The next surge

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.

RadioShack also wants to keep improving the overall customer experience on the site, a key consideration in the switch to a new platform that provides capabilities and functions the previous one did not. Central among those is improved content management and perhaps most importantly, the ability to accept structured data. On the old platform, for example, the site couldn’t support side-by-side comparison of multiple DVD players because the data in its system was not structured. And that was just one tipping point guiding the way to a significant upgrade. “We didn’t think the previous platform could be made to work and could bring to market the capabilities and services we needed in a timely manner,” says Hamilton.

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Ultimately, to position itself for the future, RadioShack not only launched a new consumer facing site on the GSI platform, but wound up re-configuring its workflow to do it. To improve the process by which it creates the content it would feed to its now outsourced e-commerce platform and, long term, to other parts of the company, it implemented a new IBM Websphere content management system prior to going live with GSI. To staff it, a dedicated in-house content management team was created, pulling copywriters and others from marketing staff as well creating some new positions and adding new hires. “We reengineered the entire workflow. We build out specs, features and products and we feed those assets to GSI, which in turn displays them on our web site. Even though they are in effect our IT shop, there is a lot of integration work that connects the two companies,” says Hamilton.

It was a near year-long implementation to bring up the new content management system, move to GSI and launch the new site, but in Radio Shack’s view, a needed change made right on schedule given the pace of online retail’s development. “A channel shift has taken place in retail,” says Hamilton. “Launching with GSI is just the first step in a multi-channel journey that continues to evolve.”

With companywide sales up 4.1% to $4.8 billion in 2004, web sales, estimated by Internet Retailer at $50.9 million in 2004, up 10% over 2003, are growing even faster. That means companies such as RadioShack stand to lose big if technology supporting their web site doesn’t keep up with increased demand. But the impact of e-retail’s accelerated growth can be felt just as keenly by even the smallest e-retailers. With annual sales still under $5 million, tiny, 4-year-old Bonjour Fleurette, which sells women’s slippers direct online and through retailers’ stores, was processing a handful of orders per month on its web site until the day in 2003 when the slippers were featured on Oprah Winfrey’s annual “Favorite Things” TV show. Overnight, hits on the web site went up to 1.5 million, says Jerry Seltzer, senior vice president of sales and marketing and COO. “It was the best, and it was the worst,” Seltzer says. “It brought us customers, and it drove customers away.”

Locking up the system

Its web site could handle accepting the orders; the problem was a non-integrated back-end system, into which orders had to be manually re-entered and that also was supposed to handle accounting and other office functions. When company staff was entering the large volume of orders into the back-end, the system was unable to handle any other tasks; for example, printing shipping labels. “When we tried to take orders off the web site, no one else could use the system for anything, because it was flooded,” says Seltzer. “For two or three months it was a nightmare.”

With a limited ad budget, Bonjour Fleurette looks to consumer media placements to help publicize its products. While extreme, the spikes in traffic produced by the Oprah show follow a pattern now recognized by the company. A recent placement on the Tyra Banks TV talk show, for example, doubled traffic to the site overnight, Seltzer says. Given that, Bonjour Fleurette could expect more of the same from its old system with every media placement, a situation that in 2004 helped precipitate a switch from its former system to the hosted services of NetSuite.

“It’s our accounting, marketing and e-commerce platform,” says Seltzer. “The system now does credit card verification, which we’d been doing manually, automatically.” That’s shortened the time required to get an order out the door, with the company now able to ship the same day on orders received by 1 p.m. Pacific time.

NetSuite also has provided automated service it didn’t have access to under its old system. For example, it saves customer names and sets them up for periodic e-mail blasts, such as when a new style becomes available. The system even reflects near real-time inventory; for example, preventing the web site from accepting an order for three pairs of a style if only two are in stock. “Everybody in the office is using this system, but it doesn’t slow down,” says Seltzer. “For us, the web has become automatic.”

Serving the repeat customer

Seltzer notes that the web now represents about 5% of sales and that the number of unique visitors per month, about 15,000 to 20,000, has doubled or tripled from last year. With growth on the fast track, he’s already thought ahead to the demands more traffic and the need for more functionality would place on the current system. In that case, he says, he can simply buy another level of service form the same vendor to handle it. But untapped capacity is already in the level of service from NetSuite now in place. “We could double or triple and it wouldn’t affect where we are now. We haven’t approached the upper limits of this system,” he says.

When Carrot Ink founder and president John Howard looked at the future of his web-based inkjet and laser cartridge company, he saw not only the need to upgrade back end systems to accommodate growth, but a reason to choose a particular type of vendor. The company had been using what he describes as an archaic off-the-shelf platform for its web site that didn’t support customer functionality he wanted to add, such as the ability to create an account or repeat a previous order—a key function given that repeat customers represent about 75% of his business. It also made it difficult to merchandise on the site in the way Howard wanted to, because it allowed products to be listed in one category only, sometimes making them difficult to find through existing navigational paths.

Orders had grown from a handful a day when the site was founded in 1998 to about 250 a day in 2002 when Howard decided the lack of the user features and backend manageability he wanted required a different e-commerce system. Howard found what he was looking for in a move to IBM’s Websphere Commerce suite, which supported a series of customer-focused and merchandising improvements to the web site. As a result, average order size has increased by 10%, abandonment rates among new shoppers are down, and Howard says the lifetime value of each customer has increased by about 20%. The web site can now accept a 20-fold increase in orders per day with no significant degradation response time, he says.

Growth without IT Investment

Howard also had his eye on another growth scenario, which led him to choose IBM, an established company. “People talked lot about viability then,” he says. “I wanted something in place that would let me say to an investor or potential acquirer, we have a system in place that can grow 100-fold without needing another dime of IT investment. Some of my competitors are on storefront platforms where they have to pay percentage of every transaction. When you get to $10 million to $12 million online, you have to get off of that.”

Growth is the goal for any e-retailer, and industry analysts say that overall, the online marketplace is set to deliver, with the rate of increase in market size exceeding many earlier predictions. But capitalizing on that trend will be more of a scramble for some than others, with technology that’s not up to the tasks of rising scale and higher consumer expectations capable of sinking even the most creative marketing plans.

Pendleton, for example, did an ROI analysis when planning its MarketLive and CommericalWare implementation that calculated payback based on a three-year growth schedule that it is already exceeding. The company realized that the sales growth it sought would not be adding as much to the bottom line without technology in place that would handle the increased traffic, orders and all the attached processes more efficiently. “We figured we would save in terms of cost per order,” says Pendleton’s Bishop. “So in large part, we didn’t look at the implementation so much as an ROI proposition, as we looked at it as a cost of doing business. And we knew we had to do it.”

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