-channel approach to retail sales-in fact, ahead of many-Pendleton Woolen Mills, maker, wholesaler and direct marketer of famed woolen blankets and men’s and women’s apparel, launched an online arm, Pendleton-USA.com, in 1997. Though transactional from the outset, the site in those days represented the merest fraction of the company’s sales-and the merest fraction of what a web site can do today. Orders were so few in number that once received on the site, they were easily re-keyed manually into back–end systems for processing.

It was a method that served Pendleton well at the time, but as the web business scaled up, catalog divisional manager Peter Bishop today likens it to “being in the dark ages.” Says Bishop: “If we hadn’t made a change, we would have imploded.”

The company was managing two databases, one for its catalog operation and another for the web site, a situation ripe for error in efforts to keep data such as pricing consistent across channels. Inventory reconciliation, managed manually, was nowhere near real time.

The need for better order entry functionality, faster order processing, and improved customer service management capacities such as being able to track customer notes, escalated. The company began to worry that its existing back-end system might not remain stable.

Within the past 18 months, Pendleton addressed all of those issues and more by replacing both its existing customer-facing e-commerce platform with a new solution from MarketLive and its order management and fulfillment system with technology from CommercialWare Inc. “Our staff would have walked out,” Bishop says. “You couldn’t have put enough Band-aids on the machines or put enough manual procedures in place or hired enough people to make it work right.”

What happened at Pendleton-USA.com? The same thing that happened to the rest of online retail: when its web business finally started to catch on, older technology solutions were challenged by new demand. Pendleton’s web site is a unit of its catalog division, which grew by 34% last year. As a percentage of catalog division sales, web sales were stalled at 23% in 2003 and 2004, but with the upgrades, they’re back on the rise, hitting 28% of division sales last year.

Creating the urgency

In the aggregate, it’s growth stories like Pendleton’s, from all over e-commerce, that add up to a booming e-retail forecast over the next five years from market watchers such as Forrester Research. Forrester predicts online retail sales, including auctions and travel, will more than double from $172 million in 2005 to a whopping $329 billion in 2010, a far cry from the $20.2 billion in online retail sales Forrester estimated for 1999.

Now as traffic and sales increase, retailers are experiencing new demands on the technology supporting retail web sites-and that is creating an urgency as they gear up so as not to lose out on the boom.

But in catching their breath after e-retail’s first big surge and looking at the future, retailers realize it’s planning, rather than simply reacting, that will make a critical difference. And the experience of Pendleton and many others shows that tooling up technology is a key part of handling what’s coming.

It’s not just the traffic that’s placing demands on the technology: Web consumers are becoming more sophisticated, with raised expectations for the range of choices and ease of shopping afforded by going online. In addition, the web’s mission has expanded at many retailers as they’ve developed a deeper understanding of what it can contribute.

Pendleton, for example, has come to recognize its web site’s utility as a less expensive way to grow incremental business, in addition to its original roles as a stand-alone sales channel and a way to support its offline catalogs, stores, and independent retailers. “The majority of our web business is driven by our catalog, but we’re excited about the ability to go beyond that,” says Bishop, a member of the fifth generation to run the family-owned business. “We have a growing amount of product on the web that is exclusive to the web. The web gives us a chance, at a much reduced cost, to go over and above what we are now doing in catalog.”

Having to keep up

Today, even the largest sites are finding themselves having to keep up with the booming market. An expanded mission as well as concerns about scalability, performance and stability as the result of increasing traffic to the web site all figured into RadioShack Corp.’s decision to swap out its existing e-commerce platform for a new one on GSI Commerce to support the launch of its new web site last fall. RadioShack now views the web site, which it started in 1999 and which ranks No. 108 in the Internet Retailer Top 400 Guide to Retail Web Sites, as having multiple objectives beyond sales: it’s a marketing channel, a research channel and a referral channel.

The decision to upgrade the technology platform supports a more integrated multi-channel strategy. “This establishes the foundation for what we want to do going forward,” says Jim Hamilton, senior vice president and chief merchandising officer at RadioShack, of the new web site and switch to GSI. “We have a long term multi-channel strategy on what we want the web site to do to help RadioShack.”

Tighter interaction

Part of that strategy is tighter web-to-store integration so as to better leverage the company’s 7,000 stores. “In the consumer electronics category, consumers typically conduct extensive research before making a purchase. So if we can send informed customers to our stores, that’s good for us,” says Hamilton. With features such as an online store locator and store-pick-up of web orders on the drawing board, helping the customer from the web into the store also will leverage the training and knowledge of associates within those stores, which RadioShack considers to be a cut above that of some big-box competitors.

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