In its second-largest acquisition, Amazon buys the company for $970 million.
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The previous structure, in which the web team operated independently of the stores, led online merchandisers to take steps that made sense as long as they were only thinking about maximizing online sales. For instance, the web site started selling bedding, which stores do not sell
“There’s a great online opportunity to sell bedding, and their incentives were tied to the amount they sell online,” Foglesong says. The problem was that adding bedding products confused customers about what to expect from Home Depot.
Just because the site can sell something, doesn’t mean it should, he says. “The more we deviate from the core merchandising strategy, the less we do to reinforce our core store strategy and the greater the disconnect with customers about what Home Depot is online and in the store,” he says. “We believe it should be the same Home Depot. That’s different from what we would have said two years ago, but we’re absolutely committed to that today.” HomeDepot.com dropped bedding as well as other products unrelated to home improvement, Foglesong says.
As for the merchandisers’ financial incentives, now those tasked with buying products for the web site are compensated in part based on online sales and partly based on overall sales for the product areas they’re assigned to.
Relying on others
Another retailer that moved away from a standalone web team and toward integration about five years ago is Recreational Equipment Inc., a co-op chain that sells outdoor gear and apparel. “We realized customers don’t want to discriminate between REI as the store and REI as the web site and REI as the telephone,” says Brad Brown, vice president of e-commerce and web strategies. “We need to make that seamless.”
As in some other retail organizations moving in this direction, there remains a web team devoted to site operations and other tasks that require web-specific expertise.
But important tasks related to e-commerce reside elsewhere. For instance, the team responsible for driving traffic to the web site is part of marketing, and does not report to Brown.
“But I expect them to bring traffic to the site at a rate that supports the overall sales goals of my division,” Brown says. “My peer in marketing knows that’s the expectation, and he knows that if he’s doing the best he can but can’t drive the traffic that’s necessary and needs more money, I’ll be with him as we go to the leadership team to get it.”
While REI store employees are largely compensated based on store sales, executives’ bonuses are tied to overall company performance, Brown says. That’s also the case at office supplies chain Staples Inc., says Pete Howard, senior vice president of Staples Business Delivery and the executive responsible for Staples.com. He says Staples has experimented with tying a small part of bonuses to channel results but found it inefficient and unnecessary.
On the other hand, at a jewelry retailer like Zale Corp., commissions are an important part of store employees’ compensation. With that in mind, the company plans to test attributing online sales to local stores and compensating store employees for cross-channel efforts, such as collecting e-mail addresses, says Steve Larkin, senior vice president of e-commerce at the ZLC Direct unit responsible for three retail web sites.
In terms of the staffers who help to bridge different business units, that role is played at REI by business analysts who take on specific projects and work with whatever divisions are involved. They report to e-commerce chief Brown, even though some of their projects are not tied to online sales.
At Staples, individuals emerge naturally from web-store initiatives, such as merchandisers involved in purchasing items like computers and printers that are strong sellers both in stores and online. Howard thinks those employees benefit from playing that cross-department role. “In this organization you have to have an understanding of all our channels,” he says.
As far as where e-commerce fits within a company’s structure, retailers continue to follow different paths.
Zale took its e-commerce team out of the marketing department two years ago to create the ZLC Direct unit focused on e-commerce. “The attention, focus, commitment and investment in the online channel was pretty diluted, and the feeling was it needed to be managed and led individually,” Larkin says. “Now we’re into the second phase of multi-channel integration.”
That includes working with store counterparts on e-mail marketing campaigns, and using the same product photography online and off. Whereas the e-commerce site used to have its own inventory, about a year ago that changed to using the same stock for both web and stores, a move that improves efficiency and gives the web site access to more inventory than before, Larkin says.
Zig, then zag
While Zale carved out a direct unit two years ago, electronics retailer Circuit City earlier this year put its Circuit City Direct unit under an executive also responsible for stores, George Clark Jr., who was given the title of executive vice president of multi-channel sales. That weakened the e-commerce leadership and online growth slowed, leading Circuit City to issue an internal memo last fall saying it planned to restore the group’s autonomy and hire a new senior vice president to head the group, according to Fiona Dias, a former executive vice president at Circuit City who left the retailer last March for a management role at e-commerce platform provider GSI Commerce Inc.
Dias draws the conclusion that it’s too early to fold the online team into a broader organization. “You need to focus on the e-commerce channel,” she says. “It’s a much faster pace and takes unique expertise. You can’t do it in your spare time.”
The change in course underscores the risks in organizational change. Brown, for instance, reports that on cross-channel initiatives, REI moves “very carefully and very deliberately.”
Okamura, the consultant from J.C. Williams, endorses that approach. He suggests each retailer decide what it wants to be known for, then focus its initial cross-channel initiatives on that key goal, rather than trying to do everything at once.
“Any reorganization carries a certain risk to it,” he says. “Develop a roadmap so you can phase this out in a logical manner that’s not too much of a shock to the existing business.”