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MULTICHANNEL CHALLENGE

Retailers explore new ways to harness Internet

By Anna Robaton

There’s nothing faceless about Sears’ online customers: They pick up nearly 40 percent of their online purchases in person.

Less than two years ago, Sears, Roebuck and Co., one of the first major U.S. retailers to venture into e-commerce, set out to determine why some consumers visited its Web site to browse rather than buy. It found that many of those who abandoned their virtual shopping carts didn’t want to pay shipping charges or wait for their purchases to be delivered by mail.

“People were going to the stores and purchasing there after doing research online,” said Ann Woolman, a spokeswoman for the department store chain. So Sears responded accordingly, giving its customers the option of buying online and picking up their purchases at a local store. To avoid mishaps, the company overhauled its inventory system to track more effectively which products were in stock.

So far the change, rolled out last November, appears to be paying off. According to Sears, almost 40 percent of its online sales are picked up at stores. Furthermore, 20 percent of these Web customers say they buy additional merchandise when they go to the stores to pick up those purchases.

“What’s more important than online sales is what we influence in our stores,” said Woolman, explaining that Sears.com helps generate more than $500 million of the physical stores’ appliance sales, thanks partly to the site’s in-depth product information.

That kind of spin-off isn’t going unnoticed. Many other big U.S. retailers are also ramping up their efforts to court the growing number of consumers who shop across multiple channels: catalogs, the Internet, stores and television. These so-called multichannel shoppers may use the Web to research products they ultimately buy in stores, or they may shop the Internet to find bargains on the products they have seen in stores.

Though many retailers stumbled in their early e-commerce ventures, those that managed to establish an online presence are seeking to fine-tune their efforts. Among other things, they are trying to break down the barriers between their Web operations and other divisions to bring consumers a more seamless shopping experience. Ultimately, they want to create a synergy among channels to boost their overall sales.

“Today, multichannel retailing is becoming a necessity because customers demand it,” said Michael Ponder, a Dallas-based multichannel retailing consultant and a former research manager for J.C. Penney’s Internet commerce unit. “If you are going to keep your customer, you have to be where the customer is. Companies that take a wait-and-see attitude will be looking from behind.”

But experts caution that it’s not enough for retailers simply to operate in multiple channels — they need to do it well. That may mean overcoming big logistical hurdles to offer Web customers the ability to pick up and return merchandise at stores without hassles. There are other, more subtle challenges, too. For instance, new research suggests that some retailers may be spending too much on marketing to and servicing consumers who shop both online and in their stores.

“I don’t think it’s easy to be multichannel,” said Lauren Freedman, president of Chicago-based consulting company The E-tailing Group and author of It’s Just Shopping, a new book on e-commerce. “In theory it sounds perfect, but executing it is not that simple. Getting all the technology to communicate in a way that the customer doesn’t notice is difficult.”

Although the dot-com bust has taken some of the competitive pressure off traditional retailers, e-commerce is still a sector they aren’t taking lightly. And it’s not hard to see why. By 2007 an additional 26.4 million U.S. households are expected to join the 36.5 million that already shop online, according to an August report by Forrester Research. That combined 63 million households will account for about two-thirds of all U.S. households. As a result of the growth, Web sales are expected to swell from $72.1 billion this year to $217.8 billion in 2007, accounting for 8 percent of total U.S. retail sales.

The growth of online retailing is closely tied to consumer confidence in Web merchants, Forrester notes. With the dot-com massacre over, the field is dominated by large traditional retailers such as Best Buy, Sears and Target, and a handful of online-only merchants including Amazon.com and eBay. Consumer confidence could be shaken drastically if any of these big players’ Web ventures fail, the report said.

Right now that doesn’t appear likely. Rather than letting their Web sites languish, many big retailers are adding more bells and whistles and product information, as well as revamping content to tie the identities of their sites to their stores more closely. In fact, a study released in July found that multichannel retailers are gaining ground in the e-commerce arena at the expense of so-called pure plays. The report, by market research firm Retail Forward, indicates that eight of the top 10 online retailers last year were multichannel players, up from five in 2000 and three in 1999.

“The evolution of multichannel retailing will be to more tightly integrate the different channels,” said Sears’ Woolman. “A lot of it has to do with integrating behind-the-scenes infrastructure to make shopping a more seamless experience for the customer.”

Sears has a big incentive to please consumers who shop all its channels. According to Woolman, internal research shows that consumers who frequent Sears’ stores and Web site spend twice as much and visit the stores twice as often as those who shop only one of the channels. Even more, customers who shop the company’s stores, Web site and catalog generally spend three times as much and visit the stores three times as often.

And Sears is tapping the expertise of Lands’ End, the Internet and catalog apparel retailer it acquired this year, to evaluate future changes to its Web site. Those revisions, Woolman said, are likely to include expanding the selection to include more apparel and other soft lines.

The department store giant is also expected to make more of its inventory searchable online, saving customers a trip to a local store only to find that Sears doesn’t carry a specific product or that it isn’t in stock. Right now only certain categories, such as appliances, tools and camping equipment, are searchable online.

Sears is not the only merchant taking such steps. In a report released in September, New York City-based Jupiter Research asked 42 respondents describing themselves as multichannel retailers what Web site features they had during the 2001 holiday season and what features they planned to add for the 2002 season. Twenty-six percent said they would revamp their Web sites to give consumers the ability to search in-store inventory, compared with the 15 percent that offered the service in 2001. Meanwhile, 19 percent said they planned to offer in-store pickup this year, versus the 12 percent that had it last year.

“People are much more educated about products because of the Internet, and that education has also led to a much more demanding consumer,” said Brad Boa, editor of Where it’s@, a weekly Internet media newsletter on multichannel retailing.

RPM, a Minneapolis-based information technology services firm, is hoping to parlay the growing interest in multichannel shopping into a market for E-porium, its new e-commerce kiosk. The company unveiled the kiosk in August and is negotiating with retailers to place them in stores, mall common areas and other public spaces. The device allows shoppers to use the Internet to search a retailer’s inventory, to locate products within a store or to order items not in stock or that they don’t want to carry home. It gives merchants the ability to offer a larger inventory than they can stock in stores and to provide more product information on-site. Placing a kiosk in a common area also avoids the expense associated with operating a store. Like an ATM, the kiosk uses touch-screen technology, and consumers can swipe their credit cards to pay for merchandise. These features, say RPM executives, make E-porium more user-friendly than previous generations of kiosks.

“The level of acceptance of online shopping is such that people are now willing to do it outside their home,” said RPM CEO Dan Peterson. “Our clients view the kiosk as a way to drive customers to their retail locations or their Web site. The actual sale is a side benefit.”

Ironically, some merchants view shopping centers as the final frontier in multichannel retailing. Late last year Dell Computer Corp., which generates a whopping $60 million a day in online sales and is the country’s second-largest catalog company, opened its first two mall units in an effort to reach more consumers. Dell, which also began selling its computers on TV shopping channel QVC at about the same time, says it is still evaluating its mall venture. But it is hardly holding back. The company now has 21 units in malls in seven U.S. markets and expects to have more than 70 units in the United States and Canada by year-end, according to Boa, who has been a consultant to Dell on the expansion.

Dell has sought to avoid the high operating expenses that stymied competitors, including Gateway, that have expanded into malls in recent years. Instead of opening stores, it has put kiosks in common areas, with sales associates to help shoppers customize computers and arrange shipment to their homes. The kiosks showcase computers and a smattering of other products, including digital cameras and printers.

The kiosks are part of Dell’s efforts to boost its annual sales to $60 billion in the next four years, from about $32 billion currently — though they may ultimately prove to be more effective at marketing products than generating big sales volume.

For all the rewards of cross-channel retailing, it can be tricky. A July report by Jupiter said retailers need to closely evaluate the resources they expend on multichannel shoppers. Shoppers who purchase across all the channels of the same retailer might not be as profitable as some merchants assume, even though such shoppers spend significantly more online and in stores than other types of consumers using the Internet, the report said. That’s because they are more deal-driven and more likely to search out and buy from online merchants offering the deepest discounts. They also consume more than other groups in such costly site features as live help.

Furthermore, while this group comprises a high share of affluent young adults who are already big users of the Internet, its clout is expected to diminish as other age and income groups, including lower-income households, go online.

“A lot of retailers subscribe to the notion that they should do whatever it takes to encourage multichannel behavior,” said Juliana Deeks, lead analyst on the report, which surveyed almost 2,300 online shoppers. “That kind of conventional wisdom fueled the dot-com boom in the first place,” she said. “That kind of pack mentality can be dangerous.”

Other experts caution that multichannel retailers can’t afford to have great service on their Web sites and poor service in their stores.

“Online stores have to make sure what they are doing works well,” said Michael Antecol, director of online research at Frank N. Magid Associates, Marion, Iowa. “The Gap, for instance, needs to make sure that you get great service not only in the store but online, and those two divisions have to work together amazingly well.”

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