Order online/pick-up in store programs are a centerpiece of the multi-channel strategies of some retail chains. But other merchants struggle to find the ROI.
By Don Davis
With such major chains at Wal-Mart, Circuit City and Sears bragging about the success of their order online/pick-up in store programs, Brad Wolansky, vice president of e-commerce at outdoor gear and apparel retailer Orvis Co. Inc., figured it was time to get with this hot trend in multi-channel retailing.
With the support of the vice president of stores, who was excited by the prospect of more customers coming to his locations, Wolansky obtained approval from Orvis management to launch a program in 2009. But when he got out a sharp pencil, Wolansky found it hard to convince himself the project would turn a profit.
For starters, Wolansky realized that Orvis could not offer same-day pick-up. That’s because apparel account for 60% of sales and its stores—which average 10,000 to 11,000 square feet—are not big enough to stock the 50,000 SKUs Orvis.com offers, especially with all the colors and sizes. Like Wal-Mart and Ace Hardware, Orvis could allow customers to place a web order that would be shipped to a store, but that eliminates the appeal for customers who need an order right away.
Another reason customers like in-store pick-up is to save shipping costs—but how far will a customer drive, with gas at $4 a gallon, to save the few dollars it costs to ship a shirt? Wolansky reduced the radius around the company’s stores that consumers would travel to pick up an item, and the percentage of customers within that radius likely to use the program.
“When I reduced the numbers every time, the contribution got so small it was hard to justify doing the project,” Wolansky says. He guesses it would cost Orvis $250,000 to $500,000 to implement a ship-to-store program, and two years to make back that investment. Even with management approval in hand, Wolansky put the project on hold.
Orvis is not the only chain hesitating—growth in in-store pick-up programs has been slow. The E-Tailing Group found 22 retail chains in Chicago offering such a program last year, and 24 this year.
To be sure, other retailers that have implemented in-store pick-up programs, including some that ship items from a warehouse for pick-up several days later, say their programs have been a success, bringing customers to stores where they often make additional purchases. “Consumers are taking advantage of it, and our retailers are really happy because it drives folks into our stores,” says Mark Lowe, e-commerce marketing supervisor at Ace Hardware Corp.
But a close look suggests the value of these programs varies with the type of business, and that the ROI improves when implementation of in-store pick-up dovetails with other projects.
Systems and people
For many retailers, the tough part about these programs is that they require the e-commerce site to communicate in new ways with distribution centers and stores. Plus, warehouse and store personnel must be trained. As Wolansky puts it, “it starts with systems and ends with people.”
Before Recreational Equipment Inc. could launch its Retail Store Pick-up program in 2003 the outdoor gear retailer had to create a procedure in its distribution center to handle consumer orders destined for stores, says Brad Brown, vice president of e-commerce and web strategy. In addition, the shipping schedule to stores had to be made available to the e-commerce site so it could tell customers when items would arrive. Stores had to be informed packages were coming, and the stores had to acknowledge receipt so customers could be notified, all new procedures.
Initially, Brown recalls, store employees called customers when items arrived. But the volume of orders was so large that REI shifted to e-mails to reduce the workload. That meant another integration project with the customer order history system so that receipt of an item at a store could trigger an e-mail to the customer.
The company also had to modify REI.com to promote the in-store pick-up offer, and the pick-up option had to be added to checkout. In all, the project took more than six months, says Brown, who would not say what it cost.
Hitching a ride
Some retailers were able to take advantage of other projects to reduce implementation costs. Ace had created a system that let its 4,600 independently owned stores place special orders to Ace’s 16 warehouses, and that was easily modified to accommodate orders by consumers. There was some work to trigger e-mails to stores when customers ordered online for store pick-up, Lowe says, but nothing major.
When Circuit City launched the web site in 1999, it also developed the ability for consumers to order items online for pick-up in a store, says Cindy Viener, director of channel integration at the consumer electronics retailer. Real-time lookup of inventory in individual stores was a capability that made it possible for Circuit City to guarantee pick-up within 24 minutes of a customer receiving an order confirmation e-mail.
“It was relatively easy to build because we were starting from the ground up,” Viener says. “Retrofitting can be more challenging.”
Upon a customer submitting an order, Circuit City electronically reserves the items, confirms payment, and the web site presents the customer with an order number confirming the reservation. The retailer also sends an e-mail confirmation. A pick ticket is printed at the store and a designated associate prompted to find the items and place them behind the pick-up counter. Those employees wear pagers so they can be alerted to waiting orders and other employees wear headsets so they can help if the pick-up specialist is busy, Viener says.
Space constraints
Very importantly, everything is measured, and each store gets a weekly report on how many customers have picked up in that store, how many bought additional items, and how many $24 gift cards the store gave out because items were not ready in time. On a monthly basis, stores get information on how the store fared in post-pick-up surveys, Viener says.
The cross-channel team that Viener leads advises stores on such issues as how to accommodate the increased volume of orders around the holidays. Space is not usually a big problem for Circuit City because its 24-minute guarantee leads many customers to pick up items quickly, Viener says.
But for other retailers, space is a big issue, says Fiona Dias, executive vice president of partner strategy and marketing at e-commerce technology provider GSI Commerce Solutions Inc. and former chief of e-commerce at Circuit City.
For instance, executives at Target have told her they have not implemented a program because they don’t have enough space in stores to stage online orders waiting for pick-up. “None of their merchants want to compromise on the amount of space they have,” Dias says. A Target spokeswoman says the chain has not introduced a ship-to-store service because it believes the benefit of online shopping for consumers “is not having to travel to a store to make a purchase.”
The costs of developing in-store pick-up programs can be offset if consumers like the service—and many do.
A recent poll found 32% of consumers had ordered an item online and picked it up in a store, and 80% of those who used the service were considering doing so again during this holiday season. The poll was conducted by Harris Interactive for Shopatron, which enables in-store pick-up for manufacturers and retailers.
The relatively high percentage of consumers who have picked up web orders in store could reflect the fact some of the largest retail chains offer the service. Sears, Best Buy and Circuit City offer same-day pick-up; Wal-Mart, Sam’s Club, Ace, REI and Cabela’s offer a ship-to-store option.
By far, the biggest reason consumers use the service is to save on shipping costs, cited by 50% of respondents in a survey by The E-tailing Group. Next comes the convenience of knowing the product will be ready when the consumer wants it, cited by 22%, and an immediate need for a product, selected by 18%. A third of respondents said they would drive more than 25 miles to pick up an item ordered online.
Consumer interest shows up in the sales figures of retailers offering in-store pick-up. Circuit City says 50% of the dollar volume of orders on its web site is for in-store pick-up; Ace says 65% of its web orders are shipped to stores, and REI 45%.
Kayaks and canoes
Ace says its surveys show free shipping is a big reason consumers use the ship-to-store option. The company originally offered 70% off the shipping cost of items shipped to stores, but when it made shipping free the percentage of web sales for store pick-up shot up from 40% to 65%. “When you put that word ‘free’ out there, consumers really gravitate to that,” Lowe says.
REI initially conceived of in-store pick-up as a way to offer free shipping, Brown says. The retailer figured since it was already sending trucks from two warehouses to 99 stores it would not cost much more to add on web orders. REI customers often use the service when ordering items like kayaks, canoes and car-top equipment carriers that would be expensive to ship.
But Brown says customers also use the service to make sure they don’t waste a trip to the store, and because some are not comfortable letting a package sit on their doorstep while they’re at work. In-store pick-up also makes available the full assortment on REI.com to consumers in smaller markets where REI stores stock fewer items, Brown says.
While I’m here…
A big part of the business case for buy online/pick-up in store is that consumers buy other items once at the store. A recent survey of multi-channel retailers by Forrester Research found 28% of online shoppers picking up in stores make an additional purchase.
Ace and REI both say about 30% of customers make additional purchases when collecting online orders. At Ace, the additional spend is typically $20 to $50, Lowe says.
And Lowe is convinced the program helps attract new customers. “Our goal is to get them into the Ace brand, whether in store or online,” he says. “We want to make sure they have a great experience, and free ship-to-store is one way to kick that off.”
Upscale department store chain Nordstrom Inc. is among the latest to get into the game, launching in September same-day pick-up of selected items, a noteworthy initiative for a retailer that mainly sells apparel. Grocery stores continue to test the concept. Although the Albertson’s chain dropped its program, Meijer Inc., which operates 181 supermarkets in the Midwest, began a trial in September at a store in Grand Rapids, Mich., where consumers can pick up online orders at a designated area in the parking lot. And Piggly Wiggly Carolina Co. began a similar test in 10 stores in South Carolina last month.
The data integration and coordination between web site and stores is a significant challenge. But, little by little, more retailers seem to be concluding that order online/pick-up in store programs can be justified by gains in store traffic and customer loyalty.
don@verticalwebmedia.com
