Make a new plan, Stan

Strategic plans enable e-retailers to act, not react

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When Harvey Seegers became president of Home Depot Direct in 2005, he had to completely revamp the multi-channel retailer’s e-commerce operations. His mandate was to greatly expand the number and variety of items sold online and create what the company calls the “endless aisle,” where customers can find whatever obscure item they need for their home improvement project. The first order of business was to craft a formal e-commerce strategic plan.

Seegers, who ran e-commerce at General Electric Co. before joining The Home Depot Inc., says having an e-commerce strategic plan is a must, whether a merchant is turning its online operations upside down or just expecting business as usual. “You need a formal plan for e-commerce just as you would for any business,” he says. “And e-commerce has matured to the point where the planning process varies very little from the one used in mainstream business.”

Many Internet retailers, big and small, may think they don’t need a strategic plan, but without one they’re simply reacting to tactical moves by competitors, to unanticipated fluctuations in supply or demand for their merchandise, or to new developments in the industry.

“A lot of times a business will just roll along and there’s not much effort toward improving,” says Craig Smith, founder and managing director of Trinity Insight LLC, a consulting firm that works with e-retailers on strategic planning. “People spend their time putting out fires” instead of thinking about the future. A formal e-commerce strategic plan is one of the best tools for ensuring happy customers and profitability, Smith adds.

Online retailer Tool King recently completed its first formal plan. Unlike Seegers at Home Depot Direct, Tool King owner Don Cohen used an ad hoc, informal planning style for the first five years of e-retailing before he felt the need to create something more structured. Cohen founded Tool King in 1978. It was a small regional hardware chain until one fateful day in 2000 when Cohen discovered eBay. Now Tool King is eBay’s biggest tool seller and also operates its own e-commerce site. The company racked up total sales of $36 million last year, 85% of it from online business. This year Cohen hopes to double that sales figure and has mapped out that and other goals in his new e-commerce strategic plan.

“When you’re smaller, strategic planning is not as important because you’re in a learning curve; but as you add more people and experience growth, you deal with lots of issues—like facilities, space requirements, fulfillment—and things become more complicated,” Cohen says. “You have to move from impulsiveness to structure and organization, and being able to define where the value is coming from.”

Developing the two-year plan took three months, during which Cohen and his top managers drilled down into all of their e-commerce data to identify what they were doing right, where they could improve and where new opportunities might be. Through that analysis, they concluded they could increase their initial revenue projections in their strategic plan for 2007 by 30%.

Planning’s in the bag
The Sak, a manufacturer of handbags and accessories, has to map out a dual plan—to help both its own web site and those of the retailers who carry its merchandise. The Sak was founded in 1989 and sells to more than 1,900 department and specialty stores. It started selling direct on the web in 2002. “We had excess inventory, and we could make more margin and develop a loyal customer base for our product,” says Lee Topar, director of e-commerce.

At the time, The Sak had only one online fulfillment customer, eBags. As its other wholesale customers began to notice The Sak’s web site, they also started to “connect the dots,” Topar says. “There’s an opportunity for our e-commerce unit when our wholesale accounts recognize they can expand their customer base by offering a wider assortment of products but don’t want to take the inventory risk. We already have the risk and can let them experiment with our merchandise.”

Drop-shipping for clients’ web sites became a core part of The Sak’s e-commerce strategy with the addition of the Nordstrom and Macy’s web sites two years ago. Expanding retailer relationships is the centerpiece of Topar’s current strategic plan, and he hopes to add two more this year.

Scaling inventory is the biggest challenge—and the one that makes planning essential, Topar says. “If we integrate these efforts in the year ahead, what will that mean for our inventory level? If we keep inventory the same as last year and add more retailer partners, we may not have enough.”

But the plan has to be nimble and able to turn on a dime in case things don’t work out as expected. “We’re constantly reevaluating our execution and our priorities, and how to optimize an existing channel,” Topar says.

If a retailer hasn’t done an e-commerce plan before, sometimes it’s effective to start with just one aspect of the business. Eric Shannon joined cataloger and e-retailer Taylor Gifts as Internet marketing manager about a year ago, and like Seegers at Home Depot Direct, he had to hit the ground running and create an e-commerce strategic plan. Before he arrived the company had been without a plan since its web debut five years ago. When online sales came to represent more than a third of the company’s business, the merchant decided it was time to get serious.

So far, the formal plan is confined to the marketing department. Shannon has designed the strategic plan more as a “to-do” list to harvest low-hanging fruit. With web analytics from Omniture Inc. in place since April and Trinity Insight consultant Smith onboard to do deep number-crunching, Shannon has converted all web advertising for Taylor Gifts from a cost-per-thousand basis to pay-per-click. The result: a doubling of year-over-year revenue attributable to online advertising with only an $800 increase in ad spending.

No ‘how to’ guide
Each e-commerce plan is unique to its retailer; there’s no single way to decide who should be involved or what aspects of the business it should cover. While marketing was the main focus of Taylor Gifts’ strategic plan, it might not even make the top ten list on some merchants’ plans.

Home Depot Direct’s Seegers, who reports directly to the parent company’s CEO, is responsible for the e-commerce plan, though he seeks input from all the departments that report directly to him, including I.T., operations, the customer contact center and the webmaster. The current three-year plan will be revised annually, and it encompasses all aspects of online operations. It also meshes with the overall strategic plan for The Home Depot Inc. “I’m involved in everything that has to do with strategy and execution,” Seegers says. “It’s a great vantage point for examining how e-commerce can enhance and expand the core business.”

Taylor Gifts plans a quarter at a time. The Sak updates its e-commerce plan every six months and includes Internet, marketing and sales staff members in the process.

Tool King’s first two-year plan involved founder Cohen and his department heads for purchasing, operations, marketing and I.T. Within the plan are a number of mini-plans; for example, the marketing department has set specific goals in the areas of search engine optimization, affiliate program development and improving auction revenue. Each individual plan has one or more people specifically responsible for executing it, and financial incentives to reward the achievement of the goals.

No matter who’s involved or what the goals are, any good plan should start with the numbers, many experts say. Tool King had lots of raw data, but the planning process inspired the creation of 17 new reports to track the numbers that would tell whether the plan was working and exactly where adjustments were needed. “If we can isolate a problem to a department, or even an individual, we don’t have to make sweeping changes like raising ad spending by 5% or increasing staffing,” Cohen says.

Once a plan is in place, Trinity Insight’s Smith recommends reviewing all the numbers every three months. “Any forward-thinking online retailer has analytics, but the majority don’t use them or don’t know how to use them,” he says. Key measures, according to Smith, include:

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- Internal stats: number of unique visitors, where they come from, how long they stay, where they go on the site, whether they find what they’re looking for, whether and when they start a shopping cart, how often they follow it through to a purchase, and at what points in the process they most frequently abandon their carts.

- External stats: search engine rankings, shopping engine performance, number of sites that link to the e-retailer’s, and the level of payoff for advertising initiatives.

- The competition: how competitors’ external measures and marketing activity compare with the e-retailer’s.

- Operations and logistics: resources needed to operate at current levels (inventory, fulfillment, customer service, etc.) and how these resources will need to change to accommodate the goals outlined in the strategic plan.

Smith also recommends e-retailers analyze important segments of their customer base by creating scenarios that help identify how their web site experiences can be improved.

Looking for opportunities
After a preliminary analysis of such measurements, an e-retailer should be able to identify where opportunities lie. Home Depot Direct’s Seegers had an ambitious growth plan in place for 2005 based on three metrics: number of unique visitors, conversion rate and average ticket value. “We looked at the e-commerce market for home improvement, assessed our position and decided what we thought our rightful market share ought to be,” he explains. The plan to achieve that goal included not only the marketing mix but also capacity planning for fulfillment and call centers.

One goal was to add whole categories of merchandise not found in a physical Home Depot; Home Depot Direct now offers an expanded line of consumer electronics. “Building home theaters is a megatrend, and why shouldn’t we be the company that’s helping customers build them?” Seegers says. “Over the last couple of weeks it’s been one of our top-selling categories. A year ago it was conventional wisdom that you can’t sell big-ticket items online, but many of them are selling like hotcakes.”

Merchants should be careful not to set more goals than they can achieve, though, even if there are plenty of juicy opportunities, says Shannon of Taylor Gifts. “I started off trying to do everything and things fell through the cracks,” he says. He since has learned to focus on one or two things at a time: today, ensuring that data feeds to shopping engines are working as efficiently as possible; next up, maximizing traffic from search engines.

E-commerce strategic plans should be ambitious but doable, says Tool King’s Cohen. The possibility of getting outside money was part of his inspiration to undertake formal planning. “We’re anticipating an investment group coming in, and that made us get more intensive with our plan,” he says. “A strategic plan makes it easier to show what you’re going to do. But you shouldn’t embellish—you should make it something you’re confident you can achieve.”

Elizabeth Gardner is a Riverside, Ill.-based freelance business and Internet writer.

Web analytics enables planning on-the-go

Even in this era of just-in-time inventory, not every retailer can tailor supply to demand. But with the right information and strategic planning, some can tailor demand to supply.

As with most apparel companies, buyers for online lingerie merchant Bare Necessities have to use their experience and smarts nine to 12 months ahead of time to predict what their customers will want, then place their orders and hope for the best. In contrast, the site’s marketers can see one of the company’s products mentioned on TV at noon and have the home page appropriately tweaked by 1:30 p.m. to respond to potential increased demand.

This disconnect between months and minutes led to a general lack of communication, says Gretchen Wahl, director of online merchandising. “We found that marketing lived in its own world and the buyers and merchandisers looked at their own reports and neither of us were talking with each other or had the same language or numbers,” she says.

Wahl used to work in marketing; her current merchandising position was created about a year ago to help marketers and buyers better work together. She found that by joining the two disparate worlds, she could help the marketing staff create demand for the inventory the buyers had put together.

Using web analytics, Wahl and her colleagues can see where customers come from, what search terms they use on the Bare Necessities site, how they navigate through the site and which affiliates yield customers for which products.

With that information in hand, the marketers take a careful look at the inventory and craft a plan. “Say the buyers have ordered X dollars worth of bras and Y dollars worth of ‘sexy,’” says Dan Sackrowitz, vice president of marketing and business development. “Our customer acquisition folks then line up partnerships based on the kind of merchandise we bought, and the merchandising department plans an e-mail campaign around it.”

The combination of inventory and analytics drives strategic planning and site design. “It’s easy for buyers to say we have to put a certain product on the home page, but that’s not necessarily the best place for it,” Wahl says. “It’s helpful to have the analytics to back that up.”

And the buyers get feedback for planning. “We were able to plan our 2006 holiday efforts in a much more productive way than we’ve ever been able to do in the past,” Wahl says. “We said, ‘Here are things people are clicking on,’ so buyers could feel comfortable placing a big reorder on those styles. We wouldn’t have done that before.”