October 30, 2008, 12:00 AM

Profits in Pick-up?

Order online/pick-up in store is a centerpiece of some retailers’ multi-channel strategy. Other merchants struggle to find the ROI.

With such major chains at Wal-Mart, Circuit City and Sears bragging about the success of their order online/pick-up in store programs, Brad Wolansky, vice president of e-commerce at outdoor gear and apparel retailer Orvis Co. Inc., figured it was time to get with this hot trend in multi-channel retailing.

With the support of the vice president of stores, who was excited by the prospect of more customers coming to his locations, Wolansky obtained approval from Orvis management to launch a program in 2009. But when he got out a sharp pencil, Wolansky found it hard to convince himself the project would turn a profit.

For starters, Wolansky realized that Orvis could not offer same-day pick-up. That’s because apparel account for 60% of sales and its stores-which average 10,000 to 11,000 square feet-are not big enough to stock the 50,000 SKUs Orvis.com offers, especially with all the colors and sizes. Like Wal-Mart and Ace Hardware, Orvis could allow customers to place a web order that would be shipped to a store, but that eliminates the appeal for customers who need an order right away.

Another reason customers like in-store pick-up is to save shipping costs-but how far will a customer drive, with gas at $4 a gallon, to save the few dollars it costs to ship a shirt? Wolansky reduced the radius around the company’s stores that consumers would travel to pick up an item, and the percentage of customers within that radius likely to use the program.

“When I reduced the numbers every time, the contribution got so small it was hard to justify doing the project,” Wolansky says. He guesses it would cost Orvis $250,000 to $500,000 to implement a ship-to-store program, and two years to make back that investment. Even with management approval in hand, Wolansky put the project on hold.

Orvis is not the only chain hesitating-growth in in-store pick-up programs has been slow. The E-Tailing Group found 22 retail chains in Chicago offering such a program last year, and 24 this year.

To be sure, other retailers that have implemented in-store pick-up programs, including some that ship items from a warehouse for pick-up several days later, say their programs have been a success, bringing customers to stores where they often make additional purchases. “Consumers are taking advantage of it, and our retailers are really happy because it drives folks into our stores,” says Mark Lowe, e-commerce marketing supervisor at Ace Hardware Corp.

But a close look suggests the value of these programs varies with the type of business, and that the ROI improves when implementation of in-store pick-up dovetails with other projects.

Systems and people

For many retailers, the tough part about these programs is that they require the e-commerce site to communicate in new ways with distribution centers and stores. Plus, warehouse and store personnel must be trained. As Wolansky puts it, “it starts with systems and ends with people.”

Before Recreational Equipment Inc. could launch its Retail Store Pick-up program in 2003 the outdoor gear retailer had to create a procedure in its distribution center to handle consumer orders destined for stores, says Brad Brown, vice president of e-commerce and web strategy. In addition, the shipping schedule to stores had to be made available to the e-commerce site so it could tell customers when items would arrive. Stores had to be informed packages were coming, and the stores had to acknowledge receipt so customers could be notified, all new procedures.

Initially, Brown recalls, store employees called customers when items arrived. But the volume of orders was so large that REI shifted to e-mails to reduce the workload. That meant another integration project with the customer order history system so that receipt of an item at a store could trigger an e-mail to the customer.

The company also had to modify REI.com to promote the in-store pick-up offer, and the pick-up option had to be added to checkout. In all, the project took more than six months, says Brown, who would not say what it cost.

Hitching a ride

Some retailers were able to take advantage of other projects to reduce implementation costs. Ace had created a system that let its 4,600 independently owned stores place special orders to Ace’s 16 warehouses, and that was easily modified to accommodate orders by consumers. There was some work to trigger e-mails to stores when customers ordered online for store pick-up, Lowe says, but nothing major.

When Circuit City launched the web site in 1999, it also developed the ability for consumers to order items online for pick-up in a store, says Cindy Viener, director of channel integration at the consumer electronics retailer. Real-time lookup of inventory in individual stores was a capability that made it possible for Circuit City to guarantee pick-up within 24 minutes of a customer receiving an order confirmation e-mail.

“It was relatively easy to build because we were starting from the ground up,” Viener says. “Retrofitting can be more challenging.”

Upon a customer submitting an order, Circuit City electronically reserves the items, confirms payment, and the web site presents the customer with an order number confirming the reservation. The retailer also sends an e-mail confirmation. A pick ticket is printed at the store and a designated associate prompted to find the items and place them behind the pick-up counter. Those employees wear pagers so they can be alerted to waiting orders and other employees wear headsets so they can help if the pick-up specialist is busy, Viener says.

Space constraints

Very importantly, everything is measured, and each store gets a weekly report on how many customers have picked up in that store, how many bought additional items, and how many $24 gift cards the store gave out because items were not ready in time. On a monthly basis, stores get information on how the store fared in post-pick-up surveys, Viener says.

The cross-channel team that Viener leads advises stores on such issues as how to accommodate the increased volume of orders around the holidays. Space is not usually a big problem for Circuit City because its 24-minute guarantee leads many customers to pick up items quickly, Viener says.

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