Retailers Take Multi-Faceted Approaches to Multi-Channel Success
Macy’s, Sears and REI adopt distinct strategies that consider how the goals of each channel fit together
By Susan Reda, Executive Editor
It’s a standard topic of conversation with children: “What do you want to be when you grow up?” If they’re under 10 years old, just about anything from astronaut to zookeeper receives an adult’s optimistic nod. But as their late teens approach, expectations change. Teenagers are expected to have an idea about where they’re heading and a game plan to get there.
Multi-channel retailers have reached those pivotal years. Even though a majority of retailers have had an on-line presence for a mere five to seven years, rapid growth and consumer acceptance have compressed the timeline.
Industry experts say that multi-channel success is contingent upon figuring out how the e-commerce piece fits into the total organization, how to leverage e-commerce assets across the enterprise and what organizational and technological tools are needed to reach the goal.
Dale Achabal, director of the Retail Management Institute at Santa Clara University, and Kirthi Kalyanam, director of e-business initiatives at SCU, are engaged in ongoing research on the factors that drive multi-channel strategies. Their aim is to provide on-line companies with tools to help determine which strategy is right for their unique businesses.
“We’re looking at multi-channel retailing from a strategic point of view,” says Achabal. “Everybody seems to have a multi-channel presence today, but not everyone has really thought out how the e-commerce channel links to their traditional stores, their direct mail business or both. “If you ask some on-line retail companies whether the decision to have the same assortment across all channels is part of a measured approach or just the way they’ve been doing it since the company first launched its e-commerce initiative, you’re likely to find that, in many cases, it’s the latter,” he says.
BLENDING ASSETS Achabal’s research calls for executives to examine four key factors that shape a multi-channel strategy: customer expectations, assortment characteristics, company structure and competitive environment.
A comprehensive evaluation of these factors provides a framework for determining, for example, whether it’s better to focus on key items vs. a full assortment, or whether it’s more advantageous to deliver a uniform brand experience across every channel vs. differentiating the website based on customers’ expectations.
"True multi-channel advantages are realized when an organization engages in the strategic blending of key assets across value chains,” explains Achabal. “There are no hard-and-fast rules to apply here. The approach will be different for each company, based on what’s right for its unique business and customer. But the attitude some senior executives have, that the e-commerce channel doesn’t command their attention because they have bigger fish to fry, is one that can negatively impact their entire business.”
While many e-retailers continue to sort out which multi-channel strategy is most relevant to their overall business scheme, a handful of players are ahead of the curve, including Macys.com, Sears.com, LandsEnd.com and REI.com. Each has adopted a distinct multi-channel strategy that takes into consideration the role of e-commerce vs. the other channels in which the company operates.
The strategy at Macys.com has evolved considerably since its 1996 debut as a view-only site focused on bridal registry. At one point, company executives considered recreating the full-line department store in the virtual world, but they quickly discovered that the channels attract different shoppers and require distinct strategies.
“We’ve grown this business by focusing on the customer who is shopping on-line and by managing the shopper’s expectations,” says Gene Domecus, senior vice president of e-commerce at Macys.com, a division of Cincinnati-based Federated Department Stores. “Over the years, we’ve actually reduced the size of the assortment and grown the business.”
CATER TO CUSTOMERS In 1998, plans called for offering e-shoppers the best of Macy’s East and Macy’s West, featuring top brands from every category. That strategy went through several iterations over the next two years before executives decided to eliminate certain categories, such as career apparel, and place more emphasis on others, including juniors and home-related merchandise.
“Juniors is now 40 percent of our women’s apparel on-line. It’s nowhere near that large in the store,” Domecus notes. “The same can be said of the home business. As a percentage of total sales, it’s much higher on-line than in the traditional store setting.
“The on-line shopper comes to Macys.com with a mission, a gift to buy or something she needs,” he adds. “It would be neither practical nor profitable to have the same four million sku’s on-line as we have in the stores. We have to cater to the needs of the on-line customer if we intend to grow this business.”
Today, Macys.com is operated separately from the traditional stores, including separate buyers and inventory. Still, items featured on-line must be available in at least one Macy’s division. While the product assortment is smaller, items are available in greater depth than in the traditional stores, and anything purchased on-line can be returned to the stores.
Domecus de-scribes the e-commerce channel as being in lock-step with the company’s corporate direction. “Federated is focused on growing its business while catering to customer needs,” he explains. “Our mission is the same, but that doesn’t imply that everything that works in one channel will work in another.”
Case in point: Macy’s executives tried extending the brand into direct mail in 1998 with a catalog targeted to customers outside the retailer’s major markets. The catalog was short-lived as executives realized that the product offering was not in sync with the other channels. To stay true to the brand, the decision was made to exit the catalog business.
“Just because you can do business in every channel of retailing doesn’t mean you should,” says Domecus. “Our decision to exit direct mail is a perfect example of that. Each company has to understand the role of multi-channel retailing within its overall business, then manage growth in that context. For example, the on-line channel plays a huge role in delivering new customers to Federated by means of the on-line bridal registry. The Internet generates 30 percent of all the new registry customers at Federated.”
BRAND POWER While Macy’s runs its Internet channel separately from the store operation, Seattle-based REI. com makes every effort to deliver a consistent customer experience, operating its on-line channel as an extension of the store and direct mail businesses.
“Ultimately, it’s about the power of the brand and the desire to communicate to the customer with one voice,” says Joan Broughton, vice president of multi-channel programs at REI. “Executives were of one mind from the outset in terms of how the e-commerce piece would fit into the total business. We are still engaged in integrating the systems used across the various channels, but we always wanted the customer to feel that the on-line shopping experience met his expectations of the REI brand.”
Broughton points out that the on-line assortment is a superset of the store product. If a customer can’t find what he wants in the store, he can order it on-line via the in-store kiosk. The next phase for REI is to enable shoppers to buy on-line and pick up in the store, a service that’s set to debut this summer.
Each business channel contributes to the retailer’s overall growth. Most retailers’ e-commerce operations generate 4 percent to 5 percent of the total business, according to Broughton. At REI, the on-line channel contributes more than 11 percent of total company sales.
“The value of REI.com goes beyond its on-line sales generation. It is viewed within the company as an asset that goes across all sales channels. We know its value as a driver of business, based on our knowledge of the customer, how she shops and what she buys. Our strategy is to deliver a consistent experience, regardless of which door the customer comes through.”
LEVERAGE STRENGTHS Bill Bass, who wears two hats – vice president and general manager of Sears Customer Direct and senior vice president of e-commerce at Lands’ End – is quick to note the similarities and differences in the two ulti-channel businesses.
“Lands’ End started a catalog business, slowly expanded into the e-commerce channel and recently entered the traditional store channel,” explains Bass. “Sears’ roots are in bricks-and-mortar retailing and direct mail, but they got out of the direct mail business and methodically built the on-line channel with careful emphasis on exclusive brands. But when you look closely at the two, each has leveraged its strengths and adopted a gradual approach to growing the on-line channel.
“Different companies will pull different levers,” Bass continues. “The important thing is not which strategy a company chooses, but how the strategy that it picks fits with the rest of the business goals.
”Executives at Lands’ End began dabbling in e-commerce because of their fascination with technology. The Dodgeville, Wis.-based retailer, the first direct marketer to launch an 800 telephone number, is considered an Internet pioneer because of early experiments at selling via CD-ROM on Prodigy and AOL. As the company’s on-line presence grew, the goal was to be a channel agnostic, making certain that the product and experience on-line was consistent with the catalog.
Today, Lands’ End continues to leverage new technologies to drive e-commerce growth, hence the launch of technologies such as the virtual model and customized apparel. Still, to make the shopping experience easier for the consumer, the brand is now available in Sears stores.
At Hoffman Estates, Ill.-based Sears, the venture into e-retailing has been methodical, but one that acknowledges customers’ changing expectations of shopping and service and plays to the company’s strengths. “Sears executives leveraged the strength of the store channel, in this case its vast network of more than 800 stores, to drive sales on-line,” recounts Bass.
“By giving shoppers the option to buy an item on-line and pick it up at a local store, they manage to grow business in both channels. Today about 30 percent to 40 percent of on-line sales are picked up in the store,” he adds. “That’s the beauty of multi-channel retailing. It’s understanding how the goals of each channel fit together to drive the total business.”
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