Multichannel Merchandising 2.0

   

A company’s merchandising strategy is at the heart of its growth and profitability.  Saying that is not to minimize marketing and fulfillment’s roles, but without strong merchandise you don’t have a business.  Great marketing cannot compensate for the lack of good product, though great marketing can radically improve the sales for product.

You can’t look at merchandising in a vacuum.  To be effective, merchandising has to go hand in glove with marketing in the retail, catalog, and e-commerce channels. Each channel has different strengths, and those in turn affect how well the channels sell merchandise.

As much as we hear these days about Web 2.0, leading multichannel merchants are taking their merchandising strategies to new and higher levels—a sort of multichannel merchandising 2.0—in which channels neither mirror nor compete with each other, but support each other in advancing company objectives.

Winning strategies today not only entail the consistency of look and feel between channels, but consistency of goals and of the retailer's ultimate objective: enhancing the customer's total experience. Achieving this customer-centric focus among all channels goes well beyond the old concepts of appearing seamless, and of merely showing the same products in multiple channels.  It’s more about how to gain synergy between the channels that should result in greater sales than if the channels operate separately. 

Just how does merchandising tie into use by all channels? What are the best practices for merchandising retail, e-commerce, and catalog product—and how can multichannel merchants implement those practices?

Three-channel Excellence
The multichannel retailer that provides a consistent image in every sales channel makes it simpler for customers to find and buy what he offers. When customers know they can rely on a merchant to offer a positive experience in any channel, they are more likely to shop in any or all channels. 

How well does one channel support the others? Consistency is provided in part by look and feel, as expressed by the company name, logo, mission statement, slogan, color schemes, label, shopping bags, gift wrap, and general design scheme—online, in the catalog, in stores. Synergy, however, cuts a lot deeper.

One of the retailers that does the best overall job of multichannel merchandising is Cabela’s – The World’s Foremost Outfitter© of hunting, fishing and outdoor gear (www.cabelas.com). When you consider their cross-channel expertise, it’s impossible to separate the marketing and operational functions at which they excel. 

In fiscal 2006, Cabela’s earned $85.8 million on sales of $2.06 billion.  Total revenue increased 14.7% from the previous year.  Business from the direct cannels (catalog and e-commerce) increased 4.2% to $1.06 billion, primarily from e-commerce growth.  Cabela’s retail revenue increased 32.3% to $820.3 million, led by four new stores and a 1.3% increase in comparable store sales.  Financial services increased 29.9% for the year through the Cabela’s CLUB Visa credit card (Source: Cabela’s letters to stockholders).

Even though Cabela’s started as a cataloger, then migrated to e-commerce, with many of its stores ranging up to 250,000 sq.ft., it’s rapidly becoming retail-driven.  It’s interesting to see a direct company successfully make this change to retail in a big way.  

All three of Cabela’s channels are massive and dominant in their merchandise niche.  When shopping the stores, the product assortment looks to be several hundred thousand SKUs.  The stores themselves are as near an outdoor experience as shopping can be.  In the center of the stores is a multistory atrium called the Conservation Mountain with taxidermy mounts of various large game – elk, moose, bear, etc. – literally displayed on a mountain.  Some stores we have been in have an African landscape.  Others have a White Deer Museum which features record mounts and also abnormal antler configurations.  Fish mounts ring the first floor of the store.  Large freshwater aquariums show large regional species up close.  I have seen elementary schools touring stores as if they were a natural history museum.

For Fall 2007 Cabela’s produced a 1,392-page, hardbound catalog (weighing about 4 lbs. mailed in a box) for its best customers.  Within a month or so, specialty catalogs such as Waterfowl (240 pages) and Summer’s Best Clothing and Footwear 2007 (128 pages) arrived in best customer’s mailboxes.  There are dozens of other specialized catalogs throughout the year.

The entire back cover of the master catalog is dedicated to the existing store locations—19 stores, and eight new stores scheduled for 2007.  The cover shows small photo insets of stores. The Cabela’s master catalog is a perfect example of cross-channel marketing and merchandising.  It promotes the in-store and online Gun Library of world-class firearms and sporting collectibles, field test reports, and customer ratings and reviews, which are on the Web site.  In addition the catalog offers comparison charts, buyers guides, and the online and in-store Bargain Cave ™ (10,000 products that are overstock, returns not restocked, special buys, and clearance items).  Throughout the catalog, customers and employees are featured with their hunting and fishing trophies and testimonials about Cabela’s products. 

Cabela’s produces the 60-minute television shows “Cabela’s Outfitter Journal” and “Cabela’s Memories in the Field”.  For “Memories in the Field”, Cabela’s asks viewers to send in their home videos of hunting and fishing adventures.  If their videos are selected to be used, they receive $100 gift certificate to Cabela’s.  Cabela’s also publishes the bimonthly Outfitter Journal magazine with in-depth articles from the most trusted and respected outdoor writers. 

Clearly Cabela’s has developed an high level of constant interplay between events and sales that are happening at its stores and on the Web site, and between marketing and merchandising as well.

The main point to be made here is that Cabela’s in many ways makes it hard to separate one channel from another.  For this multichannel merchant, maintaining synergy between the three channels is more important than looking at each channel as an isolated part of the business. 

In other words, where merchandising and marketing are working in concert the total sales will be higher than if channels work independently of each other. In spite of this, some multichannel businesses still suffer from a fear of channel cannibalism, and allow different channels to compete with each other rather than concentrate on serving the customer. In fact, there are many multichannel retailers whose neglect of potential cross-channel synergy and consistency and end up with a Web site, retail stores, and catalog that appear to be separate businesses.

E-commerce edge
In multichannel commerce, e-commerce provides many options which retailers did not have before the advent of online sales. 

Heather Dougherty, an analyst for Nielsen/Net Ratings (NTRT), states that JC Penney has one of the most productive Web sites among mainstream retailers. Nielsen/Net Ratings has consistently rated JC Penney’s Web site among the top five Web sites nationally, based on the number of paying customers who visit the site.

Compared to Cabela’s, JC Penney takes more of a traditional department store approach to multichannel retail. Anyone who looked at just Penney’s catalog numbers, might reasonably conclude that the businesses have stalled, but looking at all channels, you see that business as a whole is really growing. In fact Penney’s catalog sales have declined dramatically, but the company’s overall/total sales are much better than they have been.

An interview with Bernie Feiwus, senior vice president of Penney Direct, suggests some of the reasons for the company’s success. The Web site offers almost three times the number of products that are offered in Penney’s retail stores. This gives the company a cost-effective way to sell bigger-ticket, often slower-turning items. Numbers from the company’s financial reports also attest to the Web site’s success. The company rang up over $1 billion in online sales in 2005, and sales through this channel are expected to overtake catalog sales, which declined from over $4 billion in the late 1990s to $1.7 billion last year.

The company has supported this growth in several creative ways. In August of last year, Penney began making Internet access available at 35,000 checkout registers. The retailer not only uses the Web as way to drive traffic to its retail stores, but encourages cooperation through channels with such initiatives. Penney was one of the first major retailers to allow its online customers to exchange and/or return items at its stores. [Sources: Business Week, “JC Penney Gets the Net,” May 7, 2007; DM News, “JCP.com is the lynchpin in JC Penney’s multichannel strategy,” July 27,2007)

This sort of online support strategy can work in several ways. In table-top businesses, for instance, e-commerce can create an advantage.  Suppose that on average, only one in five customers  want serving dishes and other accessories for a dinnerware set sold in a store. The store can avoid having to stock such slow-turning items in the stores by directing interested customers to its online store to view the complete dinnerware set.

Many channels, one strategy
In order to be sure that customers have a consistent experience across channels, the merchant has to put in place a multitude of policies and make them work with appropriate technology and training. For instance, customers should be able to expect the same level of customer service across channels.  Customer service definitely includes the chance for a customer to talk to a live person or chat about a problem without spending hours looking online for a buried customer service number and then waiting for one of the small customer service staff to answer.

Industry professionals agree that improved technology and the increasing prevalence of online shopping in the last few years mean that more customers are conditioned to expect that their orders will ship the same day they’re ordered, which would have been unheard of ten years ago. Multichannel merchants should offer seamless purchase and delivery options whether customers shop retail, catalog, online, or chose to pick it up in a store. Catalog and online orders should be available via quick shipment and at a reasonable shipping cost. That kind of channel inventory flexibility requires a willingness to ship (or allow customer pick up) from different channels to make the sale and satisfy the customer. Some direct businesses are gaining significant sales with drop-shipped product.  One major retailer with direct sales over $200 million has 20% of its sales in drop ship.  Similarly, there may be vendor assortments to which you can refer on your e-commerce site that do not take space in the catalog or store.

The company should accept gift cards/certificates as payment and be able to validate them online across channels. Returns and customer loyalty programs should operate across channels, and make pricing consistent across channels. In cases where prices actually need to be different, the merchant should have a standard policy to explain and handle such cases.

When developing your multichannel merchandising strategy, don’t forget the importance of capturing a high percentage of data from all retail customer purchases and combining that with data from the direct channels.  Many companies have found that multichannel customers achieve five to 10 times the value of single-channel customers. Mining the database allows businesses to know more about future merchandising by answering the question “What do the better customers buy, and what will keep them buying?”

Multichannel businesses can face serious conflicts between the structure of their merchandising organization and sales and performance goals that sacrifice customer satisfaction to meeting the goals. For example, when a company separates merchants by channel, it must deal with the issue of who controls inventory. In the early days of e-commerce, companies frequently hired a Web master who handled all aspects of online sales. Now, organizations have migrated from just trying to put product up online to having merchants who are responsible for what is shown and for the copy itself.  More catalogers are hiring dedicated online merchandise managers (with varying authority) – somewhere between being a merchant with a plan to being the liaison between merchandising and Web master.

In many two-channel direct businesses, the online unit typically has a copywriter, a marketer or two, at least one merchandiser, a producer, and a tech team. Control of buying and inventory remains with merchandising and inventory control. 

An organization that actively supports cross-channel merchandising should serve the customer without taking away accountability for channel managers, while at the same time maintaining a consistent merchandising direction. As businesses often make consolidated channel-buying decisions, not speaking with one voice to vendors, this can be a convoluted process.

Inventory management, purchasing, and open to buy functions can also present serious issues. Without inventory and order management systems that are integrated across channels, a business has limited visibility and will have difficulty shipping from stores, if that’s a goal.  Without real-time online inventory integration, it’s impossible to know positively that you can ship for Web orders. An inability to move inventory or ship it from other channels to make the sale means inventory is frozen in one channel when it’s needed in another.  A multichannel solution requires the merchant to aggregate or roll up inventory quantities needed in a specified time frame in order to place POs and plan receipts.

Implementing the strategy
How do operations, finance, and systems match this synergistic approach?  The majority of multichannel businesses still have fragmented systems. Lacking systems integration, they must maintain information in multiple channels, which means greater potential for errors and inconsistency between systems. The best way to achieve the goal of cross-channel consistency is to have single operational data stores and data warehouses across all channels for access to cross-channel product assortment. In other words, you’d like everybody to be using the same data – information entered into one system of record and moved electronically to multichannel systems.

The prescription to meet these needs starts with systems development. Open standards and service-oriented architecture (SOA), a way of designing programs so systems are integrated and can exchange data, is becoming more commonplace. More specifically, the sort of information needed to provide consistent customer experience and service across channels should include:

  • Online, real-time visibility of inventory across channels
  • Item master and pricing – products get priced via the item master, which has dozens of data points (description of item, vendor, when available, cost, retail selling price). Not having a single product master means a separate file or data base for each channel, greatly increasing the potential for error and inconsistency.
  • Single vendor master
  • Single purchase order writing and maintenance process
  • Gift cards/certificates accepted as payment and validated online across channels
  • Investigate alternative methods such as PayPal and Bill Me Later to gain more sales
  • Returns accepted to any channel
  • Overstock reduction and liquidation through stores and e-commerce.  Determine what strategy gets the highest percentage of recovered cost.
  • Customer loyalty programs across channels
  • Consistent pricing and promotions across channels. This doesn’t mean that better customers don’t get specials or services (free shipping).  It doesn’t mean that there store sales or regional price points aren’t sometimes necessary, but there must be a rationale for discrepancies, and that means a sophisticated product-pricing engine that can manage all channels. There might be regional competitive reasons to change prices. Major software vendors are still working on this.
  • Ability to offer customized or special merchandising products
  • Product copy and length may vary between channels, but there should be a single statement of product information of the particulars about the product that remains constant across channels.
  • Investigate and experiment with Web 2.0 features that can sell more product—these include 360-degree views, online instructional and demo videos, zoom features, product reviews, community chat rooms, YouTube.com, etc. 
  • Improved search tools on Web. Implement improved Search Engine Optimization (SEO) to get your site highly ranked. 
  • What internal Web site search have you developed to make your site easier to find products and suggested purchases?
  • Test new products on the Web and then roll them out.

Smaller and emerging companies
We’ve talked about the big companies.  In reviewing smaller company strategies, here are some pointers more appropriate for smaller companies:

  • Build the strongest e-commerce site that you can afford.  Many smaller companies use package shopping carts or vendor front ends.  Does this give your Internet business the sophistication it needs to compete?
  • Do your catalog and e-commerce tie together with your stores in terms of “look and feel”? 
  • How are you achieving the synergy building sales between channels?
  • How can you get more sales by extending vendor lines through e-commerce?
  • Investigate and implement the operational aspects of making the customer experience consistent between channels.

In summary, along with the advance of e-commerce, multichannel merchandising has entered a new realm.  Different channels of the same business no longer have to compete for sales.  Encouraging creativity between marketing, merchandising, and retail management will make different channels more synergistic, increasing sales beyond what channels can do single-handedly.


Curt Barry is president of F. Curtis Barry & Company, a fulfillment consulting firm for catalog, e-commerce, and retail businesses. We offer clients expertise in business process and order management systems, inventory management systems, warehouse management systems; warehousing and distribution; call center services; inventory management and forecasting solutions; and strategic, financial, and operational planning for all business channels.

He can be reached at 1897 Billingsgate Circle, Suite 102, Richmond, VA 23238, phone: 804-740-8743; email: cbarry@fcbco.com; website: http://www.fcbco.com.