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Retailers Find Own Paths on Multichannel Strategy

NEW YORK — With major retailers still grappling to find the right multichannel strategy, attendees at the National Retail Federation's Shop.org 2003 Members' Forum last week heard three retailers — Saks Fifth Avenue, Macy's and Recreational Equipment Inc. — detail their challenges.

In some cases, the problem is basic. At Macy's, the direct business is represented by Macys.com but its stores report to Macy's East and Macy's West, operational silos under the same brand.

“They actually represent the biggest challenge to me rather than the competitors,” said Gene Domecus, senior vice president of e-commerce at Macys.com.

Not that Macy's direct business lacked contradictions. Macys.com grew out of a wedding registry by Macy's West. Offline, Macy's East gave birth to an ill-fated catalog that closed in 2001.

“We're actually doing more business without the catalog than with it,” Domecus said.

Retailers have many options. Research by Santa Clara (CA) University showed that some retailers chose an e-commerce-led multichannel strategy. Others focused more on CRM than transactions. Another constituency based its strategy on a limited-inventory business online as opposed to carrying the full assortment listed in the catalog or sold in stores.

“In some cases we're seeing a very consistent multichannel strategy, and in other cases we're not,” said Dale Achabal, director of the Retail Management Institute at Santa Clara University and panel co-moderator with colleague Kirthi Kalyanam. “Having a multichannel presence doesn't mean you have a multichannel strategy.”

It boils down to value-chain linkages. Some retailers follow a store value chain; others have catalog and Web value chains.

In store value chains, the route to customers starts with partnering with vendors; buying, managing and distributing inventory; operating stores; and marketing and sales of merchandise.

Catalog and Web value chains reach customers through partnerships with vendors and buying and managing inventory. Then, the retailer feeds the merchandise to a site or catalog, with call center and fulfillment operations separate from the stores division. Distinct marketing and sales efforts are then targeted to customers.

New York-based Saks is a classic example of e-commerce taking a back seat to stores. Saks Direct's Saks.com and catalog sales form an undisclosed but small percentage of overall company revenue.

So, Saks Direct does not partner separately with vendors. It buys from one set of merchants that serves the entire Saks brand. The company has 2 million SKUs across its stores while the site has 60,000.

Saks' site and catalog, however, are inventory disposal mechanisms for stores. The company now sees big potential for a gift registry, which launched Jan. 14 in stores and online.

Saks.com lets customers view and pay bills online. The site also mentions store events, and e-mails offer news of fashion shows.

“E-mail marketing is one of the most successful interactive tools for us,” said Denise Incandela, senior vice president of business development at Saks Direct.

Saks transitioned its Saks Fifth Avenue store book last year into a selling vehicle when it closed its Folio marketing publication.

“A customer can purchase items offered in our store book through our Web site, 800 number or in our stores,” Incandela said. “[Before] last year, the store book had primarily been used as a marketing vehicle.”

Macy's approach to direct marketing differs. Like Saks, it offers only a slice of its selection online — 60,000 SKUs out of 4.5 million that sell in an average Macy's bricks-and-mortar store.

Despite the demographic overlap between the online and store customer, Macy's has a separate merchandising operation for Macys.com. That mainly is a function of what sells best in each channel.

For instance, women's apparel accounts for 40 percent of store sales. But home furnishings accounts for 45 percent of online sales. Macys.com also does not feature the top three or four vendors that sell in the Macy's stores, particularly career-oriented merchandise or women's ready-to-wear. Online customers prefer denim collections and underwear. Textiles, bed and bath categories are popular, too.

“The Internet for us is a huge gift-giving business,” Domecus said. “It is not a fashion-driven business.”

Thirty percent of new bridal registries for the Macy's brand now comes from the Internet.

Like Saks, Macy's finds the Internet a “great medium to explore new items,” Domecus said. Macys.com outsold Macy's East and West at one point in the designer bedding collection and houseware categories for the Christmas season.

“But we don't put anything online that's not in our stores … for returns,” he said.

This does not mean the channels have no synergy. Macys.com is the company-wide provider of e-mail across all channels. Also, in November, Macys.com ran its first one-day sale.

“It was a huge success because Macy's East did [run the same sales],” Domecus said.

Still, given the size of its operations, it makes no sense for Macys.com to share the same inventory strategy with its store counterparts. It also has separate marketing and creative departments.

At REI, the flagship is REI.com, a superset of stores with all the SKUs online. It links to REI-outlet.com, the other e-commerce site. Both sites pick merchandise from the same distribution center that serves 63 stores in 24 states and the catalog.

As a member-owned cooperative, the 65-year-old company's REI.com site also is seen as an information source before customers step into stores. The Kent, WA, company is working to integrate all channels. Web kiosks in stores, for instance, help retain customers who cannot find merchandise in that particular branch.

In another multichannel collaboration, REI in August allowed orders placed on Web kiosks to be picked up in stores. Through December, orders for kayaks and canoes surged 700 percent. This was without advertising. In the next phase, consumers will be able to place orders online from home or office and pick them up in stores.

“All the channels are using the same support centers to provide consistent customer experience,” said Joan Broughton, vice president of multichannel programs at REI.

Kalyanam of Santa Clara University said four factors drive multichannel strategy to meet company goals: competitive environment, consumer expectations, assortment characteristics and company structure.

Even he agreed that it helps to have a direct background to sell online. A cataloger will have little problem adapting to e-commerce since it already has the infrastructure to serve remote customers.

Of course, the nature of the merchandise or service can stymie retailers. Costco Wholesale Corp.'s bulk-size advantages in stores evaporate online mainly because of the shipping costs of large-size packages.

Overall, retailers still need to fine-tune multichannel strategies, Kalyanam said.

“Few organizations today have comprehensively leveraged key [value chain] linkages,” he said, “[or] theoretically linking Web site activity linked to catalog scoring.”

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