Crossing Channels

K&L Wine Merchants started out like many small businesses: Two partners with an idea, some capital and the initials of two family members to give their new venture a name.

The partners, Todd Zucker and Clyde Beffa, set out in 1976 to capitalize on their northern California location and proximity to wineries and build a chain of discount stores selling a general selection of wines and spirits. The business did well and the company, named after the first-name initials of Clyde’s wife, Kay, and Todd’s wife, Linda, soon operated with five Northern California stores.

But things didn’t remain simple for K&L. Warehouse clubs and other large discount chains began to appear in its market in the ‘80s, forcing K&L to remake itself in the ‘90s as a specialty retailer, relying less on local stores and more on telephone and web sales to cast a wide net for its specialty customers. “When Costco opened up and took over the discount space, we decided it was time to transition to a specialty retailer,” says Brian Zucker, vice president and son of Todd Zucker.

Fixing the fractures

Using its connections with wineries and vineyards, K&L built a niche in selling unusual wines, specializing in limited runs of labels from boutique wineries in California’s Napa Valley, the Bordeaux area of France and other wine regions. “We began selling the kind of wines you can’t usually find in a local store,” Zucker says.

It wasn’t long before the new K&L built a strong national following. Indeed, its growth happened too fast for comfort, Zucker says. After a story about its boutique wine offerings appeared in a national magazine in the fall of 1997, orders surged into its web site and call center. K&L’s multi-channel presence had suddenly mushroomed, priming the company for rapid growth.

But its true growth potential wouldn’t be realized until later, after it reworked a fractured system of data management that kept each selling channel’s order data in separate databases. Even its wine-of-the-month club data was in its own database.

Making things more complicated, K&L was still relying only on its store POS system, The Retailer, for handling orders for the web and its call center as well as its stores—a process that required an extensive amount of double entry of customer and inventory data, slowing down operations and keeping managers like Zucker from spending more time on merchandising and marketing.

Moreover, with five main and unintegrated databases in all, K&L was unable to benefit from cross-channel flow of information—creating a problem for its new business model of selling rare wines, many available only in short runs. If only one or two bottles of a particular label were available in one of its stores, K&L wanted to be able to tell customers in any channel that the wines still could be ordered. And once a particular label sold out, whether the sale was in a store, through the call center or on the web, the company wanted to let customers know as quickly as possible that it was no longer available.

Migration

The answer, Zucker says, was to migrate to a single database, where all customer, product and inventory data could be kept in a single location and accessible to customers through any channel as well as to employees at stores, web site, call center and warehouse. It was a bold move for a retailer in the late ‘90s, when most retailers saw the web channel as a separate entity, experts say. “Back in the ‘90s, no one was talking about multi-channel retailing,” says Gene Alvarez, retail industry analyst for Gartner Inc. “The intent was to demarcate everything.”

Indeed, even today cross-channel data integration in order and inventory management that can support true multi-channel retailing is uncommon among retailers that sell through multiple channels, experts say. “Retailers are on the lower end of the maturity curve for inventory management and order management processes,” AMR Research Inc. says in a recent report, “Technology Trends in Inventory and Order Management for Retailers and CP Manufacturers.”

Even though many retailers claim to have automated processes for inventory and order management, most are not driven by web-based systems fully integrated across the retail enterprise, providing the kind of support necessary for true cross-channel services, AMR says, figuring that only 10-16% of retailers have data in a consolidated and web-enabled data repository to support real-time visibility and access to data across multiple channels.

But such is the allure of multi-channel retailing these days that many retailers push ahead with multi-channel and cross-channel projects without first deploying the necessary infrastructure to support cross-channel data flow, experts say. “A lot of retailers are confused about what multi-channel retailing really means,” says Mark Riseley, London-based retail industry analyst for Gartner.

More chances for frustration

Many retailers either don’t realize that multi-channel retailing requires integrated customer, product and inventory data shared across each selling channel, or they don’t have the cross-channel organizational support for it, he says.

But without shared information in a central database, retailers who reach out to customers in multiple channels can cause more problems than they solve, Riseley says. If an in-store kiosk isn’t integrated with multi-channel order management and inventory management systems, for example, a customer might order something at the kiosk only to find out later that it wasn’t in stock. “Retailers would then be giving their customers more choices in how to be disappointed in four or five channels instead of two or three,” he says.

Adding to the challenge is that many retailers still don’t have a designated executive responsible for multi-channel retailing. “When we did a survey of retailers, it was hard to find specific people with responsibility for multi-channel activity,” Riseley says.

Nonetheless, more retailers are beginning to see the light of integrated data systems, experts say. “More retailers are recognizing the need to create a persistent shopping experience across all customer touchpoints,” says Rob Garf, retail industry research director at AMR Research.

As retailing in multiple channels has become more widespread—and particularly as consumers have come to expect the benefits of shopping in more than one channel—the retail industry has increased its awareness of the need to organize data from demarcated systems into a common database system that lets retailers view, analyze and use customer and product data regardless of which channel customers have shopped.

AMR’s recent study on trends in inventory and order management projects that many retailers will move to web-enabled integrated systems over the next two years. The study, however, refers to a significant gap between the level of importance retailers place on the business issues impacted by multi-channel inventory and order management systems and their level of current performance in these areas.

While 62% cited “creating a seamless multi-channel experience” as a highly important business issue, for example, only 28% said they were currently providing such performance through an integrated inventory management system. A similar but slightly smaller gap existed in the deployment of integrated order management systems for creating a seamless multi-channel experience.

Battling out-of-stocks

But the study also found that while less than a third of retailers had already deployed web-enabled multi-channel order management systems, more than half will have them within 12 months, according to their current plans. The study found similar usage and growth patterns for inventory management systems.

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The out-of-stock rate was cited by the largest group of respondents, 22%, as the most important metric in gauging their success in handling multi-channel order fulfillment, and retailers said that implementing a web-based multi-channel order fulfillment system would improve their out-of-stock rate by 25% within the first 12 months. The study was conducted in May 2006 of 51 retailers with $500 million to over $10 billion a year in revenue.

But cutting-edge data management projects are not just for large retailers, as K&L’s experience shows.

The wine retailer’s migration to a central database started after it became painfully apparent that its separate data systems and single store-based order management application simply would not support the rapid growth that kicked off in the late 1990s.

Without an integrated system of storing and managing data on sales and inventory across channels, Zucker says, K&L was left re-keying orders received through e-mail, phone and other means into The Retailer store POS system, as it also struggled to manage information on the constantly changing inventory of its specialty, limited-run wines. “As our web traffic radically expanded, with orders coming via e-mail, I was re-keying hundreds of orders,” Zucker says. “I’d have to download the order, re-type the name and address and order information, then print out copies, pick the order and enter into it The Retailer. It was a complete waste of time.”

Evolution = complexity

As it evolved from a tiny northern California chain of discount wine stores into a multi-channel retailer targeting a national market of wine connoisseurs, K&L developed a more complicated system of five databases of customer shopping activity, sales and inventory. The database system served K&L’s stores, contact center and web site, plus special operations like its wine-of-the-month club—itself an important tool for communicating its constantly changing inventory of boutique wines to customers.

But with customer and inventory data in separate databases, it was difficult to provide services like tracking shipments or customer ordering activity across web, store and call center operations. “We couldn’t update customer order information with shipment tracking numbers, and when a customer ordered online, our system wouldn’t update our back-end order and inventory management software so when the next customer ordered online or in the call center, we couldn’t say accurately if the inventory was still available or not,” Zucker says.

The old database system also made it hard for K&L to develop its new niche in selling boutique wines because it couldn’t easily access order and inventory data to analyze which wines were selling best or which were popular in particular markets. “We needed a system for entering, recording, finding and updating all the unique characteristics of orders, including the types of grapes and vintage, and the appellations and regions within broader regions, like the Howell Mountain region within Napa Valley or the Margaux region within Bordeaux,” Zucker says. “It was at that point that I was able to prove that we needed a new data management system.”

After interviewing technology vendors with different platforms, K&L went with Microsoft Corp.’s SQL Server database, which is built on a web-technology-enabled platform designed to integrate with multiple applications. With the help of a systems integrator, Cygnusoft Inc., Belmont, Calif., K&L customized its new database to process data from all customer touchpoints, providing the order and inventory visibility it needed to serve customers across all channels as well as the ability to analyze sales activity across its many selections of boutique wines.

Light years ahead

“SQL Server moved us light years ahead of where we were,” Zucker says, adding that the new database platform also supports a new in-house designed POS system that handles orders processed through the web, stores and call center. “The custom software development was a slow and painful process and took thousands of hours. But once we cut our first database over to SQL in 2000, we never looked back.”

The old databases continued to operate during the transition, preventing any loss of operations, he adds. The first four of the five databases were migrated to SQL fairly quickly, including three in the same day, but K&L took about a year to migrate its Wine-of-the-Month Club database to make sure it operated properly with inventory updates.

K&L has already upgraded to new versions of SQL Server, and it’s planning to soon migrate to SQL Server 2005, now with the help of a second technology consultant, Terrace Consulting, Oakland, Calif.

“Previously it wasn’t possible to scale our business, because we were running around to re-key orders and we had to physically talk to our shipping department to find paper orders and tracking numbers,” Zucker says. “With our new system, we have the technology infrastructure to do all this and more.”

With the integrated system, customers now view real-time inventory, Zucker says, adding that K&L displays notices throughout KLWines.com that inventory is constantly updated. “So when they place an online order for a rare bottle of wine, they know the inventory is accurate. And when a store customer walks up to the counter with the last bottle of Silver Oak Cabernet 1997, the second they buy it we know the inventory status across all stores and warehouses, web and call center.”

The new database also supports several new initiatives. A new “Coming Soon” feature on KLWines.com, for instance, lets customers see what new wines have been ordered and sign up to receive an e-mail alert when they arrive. As a K&L buyer places orders for new wine with suppliers, he enters the purchase order and product attributes into a Visual Basic application within the SQL Server software. When the new wine arrives at a K&L warehouse, a receiving worker scans it into the SQL system, making the product information and availability instantly viewable in the online Coming Soon feature.

Multi-channel CRM

K&L is also planning to implement a new multi-channel CRM system and it’s looking into offering online auctions of extremely rare wines. Both new services will be supported by the SQL Server database, Zucker says.

A centralized, integrated database platform can present other opportunities as well, experts say. One technique growing in popularity, for instance, is text-mining of notes taken by customer service agents during conversations with customers, says Colin Shearer, vice president of market strategy for SPSS Inc., a provider of data analysis technology.

In the past, he says, text-mining was focused mostly on recording and analyzing books and other large documents, but now it’s being used to analyze smaller texts, such as customer service agents’ notes, and integrating them in real time with back-end databases of such information as customer buying patterns, inventory records, and promotional campaigns.

When a text-mining application recognizes particular words that indicate how a customer feels about a particular product or service, the system can instantly pull from back-end data to flash on the agent’s computer screen an offer tailored to that customer’s interests. Making this all possible, Shearer says, is the service-oriented architecture that uses web-enabled technology for real-time data flow among applications.

For Zucker, an integrated database platform has let him get back to the fundamentals his father used to launch K&L Wine Merchants. “The biggest part of this for me is that I can concentrate on marketing wine, which is where my strengths are,” he says. “Now we can really grow the business. We can compete with anyone in the niche of specialty wine retailing.”

paul@verticalwebmedia.com