October 24, 2006
BrainTrust Query: Do brick and mortar retailers really want to make online shopping succeed?
By Bill Bittner, President, BWH Consulting
(www.bwhconsulting.com)
I’ve been doing some work with an online retailer and it has really made me wonder if brick and mortar retailers that have online stores really want to make this channel succeed. It seems that the big focus for online shopping has been a “me-too” kind of maneuver — defensive rather than offensive.
It has made me wonder if brick and mortar retailers are missing the whole point.
Online retailing means a lot more than saving the consumer a trip to the store. It means using all your electronic archives to gain a detailed understanding of your customers so that you can create specific offers and services targeted directly to their needs.
Imagine if you could follow every customer who comes into your store, see what items they pause over, what items they finally purchase, what categories they shop based on price, the categories where they are brand loyal, and when they make significant changes in their buying habits (that first box of diapers).
Now, imagine how you would use this knowledge to make each customer’s experience unique. This is difficult in a physical store environment, but online you have the opportunity to change the customer’s view of the “store” based on all their past activity. Each customer can see the items that are important to them without having to deal with all the other things that may not be of interest. Margins can be adjusted in various categories based on the customer’s preference. Manufacturers can be offered promotions targeted to likely consumers.
Discussion Questions: Do you think retailers are attempting to fully exploit the “demand management” capabilities of the online channel or are they still
protecting their brick and mortar store base?
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Amazon should license their system to click-and-mortar retailers. Mo’ money, mo’ money, mo’ money. Don’t these guys visit Amazon? Can’t they see how it should be done? It’s like the guy who consistently mispronounces a word while all those around him are pronouncing it correctly. Doesn’t he listen? Is he even aware of the difference?
Sorry, Roger Selbert, but the majority of consumers do not “already shop online before buying in-store.” Groceries? Gas? Physicians and dentists? Car repair? Haircut? Prescriptions? Pizza? Etc.? Instead, more of them consult (and buy from) the Yellow Pages than the internet. Brick-and-mortar retailers believe they are already multi-channeling. They take orders and make service appointments over the phone. To get involved with the “demand management” of the internet, they need a little foreplay before they hop into bed. That foreplay is purchasing a domain name and getting a site on line.
Once retailers begin to notice and appreciate the benefits of online selling, they embrace it wholeheartedly. These are sales without the accompanying inventory expense, usually, so what’s not to like? Then, they need to look to the pros, like Amazon, to imagine the possibilities. It’s silly to think that retailers purposely give their internet sales sites short shrift (try saying that five times fast) in order to “protect” their physical store base. They just need time to grow and develop. Fortunately, there are plenty of successful examples they can look to.
I have one word: IKEA. What a wonderful retailer! What a HORRIFIC online store!
Why, God, WHY can’t I order those stupid little nuts and bolts by part number on the site? Why, in your online store, do I have to click a link that says “only show what I can purchase online”? Do you get joy in showing me things that I actually can’t have? And why, when I finally buy something, do you insist that I confirm by email — then reject my email? Are you guys a bunch of Swedish sadists?
Mark has a good point about the generational divide but, oddly in the wonderful world of cyberspace, there still seem to be some distinct national barriers. I shop online a lot, using both UK and US based bricks and mortar as well as online only shops. There is a clear difference in attitude and approach, I have found, with the Brits being well ahead of the Americans in my, albeit anecdotal, experience. Products are, as suggested, easier to find and far more targeted to the individual consumer. I always have access to the full range that I might find if I left home and visited the store but don’t have to be bothered with them if I prefer not to be. Promotions are generally targeted to me, even when I delete as soon as they appear in my mailbox. Customer service and delivery are generally very good. Price and specification comparisons are generally easy. Best of all, payment is straightforward. I have complained here many times before about American based sites that don’t let me know until I get to check out that (a) they don’t accept non-US credit cards and/or (b) they either won’t deliver to Alaska (an imperative for me) or charge an exorbitant supplement if they will. I’ve also had far too many experiences, for example with wedding lists, where an item is on the list but, when I get to checkout, find out that it’s only available in the store. If my experiences are at all typical, it’s no wonder Bill thinks that some bricks and mortar stores are missing the point as well as the opportunity.
One question though – it strikes me that American customers are far more likely to return items than British customers but I may be completely off base on this one. If it is the case, it may be a good reason why some retailers are reluctant to encourage online shoppers.
This is becoming, and will be, the single most important factor in determining winners and losers in the retail industry. Those retailers that create seamless, integrated, multi-channel retail operations — both to give management a single view across channels, and to give customers a seamless experience across channels — will maximize sales, profits, growth and stock price. Those that don’t face serious risk of business failure.
The majority of consumers already shop online before buying in-store, and the majority of online sales are already generated by retailers with physical stores. But the Internet age is just beginning. More broadband penetration, ease of use, convenience, time-poorness, better web sites and a host of other reasons will continue to grow this trend — dramatically.
Best-in-class retailers are investing hundreds of millions to integrate online and in-store operations, and are reaping the rewards. I have written about many of these efforts in Integrated Retailing, my monthly report on the industry. Among those that come to mind are REI, Macy’s, Dick’s Sporting Goods, Target, Best Buy, Home Depot, Office Max, Circuit City, Pet Smart, Kohl’s, Autozone, Barnes & Noble, Men’s Warehouse and Casual Male.
Multi-channel integration is the key to retail growth. Multi-channel consumers are the most satisfied and the most profitable customers. Multi-channel contact integration is the ultimate customer service/support goal. Traditional retailers have dramatically underutilized the opportunity to increase their sales both online and off using the Web channel.
This will true for all product categories, and all size stores.
Isn’t the reason I have keychain cards for Kroger, Publix, CVS, and Staples so that I can get targeted promotions and they can get purchasing patterns from a loyal customer? I don’t see where they need an online system to track me. Bill’s comments strike me as assuming they have to be online and committed to that program. I don’t think that’s true.
It seems that any discussion around internet or web-based retailing HAS to include a reference to the book, “The Long Tail,” so here is the obligatory reference:
Stores that focus on duplicating the same assortment online as they do in stores are missing the point of providing a reason to go to both outlets (a point that was made above) and so consumers will choose one or the other. However, with the internet providing the ability to source and ship remotely, unique items can be featured on the web and do not have to appear in stores (where they would not “sell” enough to warrant shelf space). The internet shopper may be perfectly willing to wait for a shipment of a hard to find olive oil, spice, or other item that is not kept “in stock,” but is within the grasp of the retailer to locate and ship to the shopper.
Will it work for all items? Likely not, but those that fit the paradigm are worthy of looking at doing in this way.
Bill is absolutely correct. Even J.C. Penney, with online growth significantly higher than its competitors, does not appear to be applying best-in-class design to its shopping portal.
The cause, I submit, is two-fold. First, online portals are seldom seen as stand alone businesses. Strategically linked, synergistic in marketing with the brick and mortar, but distinct. Second, even when distinguished organizationally, the resources allocated are insufficient to support a mission statement like the one outlined by Bill.
Retail executives have grown up in brick and mortar. With very few exceptions, most senior executives do not understand the online shopping space. Nor should they. To meet Bill’s challenge, a retailer must establish, recruit and operate the online portal as a distinct business. Having said that, the competition for such talent is very high right now, and the personal return of visionary net — thinkers is higher in start-ups than it is working for a retailer.
Short term…outsource it. Be open to new ideas from outside your organization on ways and methods to radically improve and change your online shopping experience. Don’t settle for small steps. If building a capability from the ground up is too time consuming and straining on internal resources (which it probably is going to be), then leverage someone else’s.
One thing everyone seems to gloss over is the size of online sales in relation to the “rest” of the business. At my former employer, it took several years for the web to even equal one store in revenue, and my guess is that it is little more than that now. This, coupled with the fact that it is more difficult to compete as well as to maintain an advantage makes investing in the internet a loosing proposition. In my opinion, this is why internet retailing will not be the focus of brick and mortar retailers for many years to come.
I disagree with Mr. Bittner’s premise. Savvy retailers, regardless of whether they have brick and mortar stores, a website or a catalog business have one overriding goal. That is to sell more merchandise. Retailers like J.C. Penney, Chico’s, Circuit City and Coldwater Creek have invested heavily in their online businesses. Anyone questioning whether retailers would undertake an online business and not do everything possible to ensure its success does not understand the business of retailing. To get a better understanding of how a retailer is doing, one must look at the entire breadth of the retailer’s business. By every measure the retailers mentioned above have been very successful over the last five years.
To be emphatic, the web is a different medium. Radio was once considered valuable as a tool to talk to ships at sea. But very soon afterwards, most of the radio stations in the 1920’s were set-up by retailers to broadcast shows that resulted in radio sales and advertising (most of the big stations in fact), so the capacity to grasp new technologies is in our history. For consultants, here are some suggestions:
Start with some learning:
-Have the executives tell you about web sites they like and ask them why they like them. Watch them use the web, watch their family use the web, collect raw materials around customer experiences (in this case they are playing the role of the customer).
-Have the exec’s mystery shop best-in-class sites that sell what they sell, a good guide who can explain the site experience will help them see the nuances.
-Take them to Amazon and show them what a best-in-class personalization firm does (but remember that algorithms like “nearest neighbor” work for books and music, not so well for other categories and that personalization requires rich attribution – that’s more advanced stuff – who knows, personalization might not be the number one feature that can help them in total.
-Video tape folks from their best target segments talking about how the web makes their life better, etc. – you can play that and bring some of these artifacts to a design session
Brainstorm:
Organize a brainstorming meeting with all of this information, invite a cross section of folks who can jam into this space, come up with some design ideas that you storyboard, test them with friends and family
You may also want to reach out to others; there are so many in this space to help you with roadmaps. This story highlights old ground that was covered in the 90s, but one can earn a nice living working with trailing edge retailers.
Most brick and mortar retailers are into online shopping only because the competition is. At first, they were only providing information and some new sales.
Few understand the advantages and power. Even less understand that there is new competition from other online retailers that are taking share away from them.
Some advantages for online are a larger product line and customer intelligence. When an item’s sales jump online, it will likely happen before the store sales, thus providing time to increase store inventory. Online provides great research for items to carry in the store. Internet-only items that sell well should also be placed in the store.
Online shopping isn’t profitable for many categories. If a retailer has low margins per item or high return rates, for example, perhaps the web is better suited to location maps and online promotion. And all retailers with more than one outlet suffer cannibalization. If the management believes that online sales will largely come from existing stores, it’s hard to make the case for online investment.
Having said all that, it’s also clear that there’s a generational divide. As more people born after the internet become retail CEOs, remaining irrational resistance to online shopping will literally die off.
Just because you are good — or marginally competent — at one thing doesn’t mean the halo transfers to activities that seem similar. For example, supermarkets sell food. Restaurants sell food. But, not every supermarket could operate a restaurant. The same thing holds true with virtual and physical retailing. Just because you are selling the same thing doesn’t — or shouldn’t — mean that the same skills are required. When you try to transfer the disciplines of physical retailing to an online model — without adding online skills — the result is bound to be less than optimized. Are physical retailers deliberately hurting their online businesses? Probably not, but that still doesn’t mean that they aren’t their own worst enemies.
Regarding the above observation:
“One thing everyone seems to gloss over is the size of online sales in relation to the “rest” of the business.”
If you are in a retail segment where 50% of the customers you are after do research on the web before they come into a store to buy, than maybe online sales might be secondary to how you make a strategic choice. These are times when one needs to think strategy but we all know the retail ethic — it’s survival, it’s why refugees do well in this business, it’s a business that can be all about getting thru the holidays with enough to pay your bills. Which reminds me of a piece of advice I once heard from the founder of an iconic-level category killer. He said: “When you have money, you can do things.” He is a billionaire who started on the street. BUT the good news is — the web and HTML are a lot cheaper to work with and change, at least compared to real estate and fixtures. Help save your employees jobs, make money for your investors — think strategy.
A few weeks ago we had a discussion regarding the impact of the “younger” generation on retail management. Here is a prime example. Once the younger execs move up the ladder, they will have a better understanding of how technology can improve retail. I believe that brick and mortar retailers would like to excel in their online endeavors. I’m not sure that they understand how. But I wouldn’t bet against them.
This is only an opinion, but I think the smart bricks and mortar retailer uses online shopping to expand their relationship with their target customer. They use online shopping to experiment with new concepts of browsing, buying, and customer service, as well as testing the waters as to what the customer wants and needs.
As I say, the smart retailer uses online shopping as R&D for changes in the shopping world that may fully eclipse bricks and mortar stores if these retailers don’t do something dramatic and fast.
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Amazon should license their system to click-and-mortar retailers. Mo’ money, mo’ money, mo’ money. Don’t these guys visit Amazon? Can’t they see how it should be done? It’s like the guy who consistently mispronounces a word while all those around him are pronouncing it correctly. Doesn’t he listen? Is he even aware of the difference?
Sorry, Roger Selbert, but the majority of consumers do not “already shop online before buying in-store.” Groceries? Gas? Physicians and dentists? Car repair? Haircut? Prescriptions? Pizza? Etc.? Instead, more of them consult (and buy from) the Yellow Pages than the internet. Brick-and-mortar retailers believe they are already multi-channeling. They take orders and make service appointments over the phone. To get involved with the “demand management” of the internet, they need a little foreplay before they hop into bed. That foreplay is purchasing a domain name and getting a site on line.
Once retailers begin to notice and appreciate the benefits of online selling, they embrace it wholeheartedly. These are sales without the accompanying inventory expense, usually, so what’s not to like? Then, they need to look to the pros, like Amazon, to imagine the possibilities. It’s silly to think that retailers purposely give their internet sales sites short shrift (try saying that five times fast) in order to “protect” their physical store base. They just need time to grow and develop. Fortunately, there are plenty of successful examples they can look to.
I have one word: IKEA. What a wonderful retailer! What a HORRIFIC online store!
Why, God, WHY can’t I order those stupid little nuts and bolts by part number on the site? Why, in your online store, do I have to click a link that says “only show what I can purchase online”? Do you get joy in showing me things that I actually can’t have? And why, when I finally buy something, do you insist that I confirm by email — then reject my email? Are you guys a bunch of Swedish sadists?
Mark has a good point about the generational divide but, oddly in the wonderful world of cyberspace, there still seem to be some distinct national barriers. I shop online a lot, using both UK and US based bricks and mortar as well as online only shops. There is a clear difference in attitude and approach, I have found, with the Brits being well ahead of the Americans in my, albeit anecdotal, experience. Products are, as suggested, easier to find and far more targeted to the individual consumer. I always have access to the full range that I might find if I left home and visited the store but don’t have to be bothered with them if I prefer not to be. Promotions are generally targeted to me, even when I delete as soon as they appear in my mailbox. Customer service and delivery are generally very good. Price and specification comparisons are generally easy. Best of all, payment is straightforward. I have complained here many times before about American based sites that don’t let me know until I get to check out that (a) they don’t accept non-US credit cards and/or (b) they either won’t deliver to Alaska (an imperative for me) or charge an exorbitant supplement if they will. I’ve also had far too many experiences, for example with wedding lists, where an item is on the list but, when I get to checkout, find out that it’s only available in the store. If my experiences are at all typical, it’s no wonder Bill thinks that some bricks and mortar stores are missing the point as well as the opportunity.
One question though – it strikes me that American customers are far more likely to return items than British customers but I may be completely off base on this one. If it is the case, it may be a good reason why some retailers are reluctant to encourage online shoppers.
This is becoming, and will be, the single most important factor in determining winners and losers in the retail industry. Those retailers that create seamless, integrated, multi-channel retail operations — both to give management a single view across channels, and to give customers a seamless experience across channels — will maximize sales, profits, growth and stock price. Those that don’t face serious risk of business failure.
The majority of consumers already shop online before buying in-store, and the majority of online sales are already generated by retailers with physical stores. But the Internet age is just beginning. More broadband penetration, ease of use, convenience, time-poorness, better web sites and a host of other reasons will continue to grow this trend — dramatically.
Best-in-class retailers are investing hundreds of millions to integrate online and in-store operations, and are reaping the rewards. I have written about many of these efforts in Integrated Retailing, my monthly report on the industry. Among those that come to mind are REI, Macy’s, Dick’s Sporting Goods, Target, Best Buy, Home Depot, Office Max, Circuit City, Pet Smart, Kohl’s, Autozone, Barnes & Noble, Men’s Warehouse and Casual Male.
Multi-channel integration is the key to retail growth. Multi-channel consumers are the most satisfied and the most profitable customers. Multi-channel contact integration is the ultimate customer service/support goal. Traditional retailers have dramatically underutilized the opportunity to increase their sales both online and off using the Web channel.
This will true for all product categories, and all size stores.
Isn’t the reason I have keychain cards for Kroger, Publix, CVS, and Staples so that I can get targeted promotions and they can get purchasing patterns from a loyal customer? I don’t see where they need an online system to track me. Bill’s comments strike me as assuming they have to be online and committed to that program. I don’t think that’s true.
It seems that any discussion around internet or web-based retailing HAS to include a reference to the book, “The Long Tail,” so here is the obligatory reference:
Stores that focus on duplicating the same assortment online as they do in stores are missing the point of providing a reason to go to both outlets (a point that was made above) and so consumers will choose one or the other. However, with the internet providing the ability to source and ship remotely, unique items can be featured on the web and do not have to appear in stores (where they would not “sell” enough to warrant shelf space). The internet shopper may be perfectly willing to wait for a shipment of a hard to find olive oil, spice, or other item that is not kept “in stock,” but is within the grasp of the retailer to locate and ship to the shopper.
Will it work for all items? Likely not, but those that fit the paradigm are worthy of looking at doing in this way.
Bill is absolutely correct. Even J.C. Penney, with online growth significantly higher than its competitors, does not appear to be applying best-in-class design to its shopping portal.
The cause, I submit, is two-fold. First, online portals are seldom seen as stand alone businesses. Strategically linked, synergistic in marketing with the brick and mortar, but distinct. Second, even when distinguished organizationally, the resources allocated are insufficient to support a mission statement like the one outlined by Bill.
Retail executives have grown up in brick and mortar. With very few exceptions, most senior executives do not understand the online shopping space. Nor should they. To meet Bill’s challenge, a retailer must establish, recruit and operate the online portal as a distinct business. Having said that, the competition for such talent is very high right now, and the personal return of visionary net — thinkers is higher in start-ups than it is working for a retailer.
Short term…outsource it. Be open to new ideas from outside your organization on ways and methods to radically improve and change your online shopping experience. Don’t settle for small steps. If building a capability from the ground up is too time consuming and straining on internal resources (which it probably is going to be), then leverage someone else’s.
One thing everyone seems to gloss over is the size of online sales in relation to the “rest” of the business. At my former employer, it took several years for the web to even equal one store in revenue, and my guess is that it is little more than that now. This, coupled with the fact that it is more difficult to compete as well as to maintain an advantage makes investing in the internet a loosing proposition. In my opinion, this is why internet retailing will not be the focus of brick and mortar retailers for many years to come.
I disagree with Mr. Bittner’s premise. Savvy retailers, regardless of whether they have brick and mortar stores, a website or a catalog business have one overriding goal. That is to sell more merchandise. Retailers like J.C. Penney, Chico’s, Circuit City and Coldwater Creek have invested heavily in their online businesses. Anyone questioning whether retailers would undertake an online business and not do everything possible to ensure its success does not understand the business of retailing. To get a better understanding of how a retailer is doing, one must look at the entire breadth of the retailer’s business. By every measure the retailers mentioned above have been very successful over the last five years.
To be emphatic, the web is a different medium. Radio was once considered valuable as a tool to talk to ships at sea. But very soon afterwards, most of the radio stations in the 1920’s were set-up by retailers to broadcast shows that resulted in radio sales and advertising (most of the big stations in fact), so the capacity to grasp new technologies is in our history. For consultants, here are some suggestions:
Start with some learning:
-Have the executives tell you about web sites they like and ask them why they like them. Watch them use the web, watch their family use the web, collect raw materials around customer experiences (in this case they are playing the role of the customer).
-Have the exec’s mystery shop best-in-class sites that sell what they sell, a good guide who can explain the site experience will help them see the nuances.
-Take them to Amazon and show them what a best-in-class personalization firm does (but remember that algorithms like “nearest neighbor” work for books and music, not so well for other categories and that personalization requires rich attribution – that’s more advanced stuff – who knows, personalization might not be the number one feature that can help them in total.
-Video tape folks from their best target segments talking about how the web makes their life better, etc. – you can play that and bring some of these artifacts to a design session
Brainstorm:
Organize a brainstorming meeting with all of this information, invite a cross section of folks who can jam into this space, come up with some design ideas that you storyboard, test them with friends and family
You may also want to reach out to others; there are so many in this space to help you with roadmaps. This story highlights old ground that was covered in the 90s, but one can earn a nice living working with trailing edge retailers.
Most brick and mortar retailers are into online shopping only because the competition is. At first, they were only providing information and some new sales.
Few understand the advantages and power. Even less understand that there is new competition from other online retailers that are taking share away from them.
Some advantages for online are a larger product line and customer intelligence. When an item’s sales jump online, it will likely happen before the store sales, thus providing time to increase store inventory. Online provides great research for items to carry in the store. Internet-only items that sell well should also be placed in the store.
Online shopping isn’t profitable for many categories. If a retailer has low margins per item or high return rates, for example, perhaps the web is better suited to location maps and online promotion. And all retailers with more than one outlet suffer cannibalization. If the management believes that online sales will largely come from existing stores, it’s hard to make the case for online investment.
Having said all that, it’s also clear that there’s a generational divide. As more people born after the internet become retail CEOs, remaining irrational resistance to online shopping will literally die off.
Just because you are good — or marginally competent — at one thing doesn’t mean the halo transfers to activities that seem similar. For example, supermarkets sell food. Restaurants sell food. But, not every supermarket could operate a restaurant. The same thing holds true with virtual and physical retailing. Just because you are selling the same thing doesn’t — or shouldn’t — mean that the same skills are required. When you try to transfer the disciplines of physical retailing to an online model — without adding online skills — the result is bound to be less than optimized. Are physical retailers deliberately hurting their online businesses? Probably not, but that still doesn’t mean that they aren’t their own worst enemies.
Regarding the above observation:
“One thing everyone seems to gloss over is the size of online sales in relation to the “rest” of the business.”
If you are in a retail segment where 50% of the customers you are after do research on the web before they come into a store to buy, than maybe online sales might be secondary to how you make a strategic choice. These are times when one needs to think strategy but we all know the retail ethic — it’s survival, it’s why refugees do well in this business, it’s a business that can be all about getting thru the holidays with enough to pay your bills. Which reminds me of a piece of advice I once heard from the founder of an iconic-level category killer. He said: “When you have money, you can do things.” He is a billionaire who started on the street. BUT the good news is — the web and HTML are a lot cheaper to work with and change, at least compared to real estate and fixtures. Help save your employees jobs, make money for your investors — think strategy.
A few weeks ago we had a discussion regarding the impact of the “younger” generation on retail management. Here is a prime example. Once the younger execs move up the ladder, they will have a better understanding of how technology can improve retail. I believe that brick and mortar retailers would like to excel in their online endeavors. I’m not sure that they understand how. But I wouldn’t bet against them.
This is only an opinion, but I think the smart bricks and mortar retailer uses online shopping to expand their relationship with their target customer. They use online shopping to experiment with new concepts of browsing, buying, and customer service, as well as testing the waters as to what the customer wants and needs.
As I say, the smart retailer uses online shopping as R&D for changes in the shopping world that may fully eclipse bricks and mortar stores if these retailers don’t do something dramatic and fast.