“I haven’t seen a profit since 1995,” William Christopher told his eTail 2002 audience, referring to his three-year career as head of customer care for the e-retailing operation of Sears, Roebuck and Co., a job he took after four unprofitable years helping to build online grocer Peapod.com. “But we (Sears web business) are now growing at 2x, and we expect to hit profitability this year.”
Achieving profitability in a new web channel in such a relatively short time is a Herculean feat when you consider the breadth of Sears’ merchandising operation and the challenges the Sears faced in updating its traditional store and catalog operations to compete with newer rivals who aren’t confronting similar overhauls. While its web site currently offers only hard goods, traditionally Sears’ strongest product lines, it nonetheless allows web shoppers to order 4 million different parts and displays schematics of 90,000 items.
Though difficult to undertake, the integration of Sears.com with Sears store and catalog operation, a project Christopher repeatedly referred to as the "morphing of all merchandising channels” into one, is now cited as a key to the chain’s newfound profitability on the web. Rather than set up a separate web-based business, a flawed strategy that was tried and abandoned by Kmart Corp. and other department and discount store merchants, Sears opted for a strategy of integration after surveying panels of its loyal shoppers. They told Sears they wanted identical products, pricing and promotions on the web as in the stores and catalog, and they wanted to pick up and return merchandise at stores that they ordered on the web. In short, said Christopher, they said they wanted “an integrated, seamless shopping experience.”
Of all aspects of the integration, however, the order-from-the-web, pick-up-at-the-store option has likely become the most critical component of Sears.com’s profitability. Between 30% and 40% of sales on the merchant’s web site are now picked up at a store, a figure that clearly astonished Sears executives when they rolled out the store-pick-up program nationwide last November. “We thought that maybe two, three or four percent (of web purchases) would be picked up at the stores, and we were surprised when the percentage went that high,” Christopher said. When Sears asked web customers to explain why they chose the store pick-up option, Christopher reported, 50% said they did not want to wait for the merchandise to be delivered to their home, and another 25% said they want to avoid the cost of shipment.
Unlike Circuit City’s program, Sears credits the store fulfilling the web order with the actual sale, an accounting method that underscores the power store merchants have long enjoyed within the Sears organization. However, the pick-up program required Sears to make the same integration that Circuit City made between web systems and the chain’s legacy systems. In the case of Sears, said Christopher, that required the integration of 50 different web applications programs with the chain’s legacy systems that drive the store and catalog operations.
Sears store pick-up operation varies from Circuit City’s in more than just accounting for the sale. When a customer orders an item from the web for pick-up in the store, the buyer is instructed to wait for e-mail confirmation that the merchandise can be picked up at the closest Sears location. If a search of inventory at that store reveals that at least three units of the item are in stock at the location (only the third unit is reserved for the online buyer), the web shopper receives an e-mail within 90 minutes of the order confirming that the merchandise is available for pick-up. To receive the merchandise, the web shopper must present the same credit card used to make the purchase. “We are sticklers about requiring presentation of the credit card at the store, because we want the transaction in a card-present environment,” Christopher explained.
Soft goods sold on the web are not available for the store pick-up program, which Christopher noted is an evolving one that has encompassed an ever-expanding list of Sears merchandise. The hard goods limitation of the program might be considered a constraint, if only because so much of Sears’ hard goods merchandise involves white goods and other heavy items. But, said Christopher, “you’d be surprised how much big merchandise is ordered on the web and picked up by people who come to Sears stores with their SUVs. At one point, treadmills were the number one item (in revenue) sold on the web and picked up at the store.”
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