How Sears is achieving a multi-channel payoff from the web

Since the start of the online retailing revolution, Hoffman Estates, Ill.-based Sears Roebuck and Co. has had a web plan. But when the dot-com hysteria hit, some critics bashed Sears—and all large department stores—as lollygaggers because they were slow to put all their products online and back them with flashy marketing campaigns.

But today, Sears is just as glad it didn’t move so fast. And, in fact, its deliberate approach to the Internet has positioned it to take advantage of the new reality of retailing. Today, it’s the multi-channel retailers who are succeeding on the web. And none has a better story to tell than Sears.

“The big picture today is the in-store influence of web shopping,” says Dennis Honan, vice president and general manager of Sears Customer Direct, the division that oversees the web and the catalog operations. “Our web site influences more than $500 million in major appliance sales a year.” For a company that dominates in appliance sales, accounting for nearly 40% of appliance sales with its Kenmore brand, that’s nothing to sneeze at.

Sears says its online strategy is to give customers the opportunity to shop wherever they want. And the ultimate goal is for that convenience to increase all sales at the $40-billion-a year retailer.

The tight relationship between Sears stores and its web site is winning Sears accolades. “Sears has employed probably the best thought-out and most practical e-commerce strategy of any brick-and-mortar retailer,” says Neil Stern, a partner with Chicago-based retail consultants McMillan Doolittle. “The company was criticized for moving too slowly. But it built its web site department by department instead of trying to replicate its stores. They’ve been very intelligent about it and it’s showing up in traffic numbers.”

In fact, Reston, Va.-based comScore Networks Inc., reports that while BlueLight.com consistently leads the general merchandisers (BlueLight, Sears, Target and Wal-Mart) in web traffic, probably because BlueLight.com is the homepage for web users whose Internet access is through BlueLight, Sears was in second place four out of the first six months of this year (see chart p. 38). While its visits per visitor were in line with the other sites, its pages per visit led the others, with the exception of March, peaking in June at 14. Interestingly, even though Sears stresses that its web strategy is designed to bolster other shopping channels, its conversion rates took a significant jump in April, and it converted 2% of its visitors to buyers in April, May and June, higher than the others.

Tough job

It was no easy matter for Sears to achieve the close working relationship between its web site and its stores. For one thing, Sears was never part of the separatist movement that believed retailers had to establish stand-alone web operations, preferably far away from home. Rather, Sears.com planned to leverage the assets of its department store parent all along.

Furthermore, while other stores experimented with which products they would sell online, Sears made the call more than three years ago to focus on selling its strongest brand items online—tools, toys and home goods. “Sears has always led with its strengths, areas like tools and appliances,” Stern says.

These two points alone make Sears.com stand out among its competitors because it had the early vision of what has since become the accepted wisdom among retailers who are online. In fact, just this summer Kmart Corp. brought BlueLight.com back home and Wal-Mart re-absorbed Walmart.com. Furthermore, most early-to-market online stores have retooled their sites to sell items that consumers will buy online, instead of trying to sell everything in the store. Kmart and Wal-Mart, for instance, stopped selling apparel online earlier this year.

Beyond the corporate organization, there were technical challenges, such as integrating store operations with online operations, so that customers as well as Sears personnel could know in real time the inventory in stores, and linking Sears’ legacy computer system into web systems. Sears also had to deal with marketing issues to make sure customers understood they could buy in any venue. And on top of everything, Sears had to determine what levels of customer service it would allow on the web, resolving such issues as whether customers could arrange service calls via web and whether web customers could pick up at the store and return to the store.

Triad approach

Joe Charno, vice president of online management and marketing, sums up Sears’ approach to the web in three words: “Research, compare and shop,” he says. As long as Sears provides a means to do all these things, the company feels it’s on the right track.

To make those three goals work, Sears is keeping its online sales efforts targeted on the niches in which it excels. And those typically are the home categories for which it is so well known in the broader retail world: such major consumer investments as Kenmore appliances, replacement windows, lawnmowers, kids furniture and other home-improvement products and services. And Honan says Sears is taking online many of the same niches that it has developed offline: kids furniture within the furniture category, for instance.

Sears now features on its home page such items as televisions, digital cameras, school uniforms and lawn tractors. And it features prominently a store locator and an 800-number for placing orders.

Being able to provide all three channels to consumers seamlessly required implementing a near real-time inventory system that communicates data about web-available merchandise from the point-of-sale terminal to Sears’ central processor. “The issue we had was that we didn’t always know which stores had items in stock,” Honan says. “So our first thing was to build a real-time inventory system, which we implemented earlier this year.” Real-time inventory not only allows online customers to find items; it also helps sales associates find out-of-stock items at other Sears stores so they can save a sale if a customer cannot find what she is looking for.

However inventory is just a small part of the connections required on the backend. Sears decided it did not want to invest in totally new systems just to support the web business, so it has spent considerable time linking its web system to its existing store and corporate systems. Such areas as accounting, inventory control, replenishment, POS, pricing and merchandising are all key areas that Sears has integrated. Honan declines to reveal how much Sears has spent developing its online infrastructure, although he says the work is nearly completed. “We invested pretty significantly in the first few years in the online infrastructure and we always planned to wind down,” Honan says. “The investment now is less than last year and it will be less next year.”

But Sears has not integrated just its technology. Sears’ Customer Direct division is not separated from the rest of the company. Rather, Customer Direct shares offices with other departments at the Hoffman Estates headquarters. The online efforts are just another part of Sears’ business, which also includes 14 specialty catalogs, the regular Sears catalog and a specialty merchandise business. All of these areas report to Honan, who in turn, reports to Sears’ CEO Alan Lacy. This level of top line integration has allowed Sears to put a combined show of strength behind its multi-channel plans, Sears executives say.

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In sync

By laying the groundwork from the corporate structure on down, the retailer has been able to focus more succinctly on the task at hand—driving customer traffic to Sears.com and from there to the stores. “Sears is clearly focused on extending the multichannel capability to consumers,” Charno says. “Internally we’re making sure our online marketing is in sync with our Sears branded message and promotions and making sure that the enterprise views Sears.com as another sales channel. Externally, we need to raise the awareness with consumers so they know that we are multi-channel and so they know that Sears.com exists.”

Some of Sears’ most recent efforts to combine its online and offline strengths include testing in-store pick up, integrating service scheduling for appliance delivery and repair, and supporting specialty catalogs with new web sites. The ultimate goal of the combined efforts of catalog, online and stores, Honan points out, is to sell more products regardless of which channel dominates.

So far, the offline stores dominate. Sears recently undertook a test it has named Project Fusion to determine which products customers want to pick up in a store. Project Fusion is running across the country, testing a cross-section of store pick-up products. Sears plans to introduce the service to its 860 stores in time for holiday shopping. “We’re fusing our new economy with the old economy and it’s part of our evolutionary process,” says Honan.

Store pick-up provides a convenience to customers who don’t want to pay shipping or don’t want to wait at home for delivery of a product that the UPS driver can’t just leave on the doorstep. Winners include leaf and snow blowers, air conditioners, lawn mowers and other items consumers may want in a hurry. Store pick-up is a good example of the channels working together and taking advantage of each other’s strength, Honan says. After a customer places an order, the order goes to the store. When store personnel determine the product is in fact in stock, they set it aside, then e-mail the customer that the order is ready.

Primed customers

Sears sees the web site also as a place where customers can shop before coming into the stores. The site provides side-by-side comparisons of products and features and a search engine that allows shoppers to learn about sales at Sears stores.

Providing product and shopping information online has translated into sales at stores; Honan says one out of ten customers who buy an appliance at Sears has researched it at Sears.com. “The sales associates love it,” he says. “Customers come in with printed pages about the items. They are informed and ready to buy. This encouraged us to pursue online development especially with big ticket items.”

Sears has an advantage over many of its national competitors in making the web useful as a multi-channel sales device: With its home improvement services, it can allow customers to go online to schedule home repairs or installations, saving them a trip to the store or hanging on hold at a call center. Customers can schedule home appliance repairs online and find local Sears services for window, door and siding installations. Online scheduling links to the system that Sears associates use to make appointments. Scheduling these types of services is a great use of the web, says Stern of McMillan Doolittle. “Putting it online actually improves the process,” he says.

Online circulars

Supporting specialty catalogs and new store endeavors with web sites linked from the Sears.com home page is another example of Sears using the web to enhance its other channels. For instance, Sears this summer launched its Room For Kids web site (Searsroomforkids.com), which supports the Sears catalog of the same name. And Sears has been promoting its new home stores, The Great Indoors, for which Sears Direct has developed a web site. The Great Indoors is a major growth vehicle for Sears to tap the $10 billion a year home goods category, Stern says. “Having thegreatindoors.com serves a lot of purpose for Sears because this is a great way for them to get the brand out and get brand recognition before the physical stores launch,” he says.

Finding out what’s on sale at local Sears stores also is an important feature of Sears’ online plans. Sears is putting its weekly circular online with a system from Chicago-based SalesHound Inc., a company that specializes in preparing and presenting store information in a searchable online format. With this, customers visiting Sears.com can search for on-sale items in stores. SalesHound provides the software management that sorts all the products under different search item names and matches them with the ZIP code and closest store location for the customer.

In addition to providing searchable information on its web site, Sears has deals with America Online and MSNeShop to position Sears.com in search result pages in another effort to drive traffic to the web site. In some cases, Sears banner ads appear when consumers search for items related to Sears’ product mix.

Online sales grow

Sears.com also is using e-mail marketing to promote all channels. “Our database has grown significantly thanks to the success we’ve had with e-mail marketing,” Charno says. “It’s proving to be quite an opportunity for Sears.”

Emphasis on the stores, though, is not to say that Sears is not selling on its web site. Although the company does not break out web sales numbers, Sears’ online sales in 2000 were four times sales in 1999 and Sears expects 2001 to be at least two times what they were in 2000. “Conversion rates are improving with each cycle, the trends are positive and the growth curve is encouraging,” Charno says.

Looking back, it may be that Sears’ blueprint for utilizing the online channel successfully was as much a visionary plan as it was a logical one for the corporation at the time. As other multichannel retailers struggle to rebuild, refocus and reintegrate their online businesses to adapt to the changing online landscape, Sears already is experiencing the fusion of its multichannel approach. “Sears’ hardline online goods are doing very very well and we know that they are going to continue to evolve and improve their web strategy,” says Alethea Podmore, director of marketing at The Retail Group, Seattle-based retail consultants.