Clicks-and-bricks need to build presence

The erosion of market share and customer base is damaging to all retailers. Competition from pure-play e-tailers, catalogs and large national chains building an e-commerce presence give traditional retailers little choice but to build their own e-commerce capabilities.

According to a Harvard Business School Review report, a business loses 35% of its customers annually; however, reducing that by 5% can enhance profits 25% to 85%. In 1999, retailers were more concerned with e-commerce efforts cannibalizing existing sales. Today, the threat is not cannibalization but absolute market-share erosion. Establishing an e-commerce presence is a competitive necessity to reach new and existing customers, and gain greater customer loyalty.

Revenues and profits and the ability to stem share erosion are the ultimate measure of success for any e-commerce initiative. Determining the specific objectives for an e-commerce presence and weighing them accordingly will assist in building the appropriate action steps and determine the level of investment (and risk) that should be taken. The following represents some potential objectives:

* Build and solidify customer loyalty;

* Drive more traffic into stores;

* Enhance asset utilization and increase turns;

* Eliminate overstocks; and

* Expand into markets outside geographic footprint.

Bricks-and-mortar retailers can build on these core capabilities in a variety of ways. For one, the company can develop e-commerce capabilities via off-the-shelf programs and service providers. It is critical that the one selected satisfies most of the above-mentioned objectives, doing so within budget and with little customization.

Next, the retailer should determine the degree of integration required with the core business. For any e-commerce solution selected, each would require some degree of systems integration to interface with existing systems. Keep in mind that the level of integration required at the business level will drive the degree of systems integration and number of interfaces to be built to core systems and processes.

After an integration plan is designed, a company should develop a fulfillment capability Least understood and most feared by traditional retailers, the plan does not require Amazon.com-like distribution capabilities. In fact, many retailers already have centralized warehousing capabilities and only need to integrate the inventory legacy systems and to train existing warehouse personnel. By leveraging existing fixed assets and some systems integration, a retailer can build its own fulfillment operation.

If the principle objective of a Web presence is to solidify customer loyalty, then it is critical that customer support be at a level that exceeds the customer's expectations. More resources and effort should be placed on back-end support to address post-order concerns, such as shipping status and returns. In order to increase the likelihood of returning customers, ensuring that existing customers have positive experiences with the delivery and possible returns is critical.

Customer retention is the key driver to any successful business. Building a customer database to learn and communicate with customers will pay large dividends in the future. Web commerce as a form of direct marketing presents a retailer with a unique opportunity to learn more about customers and communicate periodically with them, driving additional sales either over the Web or to the store.

The culture and skill sets required to be successful on the Web are decidedly different from those of a traditional retailer. A separate e-commerce organization operating independently from the core business may be a solution, so that the entity can pursue the widest range of strategic and technological alternatives while seeking to build synergy with the core business.

COPYRIGHT 2000 Lebhar-Friedman, Inc.
COPYRIGHT 2000 Gale Group