Proving the concept

Success on the web today is all about making the channels work together. With a tiny number of notable exceptions—think eBags.com or SmartBargains.com—retailers today are embracing the multi-channel strategy. The five companies profiled in these pages demonstrate an outstanding grasp of how channels work together.

What these five have in common is that they are enthusiastic proponents of integrated, multi-channel retailing. Their web sites, catalogs, stores and/or kiosks all work together toward a common goal: Serving the customer and tightening the bond using whatever channel the customer wants. Key to achieving that goal is building on the strengths of each channel so customers can shop in each one in ways that they can’t shop in others.

These stories also profile the executives who are making sure that each company’s web strategy stays on track with its overall strategy. What they have in common is that they started their jobs without a lot of web experience (who did have any?) and they share a vision of how to integrate the web into a retailing operation so all channels work together.

Internet Retailer’s editors chose the following five companies based on their knowledge of the market and discussions with analysts and consultants who follow multi-channel retailing. They are the ones who are proving that multi-channel retailing is not just the latest fad in an industry that’s always looking for the next big thing. It’s a viable strategy that will produce the next winners in the ever-competitive retailing industry.

Albertson’s brand and infrastructure
work together to create web success

By Kurt Peters

During the dot-com heyday, the area of online shopping that received the most attention was grocery shopping. Webvan Group Inc. had a high profile and the press followed its every move. Ditto for Peapod. But Webvan died a quick death after being unable to create a national brand and infrastructure quickly or economically enough. And Peapod lowered its profile after its acquisition by Dutch supermarket behemoth Royal Ahold.

But while the most visible names suddenly became invisible, that didn’t mean online grocery shopping was dead. In fact, a number of supermarket chains continued quiet experiments. Those small-scale efforts proved that customers still loved the convenience of online shopping.

Albertson’s Inc., one of the largest supermarket chains in the U.S., quietly proved the concept even during the height of the dot-com sound and fury. Today, Albertson’s has a successful online offering that neatly demonstrates how the online and offline operations can work together. Albertson’s uses its well-known brand name to attract customers and its infrastructure to fulfill orders from one of nine fulfillment stores.

“When developing our online strategy, we knew not to overbuild with too much technology too fast because it would be too costly to support an emerging business model,” says Bob Dunst, executive vice president and chief technology officer of Albertson’s. “Traditional grocery chains not only have retail infrastructures with brand recognition, they also have dependable wholesale vendor relationships and pricing structures with manufactures of consumer products. This translates into purchasing power and operating efficiencies, as well as competitive price advantages that pure-play companies cannot match.”

Albertson’s launched its first online offering in Seattle in November 1999. It kept a low profile and scoped out the market. Only after the firestorm of dot-com failures had cleared away some of the competition did Albertson’s expand, and then it did so in rapid order. Last October, nearly two years after the Seattle launch, Albertson’s offered online grocery shopping in San Diego. Four months later in February, it expanded to Los Angeles, Riverside and Orange counties in California, then the next month to San Francisco and Portland, Ore. “The test period for the centralized fulfillment center was quite brief,” Dunst says.

Today, its online offering covers 3,664 ZIP codes served by over 550 stores and nine fulfillment centers. It also allows customers to place orders over the web and pick them up at their neighborhood stores. It’s the only chain offering online shopping in all western states. And Albertson’s executives have said it’s a safe bet that further expansion is on the way.

Logistics challenge

While the brand and the supermarket infrastructure are crucial to Albertsons.com’s success, the technology makes it possible, Dunst says. “Offering the convenience of the computer, the variety and product quality of the supermarket, speed of home delivery and the courtesy of our delivery specialists, all at reasonable pricing, seems simple, but it’s a massive logistics challenge that would be impossible without today’s technology,” says Dunst, a 25-year veteran of the supermarket industry, many of them in key technology management positions. “Twenty-five years of experience in managing the technology function within the grocery and drug store industry have given me the vision to see how online shopping was just another opportunity for Albertson’s to provide its customers with the service they have come to expect.”

Dunst says it’s too early to tell what benefits Albertson’s has gained from online shopping. Other chains that offer an online option believe they have gained market share through a web offering. Albertson’s likes what it sees so far. “Our Internet product results are very encouraging and we continually tweak Internet shopping so that it will become a business sector with sales and profit growth characteristics that are akin to its in-store brethren,” Dunst says. “We continue to evaluate new markets to which we can expand this service.”

kurt@verticalwebmedia.com

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Best Buy delivers the experience
customers want in every channel

By Andrea McKenna

Best Buy Co. Inc. likes to survey its customers. Here’s what it found in the fourth quarter about how customers shop: 39% visit BestBuy.com before they buy something in the store; 19% told Best Buy the web heavily influenced their purchasing decisions. Thus it comes as no surprise when Lynn Morris, senior vice president of operations at BestBuy.com, says: “We’re no longer trying to maximize the dot-com business. We’re trying to build a brand for whatever channel consumers want to shop in.”

That sums up Best Buy’s multi-channel strategy. “Consumers want to be in control of their shopping experience and we have to figure out how we as a brand can deliver that,” Morris says.

Integrating the web into the retail chain has not been easy for most retailers, especially as attitudes about the web’s role have swung wildly since the early days. Morris likens the effort of making the channels work together to landing a jet on an aircraft carrier. But Best Buy has incorporated some fancy flying into its retail strategy for the web. And in fact Best Buy attributes to web influence a significant part of the company’s 28% increase in sales last year to $19.6 billion.

Know the customer

It all starts with knowing the customer. Thus one of Best Buy’s prime uses of the web has been surveys; 10% of web visitors participate in surveys, as do 1.5% of store shoppers. What has it learned? “This is one set of customers who don’t care what channel they are in—they want the same Best Buy experience,” Morris says.

Similarity of experience means giving shoppers as much information on the web as at the store, and then some. “To enhance the brand experience online means giving great information in the form of rich content and not necessarily driving people to the buy button,” Morris says.

BestBuy.com showcases information with Click-n-Learn and Great Deals & Offers buttons. Under Click-n-Learn, customers can use a shopping comparison tool, read about the newest products and get information on replacement parts, returns and warranties. Under Great Deals & Offers, customers can see what rebates are available both online and at the store.

Further, Best Buy has invested a lot of time and thought into making the site easy to move around, Morris says. “All the navigation features help customers shop, whether it’s in the store or online,” she says. The two shopping experiences are so tightly tied that 15% of online customers pick up their purchases at the stores.

Morris joined Best Buy in 1996 as inventory manager of general merchandise, after holding inventory positions at Victoria’s Secret stores. In inventory and supply chain, she says, “The mantra is having the right products in the right place at the right time.” The goal is not all that different from delivering products to online customers, although Best Buy had to reconfigure distribution operations to ship items to individuals in addition to sending pallets of goods to 1,900 stores.

Morris believes that even with 39% of customers researching products on the web before they buy and 19% saying the web site heavily influenced their purchases, Best Buy has not yet tapped the potential of the web. “We want to figure out how high we can go with the percentage of shoppers influenced by the web site,” she says.

In cross-channel integration, Best Buy is a leader, says Duif Calvin, vice president in the retail practice at consultants Scient Inc. She gives Best Buy high marks for meeting customer expectations in multiple channels. “From the beginning they wanted the Internet channel to be an extension of the customer experience in the stores,” she says. Calvin points out that BestBuy.com often features mid-range products because that is what the consumer is looking for. Other retailers follow the cue of merchandisers who want to feature what they want to sell, not necessarily what the customer wants to buy.

And that all gets back to surveying customers, making sure the offers on the web match the offers in the store and communicating that consistency to channel-agnostic customers. “We’re looking to drive integrated marketing even more, so we can increase customer service in the home via the web,” Morris says.

andrea@verticalwebmedia.com

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The new synergy: The web brings
catalog customers to Lands’ End

By Mary Wagner

LandsEnd.com has been growing faster than Jack’s beanstalk. But in 1997 when e-commerce marketing manager Terry Nelson joined Dodgeville, Wis.-based Lands’ End Inc., soon to become a division of Sears, Roebuck and Co., the web site was just a twig, with annual sales of $17 million.

Nelson signed on as a merchandiser and when he moved to the company’s e-commerce team 18 months later, it was with little direct experience on the web. He wasn’t alone. “At that time, very few people had web experience,” he recalls.

But what Nelson and the rest of the e-commerce marketing team didn’t know then, they’ve more than figured out now. LandsEnd.com sales soared to $299 million, 20% of the company’s business last year, up 30% from the previous year when the web accounted for 16% of sales. The year prior, the web had contributed only 10% of sales. “As a channel, it’s become very big very quickly,” Nelson says. He attributes that rapid success to Lands’ End’s 40-year history as a direct merchant, which provided a base that helped accelerate the move into e-commerce.

The rest of the story is LandsEnd.com’s leadership in customer-facing web innovation. It routinely rolls out tools that entice shoppers to the site and to load their carts higher at checkout. The parade of tools that other web retailers don’t have is a foundation of Lands’ End’s web strategy, in which Nelson has had a significant role.

“Our thinking was, why would a customer shop online versus the other channels and what experiences can we provide that are unique to the Internet?” Nelson says. “What sets this channel apart from the phone and the store is its interactivity. So we’ve focused our time and resources on building interactive experiences.”

That thinking has turned some barriers to shopping on the web into assets by developing work-arounds compelling enough to attract people to the site and engage them once they are there. My Virtual Model, which debuted on the site in 1998, tackled one of the biggest barriers to shopping for clothes online by letting shoppers create and store an online depiction of themselves that can sample the look of different outfits. The online model, which has undergone three major upgrades that have made it increasingly lifelike, is today used by 15% of LandsEnd.com’s 1 million monthly visitors, and where it’s used, it boosts conversions and order size.

Ditto My Personal Shopper, a product recommendation tool LandsEnd.com rolled out in 2000. Though less widely used by shoppers—44,000 in July and August last year—it’s an effective selling tool with its audience. Average order size is 30% higher and conversion rates rose more than 80% among customers who got recommendations from My Personal Shopper.

LandsEnd.com’s latest major addition, last fall’s Lands’ End Custom, takes the interactive experience to a new level by letting online shoppers order chinos cut to their own measurements.

Source of new customers

IRCE 2008 Conference Multi-Media CD-ROM

Apart from sales, the web drives a growing list of functions that support not only other channels but also strategic objectives. “The Internet last year was the number one source of new customers for the whole company as well as the number one source of catalog requests, even though we put BRCs in our catalogs and in our national magazine advertising,” Nelson says. “We bring them in online and then they become catalog customers.”

The Internet has also become core to concept and product testing. The company has opened ex-U.S. markets with an online-only debut. And just within the past six months, it’s launched two new lines—plus sizes for women and maternity wear—entirely online. Last fall’s online plus size offering was so popular the company built it into its catalog business and will drop five plus-size catalogs this year. The maternity clothing launched online in April could go the same route: demand has been so great the line has run into inventory problems.

“We use the web to test new products. Before, we had to make a commitment to a product based on a merchant’s knowledge,” Nelson says. “Now, the web provides a medium that can take some of the risk out of making that commitment.”

mary@verticalwebmedia.com

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For customers who can’t get enough of
TV shopping, there’s QVC.com

By Mary Wagner

Americans are willing to spend big on what entertains them—just look at the weekend gross of any movie blockbuster. QVC Inc. became one of the first merchants to ride that train when it launched its TV/retail network 15 years ago. Now, with annual sales of $4 billion, it’s giving another new spin to the definition of electronic retailing by harnessing the power of the Internet.

QVC was the first TV shopping network to add a web channel, launching QVC.com in 1996. So far this year, the web accounts for 9% of QVC’s U.S. sales and it’s growing fast. At $285 million in 2001, web sales were up 46% from the previous year.

QVC’s web strategy is simple: the web drives growth by providing product line and category extensions, broadening QVC’s traditional offering of jewelry, home, and health and beauty products into categories such as books, videos and sports gear. And it’s deepening selection across the board.

Limited TV time

Driving much of the push into new territory has been QVC.com vice president of operations Steve Hamlin. “There are only so many minutes in a TV program, so you can only sell so many products,” Hamlin says. “But the Internet is infinite. QVC.com is QVC-plus; it has all the items available on TV, plus more.”

With a background in database merchandising and long experience in virtual warehousing, Hamlin was hired by QVC in 1994, more than a year before the web site went live, to build out a drop-ship network that could source and manage fulfillment of the much larger assortment QVC planned to offer on QVC.com. And since he arrived, Hamlin has forged the manufacturer and technology partner relationships to source and fulfill the 800,000 SKUs available on QVC.com as seamlessly as it does the 16,000 SKUs on offer during any week on QVC TV. Proof of success is in QVC.com’s customer service awards, including a recent Forrester Research Inc.’s PowerRanking that gave it the top spot in online general merchandise.

To help with new product categories on the web, QVC.com has outsourced to some category leaders. Shoppers who click on its “Ready, Set, Sports” button are delivered to a web site maintained by Global Sports Inc. Shoppers are automatically returned to complete purchases through QVC.com’s shopping cart at checkout time. For books, videos and DVDs, shoppers are routed to CommerceHub and returned to QVC.com at checkout. CommerceHub also provides a fulfillment network that translates data for speedier communication between QVC.com and its suppliers.

QVC.com now is turning its sights on new ways to merchandise goods. It’s identified QVC’s 75 top-selling brands and will build boutiques for those brands on the web site as an extension of the TV offering. It’s looking at adding technology to automate up-selling across product categories. And though not active in this arena in the U.S., it’s once again pushing the definition of electronic retailing with QVCActive, an interactive television channel in the U.K.

Any development of interactive TV selling in this country will only reinforce what the web already has taught QVC: its most valuable customers shop its multiple channels. QVC.com and QVC TV customers buy three times as much as TV-only shoppers and seven times as much as Internet-only. It’s a dynamic QVC supports with cross-promotions of the web on TV and TV on the web and with web site features such as “24-hour product review” that extend product presentations beyond their TV time slot.

“That’s a great way to capture people who couldn’t make up their minds during that 3- to 6-minute TV segment,” says Retail Forward senior analyst Mary Brett Whitfield. “It’s a good example of how QVC is using the web for what it’s best at.”

A little more than 50% of shoppers at QVC.com have heard of it through QVC TV, which makes the TV channel “a great advertising tool for the web site,” Hamlin says. “But we don’t try to persuade people to shop one channel or the other. We want them to shop both—that’s our best customer.”

mary@verticalwebmedia.com

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Delivering multi-channel shopping
before anyone knew what it was

By Andrea McKenna

It’s no surprise that outdoor gear co-op Recreational Equipment Inc. has been so adept at integrating channels; it’s been a multi-channel retailer since before multi-channel was the hot new approach to selling. Even 36 years ago, when president and CEO Dennis Madsen started with the company, REI stressed its reach in two worlds. “We were taught to be a cataloguer and a retailer at the same time, and they have very different channels of distribution,” Madsen says.

With a direct sales channel of web and catalog that accounts for $116 million, 16%, of $740 million in sales, and 61 stores equipped with 124 web-enabled kiosks, REI is one of the few retailers that can claim to sell in four channels. The key to REI’s strategy is that it has defined each channel’s role very clearly. The retail store is based on visual presentation of an assortment of products and the sales associates’ knowledge. The catalog extends its reach, but limits the information that it can communicate to customers. Thus it needs the discipline to put all the relevant decision-making information in a finite area. But that hampers REI’s approach to selling. “There was pent-up demand from catalog and retail customers for a comprehensive catalog of all products in our inventory,” says Madsen. “But it was economically and practically impossible to put out a paper catalog with 70,000 items in it.”

And so REI recognized almost immediately the web’s ability to combine the knowledge of the store associates with the reach of catalogs. REI was one of the earliest adopters of the web, launching a site in 1996. But it didn’t stop there. Why not use the web in the store, REI executives wondered. And so, just as it was a pioneer on the web, it became a pioneer with store kiosks in 1997, bringing its approach full circle by incorporating the Internet into the store. “The Internet has become a very critical part of our operation, not only to reach customers in their homes but in the stores as well,” Madsen says.

The kiosks provide the depth of information available on the web while helping to save sales by making available not only what a store is out of but also what the store couldn’t carry in the first place because of lack of demand or size restrictions. REI says the kiosks contribute sales equal to a 25,000-square-foot store. Madsen says REI will continue to expand its kiosk program and eventually provide wireless technology for sales staff to get stock and product information even faster from anywhere in the store.

One of the reasons REI has been quick to recognize the value of the web in store sales is that Madsen himself has seen the importance of providing information at the moment a customer wants it. REI founder Lloyd Anderson hired him as a weekend sales associate when Madsen was a senior in high school. “I had the opportunity to work in dozens of different jobs as the company grew,” Madsen says.

Critical information

The web plays a unique role for REI because of the nature of the information REI provides to customers, says Neil Stern, partner at McMillan/Doolittle, Chicago-based retail consultants. While all retailers would like to provide more information to customers, the information that REI provides is literally a matter of life or death, he notes. With the perils of such outdoor activities as trekking and mountain climbing comes a responsibility for participants to be informed about the right gear.

REI shoppers need to know, for instance, how much weight a pack can carry and if a sleeping bag can withstand temperatures of -20 with 50 mph winds. Further, Stern notes that because REI started as a cooperative, which was a non-competitive atmosphere, REI was not spooked by channel cannibalization. “It’s not about whose turf they’re stepping on, it’s about providing the maximum amount of information a customer needs to purchase a product,” he says.

Madsen’s experience again feeds into the level and quality of information that REI provides. If anyone understands the importance of knowing the strength of a mountain-climbing line or how warm your sleeping bag can keep you, it’s Madsen. He spent part of April and May trekking in the Himalayas.

andrea@verticalwebmedia.com

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