January 15, 2004, 12:00 AM

The cost of not integrating channels is lost sales, says retailer’s audit

A retailer who commissioned a study of the cost of failing to invest $74 million in three multi-channel initiatives found it had forgone $540 million in earnings over three and a half years, consultant Krishnan Menon told an NRF audience.

Public companies planning a multi-channel strategy better be prepared to justify their expenditures to a skeptical investment community, Krishnan Menon, executive vice president, global business development of Carlson Marketing, told the audience at the NRF convention’s Multi-Channel Retailing Update session on Monday. “The Street still does not consider huge integration budgets for multi-channel projects necessary,” Menon said.

His observations were echoed by Phil Kowalczyk, managing director of consumer products division at retail consultants Kurt Salmon Associates. Kurt Salmon polled investment analysts about their approach to evaluating retail stocks. “Wall Street is obsessed with short-term earnings,” he told the audience at the What Consumers Want, What Retailers Deliver and What Wall Street Rewards Super Session on Monday. “Wall Street focuses on same-store sales and month-to-month growth.”

In counterpoint to the investment community’s short-term focus, Menon cited the case of a retailer, whom, he stressed, he cannot name, that commissioned analysis of several multi-channel initiatives it had walked away from. The question to be answered: What would have happened if the retailer had continued investing in those initiatives.

The study clearly demonstrated the value of the short-term initiatives, he said. The retailer had opted not to participate in a $43 million project to integrate its POS system with other systems, a $24.5 million project to create a system to allow buying online and picking up in the store, and a $6.4 million investment in a loyalty project. The study showed that in three and a half years, the retailer gave up $540 million in income as a result of failing to make those investments.

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