Store-based multi-channel retailers need an integrated strategy if they want to boost sales through the web or catalogs and increase profitability, according to the McKinsey Quarterly.
Some of the more successful store-based multi-channel retailers, such as Home Depot, Target, and Wal-Mart Stores, use the “traffic-driver” model to maximize profitability, McKinsey says. These retailers use the Internet to draw customers to their stores as well as to offer shoppers a wider selection of goods and greater convenience.
Home Depot and Wal-Mart attract shoppers using a variety of techniques, including gift cards, rich-media advertisements, online circulars, and e-mail notification, McKinsey said. They promote their highest-margin products, such as bedding and apparel, online while displaying just enough other merchandise to reflect the broad range of products available in stores.
Although stores generate most of the sales for traffic drivers, their web-based sales account for 35% of total industry online revenues, McKinsey found.
The traffic-driver model works best for low-margin, large-scale, store-based retailers, McKinsey said.
Other successful store-based multi-channel retailers, such as J.C. Penney and Williams-Sonoma, operate as “triple players,” using stores, catalogs and the Internet to maximize their share of customer spending, according to McKinsey.
Triple-play retailers use catalogs to attract new customers, drive repeat business and coordinate product lines, McKinsey said. The web is used to offer convenience, product information, and quick updates for pricing or promotions. And the stores allow shoppers to handle and tests goods before they buy them.
“The challenge for triple plays is to understand how customers use each channel, to match products to that channel’s economics, and to create a consistent customer experience across all of them,” McKinsey said.
Triple-play retailers generated nearly $6 billion in 2003, about 17% of total online revenues. The triple-play model works best for multi-channel retailers selling high-margin products.
McKinsey studied 100 of the largest direct retailers in North America.
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