Playing to Strengths

In a way, multi-channel retailing was an easier proposition back in the days when web sites were tacked onto existing catalog and store brands as essentially stand-alone operations: no system or software integration issues, no cross-marketing coordination--but ultimately, no synergy. Though requiring the cooperation of fewer moving parts, it was an approach that viewed the Internet solely as a sales channel and left untapped the rest of what the medium potentially had to contribute.

Today, the notion of what constitutes a multi-channel strategy has evolved. The best approaches represent both a philosophy--integration where it makes sense, while letting individual channels lead in arenas where they`re equipped to excel--and a set of tactics that execute that approach. Guided by that philosophy, retail`s biggest multi-channel players are learning to leverage the web for more of what the medium is uniquely qualified to do as a consumer research tool, promotional platform, store shelf extender, customer acquisition vehicle and more.

Not just an add-on

Retailers have come to recognize that, while at less than 10% of all retail sales, online sales remain the tail wagging the dog, the online channel`s utility to the total marketing effort is more significant than the numbers might suggest. They`ve realized that rather than simply an add-on or just another outlet, it can be a key part of what knits a multi-channel strategy together.

But that`s not without jumping through a lot of hoops to get there. At a National Retail Federation panel last year, Kirshnan Menon, executive vice president of global business development at Carlson Marketing, ticked off the requirements of an effective multi-channel strategy, and they are many: store pick-up of online orders, the ability to return purchases to any channel, cross-channel customer identification, brand consistency, and integrated, consistent offers across all channels.

The commitment and resources required to bring that about have left attempts at true multi-channel integration largely the province of retail`s giants, and in fact, one of retail`s oldest names has quietly scaled many of those hurdles. Though much of the bigger retail industry fanfare around Sears, Roebuck & Co. recently has concerned its moves in the offline world, such as its purchase of Lands` End two years ago and its announcement last year of a merger with Kmart Holding Corp., Sears was also a leader in putting some of those multi-channel integration initiatives into practice. The practical execution of one of the stars of its multi-channel strategy--in-store pick-up of online orders--is rated by some consultants among retail`s best, for example.

Sears had $41 billion in 2003 revenue across all its business segments. It does not break out revenue for Sears.com, instead folding it into the $36 billion revenue from all merchandise sales and services it reported in 2002, in addition to the $5 billion it reported in revenues from its credit and financial services business. Internet Retailer has estimated revenues from Sears.com in the range of $1.2 billion. It`s clear that online sales don`t drive the train at Sears: with nearly 900 full line stores and 1,000 specialty and dealer stores, it remains first and foremost a store-based retailer. Given its ability to find the right products--an issue that keeps Sears experimenting with its soft lines offering--its biggest growth opportunity in terms of sales volume is on land rather than online.

Channel agnostic

And that`s OK with Sears. Bill Bass, vice president and general manager of Sears Customer Direct and senior vice president of Lands` End, says the company is channel-agnostic. If an effective multi-channel strategy is a philosophy and a set of tactics, there`s also something it is not, in the view of Sears: a reason to try to push consumers to purchase in one channel over another. "You have to let each channel play to its strengths," Bass contends.

The multi-channel strategy at Sears has always been focused on making it easier for customers to purchase however they want to, he adds. And besides ringing up sales on its own, the web`s real utility to Sears under that strategy is the many ways in which it makes that possible.

Retailers have promoted in-store pick-up of online orders since 1999, with Sears one of the first multi-channel retailers to offer the option. It`s been estimated that one in four Sears customers who picks up an online order in-store winds up making an additional purchase once they are there. Nevertheless, Bass says the primary reason Sears took steps to incorporate in-store pick-up, including the considerable data integration required on the back end, was for the convenience of customers.

One of the best

With convenience often making the difference in whether consumers buy at one retailer over another, how effective is in-store pick-up at getting consumers to choose Sears? According to Bass, 40% of the customers who order online choose store pick-up. While the availability of store pick-up at Sears may not have driven the purchase decision for all of these shoppers, it`s a safe bet that it made the difference for some.

Consultants such as Chicago-based E-tailing Group Inc. president Lauren Freedman say Sears` in-store pick-up feature is one of the best executed in a--so far--small universe of multi-channel retailers who`ve made it a part of their online offering. "Their e-mail notification has customer-friendly instructions, and the process once you get to the pick-up area is user friendly," she says. "The sales associates are attentive and ask you if you need help." Freedman`s only criticism is that returns of online orders picked up in-store require the shopper to go to the store department involved and can`t be returned at the point of pick up.

Long term, she believes, the feature will have strategic value as a differentiator among multi-channel retailers. "Not many retailers have it now, but this is going to be an expectation among consumers. So it`s going to be something that really benefits retailers who offer it," she says.

"They`re bullish on in-store pick-up and it`s a good play for them. It makes sense for some of the larger items," says Geoff Wissman, analyst and vice president at consultants Retail Forward Inc., Columbus, Ohio. "Sears and Best Buy were the first to get into that. They`ve been innovative in the online arena."

Another linchpin of Sears` multi-channel strategy is providing extensive online content, particularly on its hard-lines goods, that allows consumers to thoroughly research specs and features on refrigerators, washing machines and other big-ticket purchases before buying in a store, though they can also, of course, buy the items online. Beyond the potential for capturing the sale online, the idea is that the shopper who`s invested time in researching online at Sears.com, and who finds the information she wants, will be more likely to close the deal at Sears versus another merchant.

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Depth of content

Sears was among the first to capitalize on the use of the web as a consumer research tool, and it counts on that dynamic to boost category sales. Sears has estimated that about 20% of appliance sales in its stores are influenced by online research and that in some other product categories, that percentage is as high as 15%.

Freedman believes the depth of content on big-ticket items such as appliances available online also lets the web play another key role: that of reaching out to new customers who don`t ordinarily shop Sears. A customer who might not walk into a Sears store who finds herself suddenly in need of a new dishwasher might decide to spend time on Sears.com and its wealth of product information--after all, it doesn`t require anything more of the customer than a few online clicks. That sets up the greater possibility of a follow-up store visit or online buy than if the shopper bypassed Sears completely. "Part of the web`s function is to bring in a customer through the online channel who might not otherwise shop there. I think they are achieving that," she says.

Sears beefed up consumers` ability to research online with a major overhaul of its web search function, part of a site redesign within the past 18 months. From the appliance category landing page, for example, customers can sort their options according to general appliance type--laundry care or dishwashers, for example; by specifics under appliance--wall ovens versus freestanding ranges versus cook tops under "cooking;" by brand, and by price. Easy-to-find links to other information that can affect the purchasing decision, such as on parts or product repair, are visible on the appliance category landing page.

Having Sears.com available in stores is another thread in the fabric that weaves Sears` multi-channel strategy together. In store departments such as consumer electronics, both customers and employees can get product information from the site.

Testing

Yet another way Sears uses the web to bolster its multi-channel approach is by testing whether new products justify store space by first seeing how they perform online. Its web channel served not only to test the popularity of new items and categories, but also to extend inventory beyond what`s placed in its stores. Though Sears` primarily mall-based stores are large, averaging about 90,000 square feet of selling floor, space is nevertheless at a premium given the breadth of the merchandise offering. "The stores don`t have the space to accommodate all the products we can offer online," Bass points out. "If we were to offer them in-store, it would mean shoe-horning them in."

That means Sears must make sure that what`s on the floor counts, and the web is a quick way to make that determination. IPods, for example, have done well on Sears.com and are now being considered for space in the store, Bass says. It works the other way, too. After experimenting with store-based sales, Sears determined that the best sales channel for computers, DVDs and sporting goods was online and pulled them out of its stores.

With sales historically driven by hard goods, Sears has worked hard of late to try to rev up its soft goods side. That effort was a major factor in the launch of its apparel brand, Covington, and its acquisition of direct apparel merchant Lands` End in 2002. There`s no denying that Lands` End`s web and catalog sales have contributed big to sales at Sears. Of the direct-to-customer segment`s 2003 revenues of approximately $1.8 billion, a segment that includes Lands` End as well as direct marketing of goods and services through specialty catalogs and other direct channels, Lands` End contributed about $1.6 billion. Yet a number of analysts say that putting a selection of Lands` End apparel in Sears stores has been less successful than Sears initially hoped in one of its objectives: that of getting customers who might shop Sears only for hard goods--or not at all--into Sears stores to buy other stuff.

"People who come into the store to shop for apparel typically aren`t going to cross the store to shop for tools or appliances and vice versa," Wissman says. "There is a difference in those customers from the perspective of income, gender, and numerous other factors you can point to."

But if shoppers won`t cross the store to check out what`s on the other side, they may be more willing to do that online. In a bid to increase interest in its soft line offering, Sears.com this fall launched apparel, including the virtual model technology pioneered by Lands` End. It also used the same technology to build a virtual decorator feature, which debuted at the same time, that lets shoppers visualize items such as furniture and bedding in a room setting online. While the virtual model proved popular at LandsEnd.com, Bass says it`s too early to assess utilization of the new features on Sears.com

Enabling technology

Many analysts and consultants give Sears high marks for its web site, citing its use of best practices and its efforts to leverage the web`s utility across channels. They also point out that ultimately, however, the Internet is simply an enabling technology, not a business model, and that Sears faces a number of challenges on which web operations and even a well-crafted multi-channel strategy have little or no impact. Among them, for instance, is consumer traffic that`s moving away from the type of traditional mall Sears anchors toward freestanding fashion and lifestyle centers. Sears is moving to catch that trend with its off-mall Sears Grand store concept, opening four of the new centers since 2003.

Another issue is Sears` attempts to find the right mix for its soft lines, the focus of considerable effort over recent years, but, analysts say, it is still a problem in need of a better resolution. Bass concedes the limits of the web`s impact on that particular issue, saying, "If we don`t have the right merchandise, the web`s not going to fix that."

But if the web as the center of an effective multi-channel approach is not the solution to those larger questions, it`s at least one of the levers that can be brought to bear in addressing them, says Wissman.

"The Internet`s job is to do what it can," he says. "It can bring traffic into stores, which is at the heart of in-store pick-up. It can bring in a different customer. It`s not like these challenges are unique to anyone," he says. "I think they`ve done a good job with Sears.com overall. They`re doing all they can with what they`ve got. The rest is just the fundamental issues Sears will have to address."

mary@verticalwebmedia.com