The Cross-Channel Ideal

For years now, the dot-com prodigals have been coming home. Even the hardest core advocates of keeping web-retailing operations separate from parents agree that retailers serve their customers best when they serve them out of a consolidated database of inventory and customer information.

But the early approach that argued that nimble, web-based operations would only sink under the weight of hidebound retail headquarters continues to haunt the retail industry. Separating operations is proving to have been much easier than joining them back together. Today the separate operations have become known as silos—and the term has come to denote the worst kind of fractured enterprise.

Not good enough

“The silos were created because channels run under different responsibility centers and profit centers, so a dot-com store, a catalog and brick-and-mortar store were run as separate businesses,” says Tom Johnson, managing director, consumer segment, at consultants BearingPoint Inc. “Retailers often put up a web site as a startup, considering it risky, not a part of their core competency.”

Today, it’s not good enough for a multi-channel retailer to provide excellent fulfillment and customer service separately in each channel. Multi-channel shoppers want to order in any channel and enjoy a consistent level of customer service. If a product isn’t available in the channel where they are shopping, they expect to quickly learn when and where it will be available. “Customers expect this now,” says Michael Cachat, CEO and founder of Jenson USA, retailer of cycling gear that recently built a store to complement its web site and catalog. “Our customer wants the ability to buy in a store, or to look in our store and buy later on the web or through our catalog. So we need a multi-channel environment that supports that.”

Jenson USA is not alone in feeling the pressure toward multi-channel integration. “The new requirements for retail system replacements are multi-channel integration and enterprise systems integration,” Johnson says. “That is the 2004-2005 mission for retailers—to integrate all channels on information processing technology.”

Retailers and their customers may want it, but few retailers—or their vendors—can deliver it. “Today software vendors can integrate at least some back-end systems for a single channel, but if you want to see what’s going on in all channels simultaneously, nobody can offer that,” says Sunita Gupta, retail analyst and vice president at consultants LakeWest Group.

Johnson adds that as technology vendors move further into incorporating the National Retail Federation’s Association for Retail Technology Standards model for application integration, the technology market will move closer to supporting complete silo and back-end-to-front-end integration as part of complete application suites. In the meantime, he says, retailers embarking on massive integration projects should take gradual steps. “They can be quarterly projects,” he says. “Focus more on the business result, less on the technology. Keep the technology simple, and leverage what’s working well.”

Inventory look-up

Many analysts agree that, whether a retailer wants to take a baby step or a giant step, integration starts with inventory. “The key is the inventory look-up,” Gupta says. “No matter which channels customers are in, you have to be able to tell them where the product is, when it shipped, or when they can pick it up in which store.”

That’s a strategy that Jenson’s Cachat knows well and has been perfecting for several years. Although he only opened the third leg of his multi-channel strategy last October with the first Jenson store, Cachat has relied on multi-channel integration since the late 1990s as a way to compete as a catalog and web retailer.

Jenson developed an in-house customization of an off-the-shelf mail-order-management software application to integrate web site and back-end inventory records, providing for automatic order status and product availability updates on the web. Before that, every incoming order had to be entered by hand. And when Jenson launched its web site, the company had to hand-code every item whenever it updated availability or price. Without integration with its inventory system, Jenson was unable to provide quick status reports of product availability. “It was hard to place an order with a mail order company and get order status,” he says. “A week later a customer might call and be told the product was on back-order.”

An increase in customer activity on the web, says Cachat, who has operated a catalog for more than 10 years, followed the visibility customers had gained of inventory status and the order process due to back-end integration. “We offered real-time order status, stock availability and, if catalog customers placed an order through our call center, they could use their order number to track order status as well as item availability on the web,” he says. In addition, Jenson stepped up other means of customer service by automating e-mail messages to customers to provide order status updates.

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The home-built system served Jenson well until the retailer realized it needed to expand into a third channel with a store, outstretching the customized system’s capabilities. Instead of customizing its system further, Jenson opted to run an integrated system from CommercialWare Inc., which is moving from its base in the catalog business to the multi-channel world with a three-channel offering.

From POS to web

Jenson sends out about 1 million catalogs a year in quarterly mailings, but conducts 75% of its business over the web and, so far, about 5% through its new 3,500-square-foot store. To integrate across channels, it employed a suite of front- and back-end order management, fulfillment, inventory management and other applications from CommercialWare. Starting in December 2002, the implementation took about 10 months, with the new system up just before the store opened in October. It took another month to integrate the store channel into the multi-channel system, Cachat says.

The CommercialWare system, which runs on Jenson’s own web server, comes in three basic software applications: one integrates applications for Jenson’s web and catalog operations as well as warehouse inventory records, a second integrates the store operations, and the third, called CW Integrate, integrates the store operations with the web, catalog and inventory applications. “Now when a customer walks into our retail store and a transaction is conducted at a POS terminal, it’s immediately in a database, and a call center agent can see the transaction,” Cachat says. “We have real-time inventory status across all channels.”

Because Jenson wanted to limit the amount of integration work it would have to do with its existing software, it decided to go a with an almost completely new application suite from CommercialWare, Cachat says. “They offered to integrate with our existing systems, but we want to keep integration work to a minimum,” he says. “So they gave us a turnkey system of new applications.”

No more manual

That route required Jenson to migrate existing data, including inventory and POS records, into the new application suite, but resulted in tighter integration and smoother data flow, Cachat adds. The only existing application that remains is Jenson’s accounting software, which the company plans to replace at a later date. For now, the accounting software does an adequate job of organizing financial records, even though Jenson must still physically enter sales and other financial data into it—steps that will be automated once a new application is integrated into the CommercialWare suite, Cachat says.

In addition to inventory availability across channels, retailers must also be able to deliver customer service across channels. Retailer Lamps Plus has, among other things, automated the way it sends order status reports to customers—whether they place their orders on the web, through the call center or at a store kiosk, says Clark Linstone, Lamps Plus CFO. Lamps Plus uses a multi-channel integration system hosted by Escalate Inc. Before using the Escalate system, Linstone says, Lamps Plus would take multiple steps to pass order and fulfillment information between order management, customer service and fulfillment personnel before generating a shipment label, a tracking number and a confirmation e-mail to a customer. “It was a very manual system because the technology systems didn’t talk to each other,” Linstone says.

Low touch

Now, once a customer enters an order on the web or at a kiosk “it goes through the entire process without anyone touching it,” Linstone says. The system automatically combines a shipment tracking number with the customer e-mail address tied to the order and generates an e-mail message that gives the customer the status of the shipment and information on how to track it. “We used to get many questions like, ‘When did my order ship?’ so now we don’t have to involve a customer service person in that kind of phone call or e-mail question from a customer,” Linstone says.

Like CommercialWare, the Escalate system can be run either on a retailer’s own server or hosted by the vendor. To license the software for a user’s own server costs $200,000 to $300,000, depending on size, plus one-time installation and training fees of $50,000 to $150,000, according to Escalate CEO Michael Ker. For a hosted system, Escalate’s average customer pays about $20,000 per month based on volume of orders, plus a one-time fee of $50,000 to $150,000 for initial integration and training services.

Just like everything else having to do with retailing, analysts caution against the one-size-fits-all approach. Retailers should take a hard look at the kind of multi-channel integration that their own customers want, LakeWest’s Gupta says. “The key is understanding your industry and your customer,” she says. “In some segments it’s become a requirement to have a high degree of integration. If a customer places an order for a TV on BestBuy.com, he expects to have the option of getting it shipped or picking it up at a store. But if he’s buying a suit at a store, it’s not as important to have a multi-channel experience.”