Merchandising 2.0

As much as we hear these days about Web 2.0, e-commerce isn’t the only facet of multichannel marketing to advance. The best retailers 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 one another, but support one another in driving company objectives.

Your merchandising strategy is at the heart of your company’s growth and profitability. Without strong merchandise, you don’t have a business. While great marketing can radically improve the sales, it cannot compensate for the lack of good product.

But you can’t look at merchandising in a vacuum — to be effective, it has to go hand in glove with marketing in the retail, catalog, and e-commerce channels. Each has different strengths, and those in turn affect not only how well the channels sell merchandise, but just how they enhance the customer’s total experience.

Achieving a customer-centric focus among all channels goes well beyond the old concepts of appearing seamless and merely showing the same products in multiple sales outlets. It’s about how to gain synergy that results in greater sales than if the channels operate separately.

Let’s take a look at some the best practices for merchandising retail, e-commerce, and catalog product — and how your company can implement those strategies.

Tri-channel excellence

Multichannel retailers need to provide a consistent image in every sales channel. This makes it easier for shoppers to find and buy goods. 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? You need to provide consistency 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.

Cabela’s, a marketer of hunting, fishing, and outdoor gear, does a great job of multichannel merchandising. Though Cabela’s started as a cataloger and then migrated to e-commerce, it’s rapidly becoming retail-driven.

For instance, in fiscal 2006, the merchant’s direct sales (catalog and e-commerce) increased 4.2% to $1.06 billion, primarily from e-commerce growth. Cabela’s boasted a retail revenue increase of 32.3% to $820.3 million, led by four new stores and a 1.3% increase in comparable store sales.

What is Cabela’s doing right? It dominates its merchandise niche in all three channels. When someone shops the stores, for instance, the product assortment looks to be several hundred thousand SKUs.

The $2.06 billion company has also mastered the concept of “experiential retailing,” as its stores themselves are as near an outdoor experience as shopping can be. Many locationsrange in size up to 250,000 sq. ft. and sport taxidermy mounts of various game, amid landscapes, while freshwater aquariums house regional species.

As for the print channel, the merchant’s fall 2007 master catalog is about as close as you can get to a department store in print. The 1,392-page, hardbound catalog (which weighs about 4 lbs. mailed in a box) goes to its best customers. Cabela’s also mails dozens of specialty catalogs, such as Waterfowl and Summer’s Best Clothing and Footwear, throughout the year.

The master catalog is a good 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 Website.

The catalog also 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). Customers and employees appear throughout the book with their hunting and fishing trophies and testimonials about Cabela’s products. The back cover of the master catalog promotes its existing 19 store locations and the eight new stores scheduled for 2007.

Cabela’s has developed a high level of constant interplay between events and sales that are happening at its stores and on the Website, and between marketing and merchandising as well. In many ways, the company makes it hard to separate one channel from another. Maintaining synergy between the three channels is more important to Cabela’s than looking at each unit as an isolated part of the business.

When merchandising and marketing work in concert, the total sales will be higher than if channels work independently. Still, some multichannel businesses continue to fear channel cannibalism, and allow different channels to compete with one another rather than concentrate on serving the customer. Retailers that neglect potential cross-channel synergy and consistency often end up with a Website, stores, and catalog that appear to be separate businesses.

The e-commerce edge

It may be surprising to realize that one of the e-commerce leaders today is one of the U.S.’s old-line general merchandise catalogers: J.C. Penney.

According to Heather Dougherty, an analyst for Nielsen/Net Ratings, J.C. Penney has one of the most productive Websites among mainstream retailers. Nielsen/Net Ratings has consistently rated it among the top five sites nationally, based on the number of paying customers who visit the site.

Compared to Cabela’s, J.C. 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 company has stalled, but looking at all channels, you see that business as a whole is growing. In fact, Penney’s catalog sales have declined dramatically, but the company’s total sales have improved.

What are the secrets to Penney’s success? For one, its Website offers almost three times the number of products available in the merchant’s stores. This gives the company a cost-effective way to sell bigger-ticket, often slower-turning items.

J.C. Penney rang up more than $1 billion in online sales in 2005, and revenue through this channel is expected to overtake catalog sales, which declined from more than $4 billion in the late 1990s to $1.7 billion last year.

The merchant has supported online sales growth in several creative ways. In August 2006, 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 or return items at its stores.

This sort of online support strategy can work in several ways. Say you sell tabletop items, and suppose that on average, only one in five customers want serving dishes and other accessories for a dinnerware set sold in your stores. The stores can avoid stocking such slow-moving items by directing interested customers to the Website to view the complete dinnerware set.

Many channels, one strategy

To be sure that customers have a consistent experience across channels, you need 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. Service should definitely include the chance for a customer to talk to a live person or chat about a problem. And it should not include spending hours looking online for a buried customer service number and then waiting for a rep to answer the phone.

Improved technology and the increase in online shopping mean that more customers expect that their orders will ship the same day they’re ordered, which would have been unheard of 10 years ago. As such multichannel merchants should aim to offer seamless purchase and delivery options whether customers shop retail, or catalog, online, or chose to pick a product 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 exceeding $200 million has 20% of its sales drop-shipped from its merchandise suppliers.

What else can you do to improve cross-channel service? Accept gift cards/certificates as payment, and be able to validate them online across channels. Returns and customer loyalty programs should also operate across channels.

And make pricing consistent across channels. If prices actually need to be different, have a standard policy to explain and handle them.

Don’t forget the importance of capturing data from all retail customer purchases and combining it with data from the direct channels. Multichannel customers are typically five to 10 times the value of single-channel buyers. Mining the database helps you direct future merchandising by determining what the better customers buy — and what will keep them buying.

Multichannel businesses can face serious conflicts between the structure of their merchandising organizations 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.

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.

Without inventory and order management systems integrated across channels, your business will have 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 or ship product from other channels to make the sale means inventory is frozen in one channel when it’s needed in another. You need to aggregate or roll up inventory needed in a specified time frame ito place purchase orders 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 key to cross-channel consistency is having 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.

How? Start 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.

To get the information you need to provide consistent customer experience and service across channels, you should do the following:

  • Provide online, real-time visibility of inventory across channels
  • Price products via the item master, which has dozens of data points (description of item, vendor, when available, cost, retail selling price)
  • Develop a single purchase order writing and maintenance process
  • Accept gift cards/certificates as payment and validate them online across channels
  • Investigate alternative payment methods such as PayPal and Bill Me Later
  • Accept returns at any channel
  • Determine what strategy gets the highest percentage of recovered cost to achieve overstock reduction and liquidation through stores and e-commerce.
  • Offer customer loyalty programs across channels
  • Be able to offer customized or special merchandising products
  • Provide consistent pricing and promotions across channels.

Keeping your prices and promotions consistent across channels doesn’t mean that better customers don’t get specials or services such as free shipping, or that 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, for example.

Also bear in mind that while product copy and length may vary between channels, there should be a single statement of product information of the particulars about the product that remains constant across channels.

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 & Co., a Richmond, VA-based fulfillment consulting company.

Related Articles:

Web 2.0: What It Really Means to You
The Effective Website: Keeping Your Eye on the 2.0 User
Analytic Tools Meet Web 2.0

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