Crossing the Channel

In the beginning, store retailers launched e-commerce sites as separate operations, run by their own staffs that minded their own sales and inventory records. But as e-commerce has evolved during its first decade, the role of retail web sites has become more central to the business of multi-channel merchants. “We said two years ago that our web site needs to be part of a seamless multi-channel shopping experience,” says Jamie Nordstrom, president of Nordstrom Direct.

An all-encompassing project like Nordstrom’s can require years of infrastructure improvements backed by huge capital outlays. Even more important, it requires effort by executives to alter their traditional focus on product development, merchandising and marketing. They must recognize the value of rebuilding infrastructure to support the flow of inventory and customer data across sales channels.

A single view

“We’re linking our store inventory with our direct business’s inventory system so we have a single view of inventory across all channels,” says Nordstrom, whose company is investing about $150 million a year for three years to upgrade its e-commerce and general I.T. infrastructure. It is in the midst of the second year of its three-year project to integrate the information systems that handle customer and product data across web, store and catalog channels. “It’s useful internally to manage inventory, but it also gives inventory visibility to our customers as well as our salespeople on the floor,” he says.

Nordstrom Inc. has a reputation based on a high level of customer service that complements product lines in higher price ranges; its overall strategy is to emphasize customer service across all selling channels. “Customer service is what makes us different,” contends Nordstrom, who also is executive vice president of Nordstrom Inc. “It’s pervasive throughout everything we do.”

The merchant’s goal for the web channel is sales of $1 billion a year within the next four to six years. To hit this mark, the ability to integrate customer and product data across channels is crucial.

So far, Nordstrom’s integration project is providing its back-office inventory and merchandise managers with a more comprehensive and up-to-date view of inventory levels for its three selling channels. This supports the retailer’s efforts to order new products and properly allocate them across each channel. Additionally, the system now enables store associates at the point-of-sale counter to special order products from online inventory. As the project continues, Nordstrom will extend access to integrated inventory records to front-line employees and customers so that a store associate can view on a computer screen real-time updates of available inventory across all channels and online customers can view real-time updates of inventory available in stores. The latter will support Nordstrom’s plan to offer in-store pick-up of online orders.

Nordstrom is among a growing number of retailers taking the lead in making data integration a key to supporting their overall corporate strategies, says Gene Alvarez, vice president and retail e-commerce analyst at research and consulting firm Gartner Inc.

Maintaining an image

Although talk of multi-channel data integration may not be what traditionally has excited retail executives and managers charged with presenting attractive products and a high degree of customer service, data integration is emerging as an important strategy among all types of retailers, some experts say. Nordstrom has concluded multi-channel integration of data on inventory, sales and customer activity is crucial to maintaining its image as a provider of exceptional, personalized customer service. Other retailers, though, are following the lead of Wal-Mart Stores Inc. in using data integration to improve the movement of inventory to minimize costs of storing and transporting goods and keep retail prices down.

The degree to which merchants have evolved a multi-channel approach, Alvarez says, can be gauged in four levels of achievement:

l Level 1 retailers have developed e-commerce sites to test and prove the concept of online retailing as a standalone channel, usually with its own staff and operating budget and its own infrastructure that keeps sales and inventory records in a separate silo from store records. Such a silo approach prevents merchants from exploring the benefits of serving customers and managing sales across channels, Alvarez says.

l Level 2 retailers have created some integration between the web and stores, enabling them to take a more multi-channel approach, granting customers such options as ordering online for in-store pick-up and permitting in-store returns of products purchased on the web. “Most chain retailers still are at Level 2 and working on Level 3,” Alvarez contends.

l Level 3 merchants provide consistent cross-channel information, including product details, marketing messages and promotions. These retailers are responding to the way many consumers now shop in multiple channels. Indeed, consumers have begun to expect consistency across selling channels, Alvarez says. “You don’t want product specifications on the web site that are different from what’s on the store shelf or in a flyer so that it’s confusing shoppers,” he says. “When they’re confused, they often don’t buy.”

l Level 4 retailers go beyond creating consistent cross-channel information to integrating sales and inventory data in all of their key information systems—from the customer-facing online order management and in-store point-of-sale systems to customer relationship management, supply chain management and enterprise resource planning systems.

Good timing

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The rising demand among consumers for a consistent cross-channel shopping experience is coinciding with recent technology developments making it more feasible for retailers to undertake systems integration, using, for instance, XML and other components of web services. Such technology enables data integration among new applications as well as provides cost-saving flexibility retailers need to mix and match new applications with legacy systems.

Nordstrom is building new integration capabilities using database giant Oracle Corp.’s Oracle Retail Merchandising software suite, which includes Oracle’s web technology-enabled Fusion middleware that enables the retailer to share data across key applications in a customer service-focused strategy. Once completed, the integration of sales and inventory data across channels and distribution centers will enable it to check if inventory levels are correct for each store as well as for the web and catalog channels based on demand levels, and that the company is using the best ordering process to allocate the most suitable mix of products to its 156 stores, says Gladys Lau, Oracle’s senior industry director for retail.

Until recently Nordstrom Direct’s web and catalog business used an inventory system from a different vendor that left the retailer’s managers to pull reports from separate systems to get a complete look at inventory levels. With the new system, as customer orders are entered online, on the phone or at a store point-of-sale terminal, the transactions automatically update a single repository of inventory records. Likewise, inventory gets updated as Nordstrom scans in new merchandise received at its distribution centers.

Focusing on Nordstrom’s customer-centric strategy, the software suite also will be used to integrate sales and inventory data with multiple applications, including customer relationship management, merchandising, human resources and supply chain management, Lau adds. That will enable the retailer to order and allocate the right amount of inventory to individual stores and the warehouses supporting the web and catalog channels. It also will enable Nordstrom to analyze and plan labor schedules around areas and times of peak demand, coordinate merchandising promotions and inventory levels, and respond to customer demand in a more personalized way. It will enable more personalization by backing customer service agents and web pages with data on customer shopping behavior and inventory movement.

Putting all this technology to work requires training merchandise and inventory managers. Nordstrom will provide the training in house, though Oracle also offers courses that explain how to view and use data models and reports. While inventory integration and record updating are largely automatic, retail managers still must take time to check that inventory records coincide with sales and purchase order activity.

The broad scope of Nordstrom’s systems integration effort is enabling the merchant to heighten inventory management effectiveness, Lau says. “You can have a good inventory management system for transferring inventory to stores and warehouses,” she adds, “but without systems integration it just moves inventory to locations without knowing what customers want.”

Linking up the store and direct business inventory systems will provide a single view of inventory across all channels, Jamie Nordstrom says, that will not only make for more efficient inventory management but ultimately give salespeople and customers a view into inventory availability throughout Nordstrom.

At this stage of the integration project, store clerks now can place special orders from POS terminals for products not available in store, though they cannot yet view the current availability of the online channel’s inventory. Likewise, online shoppers cannot yet view in-store inventory in case they’d prefer to pick up an item at a Nordstrom store. The retailer plans to finish integration of these data sets within two years.

Other future benefits from inventory integration will be the ability to leverage additional capabilities of the Oracle retail suite. For example, the suite includes ProfitLogic pricing optimization software, which traditionally has been used to help retailers decide when to change pricing on products sold in stores to realize the best combination of profit margin and inventory turns. Pricing optimization software has been intended mostly for inventory already in stores, where multichannel retailers do the lion’s share of their business.

But as the web channel has become more important both in terms of sales volume and its impact on other channels, retailers recognize the importance of pricing optimization for online inventory as well as store inventory, Lau says. “A lot of apparel retailers in particular are looking at pricing optimization as just as important on the web as in stores,” she says.

In addition to these back-end benefits, Nordstrom is expecting the finished project’s integrated systems will better support its strategy of emphasizing customer service. “If a customer does live chat, we can look up their order histories and make recommendations armed with a tremendous amount of product knowledge,” Nordstrom says. “We measure our success in the call center on how well we answer customers’ questions rather than by how little time we spend in a chat session or on the phone. We’re trying every day to make the customer experience online and on the phone as close to the personalized in-store experience as possible.”

Keeping it personal

In its stores, Nordstrom salespeople access their best customers’ records of past purchases and shopping interests and recommend something new and complementary. The merchant’s cross-channel inventory integration is enabling it to extend such personalized service to the web and call center, supporting its strategy of excelling in personalized service across channels and helping to distinguish it from other retailers, Gartner’s Alvarez says.

While improving customer service through better inventory management, Nordstrom also is improving the way it sources products in the first place to better support cross-channel shopping, Jamie Nordstrom says. Separate product-buying teams for Nordstrom Direct and its stores now report to a single general merchandise manager who coordinates merchandise selection for the web and stores. This set-up has replaced a former strategy of offering completely separate merchandise in the direct channel and in stores.

“That had been confusing for our customers and our salespeople,” Nordstrom says. “The main thing is this: It’s clear to us that our customers no longer look at the web site and store as two separate entities. They want the best stuff and the best service no matter how they shop.”

paul@verticalwebmedia.com