Adages like “You've got to be in it to win it” and “If you build it, they will come” don't work when talking about multichannel retailing. A growing number of merchants realize it's not enough just to have an e-commerce site. To succeed, they need to integrate their inventory, fulfillment and other back-end systems across all channels. This is the only way to offer the enhanced shopping experience consumers have come to expect.
This integration is what Federated Department Stores' recent announcement that it will invest $130 million to bolster its direct-to-consumer business was all about. It also plays a part in recent pronouncements from Home Depot, OfficeMax, H&M and others that said they expect the online channel to be a driving force of future growth and are investing accordingly. More investments from additional retailers large and small are expected in the coming months.
“It really should come as no surprise to see these investments given the strong growth that we've seen [in e-commerce] these past few years,” said Scott Silverman, executive director at Internet retailing trade association Shop.org.
Online retail sales totaled $172 billion in 2005, and Shop.org predicts annual growth of 20 percent to 25 percent over the next few years.
With consumers flocking to the Internet, retailers increasingly are becoming aware that they must provide “a compelling shopping experience, and that's not free,” Silverman said.
Integration is one big area of interest from Shop.org members. Without it, Web sites cannot maintain real-time inventory, track orders from when they're placed through to delivery, offer in-store pickup, make relevant suggestions for products based on a customer's history and provide security.
Federated said it expects its Web sites will handle increased traffic and order capacity, improve service levels, enhance efficiency, facilitate additional personalization of gift packages and provide customers with more detailed information on order status and delivery schedules because of the investments it plans over the next two years.
But it's more than personalization. Smart retailers are leveraging that organizational structure in a way that's compelling to shoppers. Talbots, for example, extended an in-store service it has offered since 1986 to the Internet in November 2004 when it introduced Style Search. Both take advantage of an inventory system already in place that lets Talbots know exactly what items are in each store.
The in-store version lets shoppers pick up bright red phones and order items from the catalog that they can't find. Online, shoppers can pinpoint which stores have a specific, full-priced item in stock — down to the color and size — and reserve it to be picked up. Two-thirds of customers who made reservations last year on Style Search also bought other items when they went into a Talbots store for their pickup. And that's all before the company started promoting Style Search aggressively, which it plans to do this year.
Style Search “isn't really changing the behavior of customers, but by understanding it, Talbots can provide better service and start to take advantage of this electronic distribution of information between the consumer and Talbots,” said Darryl Gehly, executive vice president at Molecular, which developed the system for Talbots.
Retailers that haven't caught on yet or don't get it right risk losing valuable multichannel customers. No one wants to lose a customer but this is crucial when it comes to multichannel customers, who have been proven to spend more than single-channel shoppers.
Last fall, Gap Inc. engaged in a very public relaunch of its Web sites for Gap, Banana Republic and Old Navy, promising changes.
“They probably tried to do too much and couldn't get them back up quickly enough,” said David Fry, president/CEO of Fry Inc., which develops e-commerce sites for large retailers. As a result, all three brands had “some very unhappy customers.”
Fry is negotiating with five retailers that have had no e-commerce presence before that want to spend $5 million to $10 million apiece over the next 18 months to build integrated e-commerce divisions.
“It's not as complicated to launch an e-commerce business as it was five years ago,” Fry said, because more companies offer drop-shipment services.
Because of their size, big department stores like Federated's Macy's and Bloomingdale's “have always had trouble representing their stores in e-commerce,” said Annette McEvoy, president of retail consulting company A. McEvoy Associates. As a result, most consumers “just don't think of going to the Bloomingdale's Web site to the spring selection,” which Federated would like to change.
Retailers in any fashion-driven category know the Internet lets them improve customer satisfaction and control inventory better, McEvoy said. Banana Republic will begin previewing fashions on its Web site soon and let customers preorder the items. This gives the customer the feeling of being a fashion leader. And it gives the retailer a better sense of what quantities to order on items so it isn't saddled with markdowns for items that didn't sell.
So many retailers are investing to integrate their direct divisions with their retail divisions because most companies set up two parallel systems back when e-commerce was considered experimental.
“But if e-commerce is big, you can't run parallel systems because customer service and so many other services will get out of whack,” said Bill LaGarde, founder/CEO of StoreFront, Kansas City, MO, which offers shopping cart software that can be integrated with many accounting, point-of-sale and fulfillment systems. Not only will merchants' Web sites be more customer friendly, faster and less prone to error, “a number of the integration initiatives directly impact the merchants' ability to fulfill orders in an accurate and fast and timely manner.”
These investments aren't all about back-end systems, however. Some money goes to content.
“Our clients are investing more and more in online content because if a customer has a question and you don't provide an answer, the customer will go away and may not come back,” LaGarde said.
Chantal Todé covers catalog and retail news and BTB marketing for DM News and DM News.com. To keep up with the latest developments in these areas, subscribe to our daily and weekly e-mail newsletters by visiting www.dmnews.com/newsletters
