Mar. 15, 2000 Issue of CIO Magazine
Discover
What click and mortar really
means—and why it matters
The two key elements for
online-offline success
The hottest in-store technology
for making it work
How online companies build
brands offline
et's say you collect caps. Baseball caps, college team caps,
sportswear brand-name caps, visors. You know that Lids, the hat
specialty store in the mall, will give you one hat free for every
seven you purchase. So you visit your nearest Lids store. You buy two.
You hit the Lids in another mall. You pick up two more. But you still
want three others that you couldn't find at either retail outlet. Not to
mention the freebie.
No problem.
You can ask either store to order the hats, then pick them up and
pay for them later. Or you can pay now and Lids' warehouse will ship
them to you directly.
Or you can go home, get on Lids.com and place the order yourself.
No matter how you split up your purchase, the headgear
headquarters knows when you hit the magic number and qualify for the
bonus hat.
If you've got a coupon or a gift certificate, you can redeem them at
the store or at Lids .com. You can return merchandise in person or by
mail, regardless of where you bought it—a departure from the standard
operating procedures of many companies that run their internet and
physical-world businesses largely as separate ventures. The Westwood,
Mass.-based company keeps a record of everything you've ever bought
from Lids, anyplace, anytime. Online or off.
"If we're going to dominate the brick-and-mortar world, we want to
dominate the internet as well," says Nancy Babine-Kucinski, president
of the self-described category killer that sells 10 million hats a year.
"We didn't see [Lids.com] as a separate business entity, because we
couldn't imagine that our customers saw it that way. The customers
see Lids as a brand"—no matter where they're seeing it.
In a nutshell, that's what click and mortar is all about.
It's been less than a year since the term, attributed to a Charles
Schwab executive, entered the lexicon. But it's quickly become more
than a clever sandwiching of mouse click and brick and mortar. It
signifies a monumental shift in thinking about how existing companies
weave e-commerce into their business plans. They no longer think in
terms of offline or online. It's offline and online. Bricks and clicks.
Today it may seem painfully obvious that companies should serve
customers in as many venues as possible: online, by phone or fax, by
mail or in person. Some industries, notably airlines and some veteran
Clicks snag bricks as e-business
gets real
Paradoxical as it may seem,
online companies increasingly
want to establish themselves
offline as well, often by
partnering with existing big-name
brick-and-mortar merchants. In
some of the biggest recent
matches:
America Online joined forces
with Wal-Mart Stores. AOL, the
Dulles, Va.-based interactive
services company, offers a
lower-cost, Wal-Mart-branded
version of its internet access
service. Wal-Mart, based in
Bentonville, Ark., promotes the
service and AOL's other
products in its ads as well as in
nearly 3,000 Wal-Mart and
Sam's Club stores.
Yahoo, the Santa Clara, Calif.based web search engine and
portal, teamed up with Kmart
Corp. Yahoo offers free web
access to users of
BlueLight.com, Kmart's justlaunched e-commerce site. In
exchange, the Troy, Mich.,
chain of discount stores
promotes Yahoo on its site and
in its stores.
Microsoft invested $200
million in Best Buy Co., a
Minneapolis-based consumer
electronics and appliance
retailer, in exchange for Best
Buy's agreement to promote
and sell the MSN internet
service in its stores.
Brainplay.com, a Denverbased toy e-tailer, merged with
KB Toys, a traditional toy seller
in Pittsfield, Mass., to create
KBKids.com. The new
company's CEO, Srikant
Srinivasan, has said that the
deal was driven by "a
fundamental belief that pureplay e-commerce is pass."
mail-order catalog businesses, have mastered the integrated approach
(see "The Ghost of Christmas Past," CIO WebBusiness, Dec. 1, 1999).
But, of course, until recently most companies viewed brick-and-click
efforts as entirely separate, if not downright mutually exclusive,
ventures. These days, though, even some internet pioneers are working
harder to keep one foot in the physical world. Consider Egghead
Software of Menlo Park, Calif., which closed all its physical stores in
1998 to become online-only Egghead.com. Fast-forward to late 1999,
when CEO George Orban implied that Egghead.com might soon go full
circle by adding some brick-and-mortar stores to its web presence,
saying that he believes "the biggest threat to online companies is from
more-traditional companies."
That's a 180-degree turn from the conventional wisdom of just a
year or so ago. Back then, traditional companies dithered about getting
online because they worried about competing with their existing
distributors and retailers, or even with their own brick-and-mortar
stores. They worried about spreading resources—human and financial—
too thin. And many found themselves mired in questions about whether
to charge sales tax online; currently, most charge for online sales only
in states where they maintain stores.
Overall, though, click-and-mortar companies are more likely to agree
with Brian Light, CIO for Staples, who expects the Framingham, Mass.based company's e-commerce efforts to earn $1 billion annually by
2003. Asked whether those revenues might come at the expense of
Staples' brick-and-mortar stores, Light says: "We'd rather cannibalize
ourselves than have someone else come in and do it."
In fact, many companies find that their e-commerce sites actually
drive traffic to their stores. At Sears.com, customers can do side-byside product comparisons before clicking to buy tools or appliances. But
many visitors use the site to gather information before heading to the
Sears, Roebuck & Co. at their local mall. "We hear story after story
about customers who go to the website, research what they want, print
it out and bring it to the sales associate," says Dennis Honan, vice
president and general manager of Chicago-based Sears.com. Because
customers walk in the stores knowing pretty much what they want,
salespeople can sell those drills, refrigerators and washing machines
much faster, he says. Website customers can also apply for a Sears
credit card, get instant approval online and apply it to the electronic
transaction in progress—or to any later purchase, online or off. Says
Honan: "Our mission is to make it easy for our customers to do
business with us, regardless of how they do it."
In other cases, stores drive traffic to sites. That's the idea behind the
nearly 200 Gateway Country brick-and-mortar stores, which let
customers test-drive Gateway computers online before ordering them
from the San Diego-based company.
And yet concerns about channel conflict remain. In a move that sent
shudders through the e-commerce world, Levi Strauss & Co. announced
in October 1999 that it would halt sales of its own products on Levi.com
and Dockers.com. The San Francisco-based jeans maker, which saw
overall sales slump by more than $1 billion between 1996 and 1998,
cited the high cost of running its award-winning sites even while
insisting that online sales had been strong. But its exodus from ecommerce neatly eliminated another problem: the aggravation of Levi's
retailers who worried that the website would draw customers away
from their brick-and-mortar stores and who resented the
—A. Stuart
America Online Inc.
(http://www.aol.com/)
Charles Schwab Corp.
(http://www.eschwab.com)
Egghead Software Inc.
(http://www.egghead.com)
Federated Department
Stores Inc.
(http://www.federated-fds.com/)
Forrester Research Inc.
(http://www.forrester.com)
Fort Point Partners
(http://www.fortpoint.com/)
Gateway Inc.
(http://www.gateway.com/)
Herman Miller Inc.
(http://www.hermanmiller.com/)
InterWorld Corp.
(http://www.interworld.com/)
J.C. Penney Company
Inc.(http://www.jcpenney.net/)
KPMG International
(http://www.kpmg.com/)
Microsoft Corp.
(http://www.microsoft.com)
Patricia Seybold Group
(http://www.psgroup.com)
Sears, Roebuck & Co.
(http://www.sears.com/)
Toysmart.com
(http://www.toysmart.com )
Vitamins.com Inc.
(http://www.vitamins.com )
manufacturer's ban on selling Levi's products on their own websites.
Levi's lifted the ban on at least two of its retailers—J.C. Penney and
Macy's—which both began carrying Levi's products on their websites for
the first time after the 1999 holiday shopping season. Herman Miller,
the Zeeland, Mich.-based office furniture company, faced similar bitter
complaints from its dealer and retailer networks when it began offering
direct sales online; employees at San Francisco-based Charles Schwab
feared losing their jobs when the company began offering cut-rate
stock trades online.
To survive, most companies will eventually sell their wares both
directly and through retail channels, offline and online, predicts Patricia
Seybold. "Customers want to buy direct," says Seybold, president of the
Boston-based consulting group that bears her name. She dismisses the
idea that companies can't effectively serve both online and offline
customers. "That's pre-web mentality, that there's a scarcity of
customers out there."
Ultimately, analysts say, any successful click-and-mortar business
boils down to two attributes. First: It must be transparent to the
customer. "Successful means seamless," Seybold says. Ideally,
customers should be able to shop when and how they want: online, in
a store, by telephone, by fax, by mail, even by e-mail.
Equally important: Everything must work perfectly. Success means
"providing a best-in-class customer experience, regardless of channel,"
says Ana Chau, KPMG International partner for customer relationship
management in consumer markets. In addition, all companies selling
anything online should know their customers' preferred channels,
"whether it's the web for teenagers, brick-and-mortar stores for families
or catalogs for senior citizens."
Often, companies must turn to outside partners to make sure they can
deliver what they promise. Customers of the Suffern, N.Y.-based Dress
Barn stores will soon be able to buy and return clothes and shoes in
any combination of channels: stores, online or through a new catalog.
"We're really trying to look at every aspect of the business and come
up with the most customer-friendly system we can," says Executive
Vice President David Jaffe. "Down the road, we want it to become one
giant [in-house] system." For now, though, the Dress Barn's "sevenfigure investment" relies heavily on third-party fulfillment for items
ordered from its catalog and website; the company also used an
outside web developer.
Combining clicks and bricks obviously involves establishing strong
customer call centers, superior data-mining applications and onsite
features such as personal shoppers and gift registries. But an increasing
number of companies are also using in-store technology to drive traffic
to their e-commerce sites. The most popular: web-based kiosks that let
customers and salespeople check inventory and order products right
from the sales floor.
At first blush, that may seem counterintuitive: Why offer ecommerce in the store? But proponents say kiosks make sales by
providing an instant information resource. At Sears, customers who
come in without printouts in hand can visit the website, find the right
drill or washing machine, then tell the sales associate: "See, this is the
one I was talking about." Salespeople can then check inventory to find
out whether and where the item is in stock. That can result in quicker
sales—particularly important for salespeople who work on
commission—because customers pretty much know what they want to
buy before even talking to a salesperson. Of course, sales associates
Yahoo Inc.
(http://www.yahoo.com )
Click-and-mortar retail efforts are
on the rise. Here's a sampling of
some projects in the works.
Best Buy, a Minneapolis-based
chain of consumer electronics
stores, lets customers check
the status of their service
requests online. A customer
who drops off an ailing
television set or computer, for
instance, can log in from home
to find out whether it's been
repaired and the latest
diagnosis of the problem.
W.H. Smith Co., the British
bookseller, began combining
physical and online sales in
December 1999. Customers
can order online and have
books delivered to their
homes, offices or any W.H.
Smith store, including those in
airports and train stations they
expect to pass through while
traveling.
Walgreen's Co. launched an
internet pharmacy billed as
being totally integrated with
the company's 2,800 retail
stores. Customers can place,
refill or transfer prescriptions,
can still add value by doing things the website can't: answering
questions, critically comparing features and demonstrating products.
And they can make sales that might have otherwise been lost. If
shoppers at some Bloomingdale's branches can't find exactly what they
want in the store, they can stop by a kiosk, search for the product
online and order it instantly, paying with a credit card.
Lids' stores, mostly located in malls and airports, tend to measure
only a few hundred square feet. No single store could possibly contain
the 10,000 different hats and accessories available from Lids.com.
Instead, each sells regionally oriented merchandise: Boston Red Sox
caps in New England, Seattle Mariners caps in the Northwest. A
Massachusetts customer looking for a Mariners cap can find the right
style and size on the store kiosk; a sales associate can then make the
sale, ordering the hat from the chain's Randolph, Mass., warehouse and
sending it wherever the customer wants. Or, working right from the
cash register, the salesperson can find the nearest store with the right
hat in stock and direct the customer there. Lids trains its retail sales
staff to refer customers to Lids.com for out-of-stock items, rewarding
stores with a percentage of all online sales.
Staples plans to put web-based kiosks with product catalogs in major
urban airports, Light says. That way, executives traveling to business
meetings or conferences can stop by the kiosk, order 100 folders or a
new laptop printer cartridge, then have them waiting at their hotels,
offices or homes when they get there.
"I don't care how customers get to us," says Jim Shanks, CIO of
CDW Computer Centers, based in Vernon Hills, Ill. "Our customers are
our customers, whether they come by fax, by phone, in our stores or
online."
Unquestionably, it's a major undertaking for an existing brick-andmortar company to get into e-commerce: Mary Modahl, vice president
of research for Forrester Research, estimates the cost of launching and
marketing a major e-commerce site to be at least $25 million to $50
million. But, she says, "I would argue that it's harder [for e-businesses]
to establish a physical presence nationwide." In addition to maintaining
a world-class website, most internet pure plays must develop the name
recognition of brick-and-mortar brands like Sears, The Gap, Wal-Mart
and Staples. It takes a tremendous effort for a web-based business to
build its brand both on the web and in the physical retail world.
That's just what Vitamins.com is trying to do. The Falls Church, Va.,
company started out as an online retailer. Then it moved into the mailorder business by purchasing L&H Vitamins of Long Island City, N.Y.,
automatically inheriting that company's product line and its 350,000
catalog customers. "We think it's cheaper to acquire customers by
buying a catalog and migrating those customers to the internet than by
making a portal deal," such as partnering with a search engine like
Yahoo or a service like America Online, says CEO Robert Haft (see
"Marriages of Convenience," Page 81). "They're already acquainted
with our products." The company combined all products from both
companies in its database, integrating that with the L&H warehouse
systems so that customers can find products quickly and have them
shipped the same day.
Finally, the company began opening Washington, D.C.-area retail
stores that, while clearly brick-and-mortar businesses, operate under
the Vitamins.com name. Each of the "demonstration stores," as Haft
calls them, sells a sampling of the company's products; like Gateway's
computer stores, they also contain web-based kiosks with product
check the status of a
prescription order and request
same-day store pickup or
request shipping to their
homes. In a passwordprotected secure area,
customers can enter their own
insurance information and view
their personal prescription
profiles online, getting the
same information retail
pharmacists use at the
counter. And Walgreen's says
the effort hasn't hurt
expansion plans: The
Deerfield, Ill.-based company
plans to open 450 more stores
by August 2000. By 2010, the
company says, it could have
6,000 stores in addition to its
internet presence.
information and ordering capability. But, he emphasizes, the web
remains the company's main retail channel. Stores are simply for
customer convenience and to promote the brand in hopes of steering
customers to the website.
Toysmart.com, an online toy seller launched in early 1999, opened a
brick-and-mortar store in its Waltham, Mass., headquarters several
months later. But its off-the-beaten-path location in a converted
hardware store between an auto-body shop and a liquor store—rather
than in a mall—shows that this particular toy store isn't just about highvolume sales. Instead, its physical outlet works like an ongoing,
informal focus group and showroom for new products. Like the
Vitamins.com outlets, Toysmart's offline presence offers just a fraction
of the 50,000 items available on the web; and like Vitamins.com, the
company maintains in-store kiosks. If customers don't find the right
game or book or doll or Lego set in the store, they can go right to the
web. Officials in the fast-growing company—which expanded from nine
employees in February 1999 to more than 300 before last Christmas—
also wanted to introduce themselves to the surrounding community,
including a public elementary school a block away. The store lets kids
and parents try before they buy. When something gets a lot of
attention in the store, it's a safe bet that Toysmart will soon beef up
promotions of the same item online too.
—A. Stuart
For all these click-and-mortar businesses, convergence hinges on
making sure information moves seamlessly between channels. Lids
accomplished that by synchronizing individual and retail store orders
with each other as well as the company's warehouse. Commerce
Exchange software from New York City-based InterWorld Corp. powers
Lids' free-hat loyalty program, Headfirst, which rewards customers
whether they buy online or in person. Customers can also tally or
redeem their Headfirst points and return merchandise to either place;
the website even explains how customers can measure their heads for
the best-fitting cap.
Working with Fort Point Partners, a San Francisco consulting and
systems integration firm, Lids also developed a cashless gift certificate.
The product, essentially a debit card, helps Lids reach its primary
audiences: kids and teenagers who can't yet buy online because they
don't have credit cards. Armed with a prepaid Lids gift card, kids can
order hats without borrowing Mom's Visa or hitting Dad up for a loan.
Lids' 50,000-square-foot warehouse serves both its 370 retail stores
in 42 states and its individual internet customers worldwide. The
company still relies on people to pick and pack the orders, whether it's
one Michigan State University cap for a Big Ten football fan or 92
Boston Red Sox hats for the store closest to Fenway Park. But Lids
claims a near-zero error rate in filling those orders, thanks to a barcode system that identifies every hat from warehouse arrival to
customer's head. Before Lids implemented that system, warehouse
workers filled orders by reading microscopic numbers off printed order
receipts, says distribution director Stephen Knauth. "The accuracy rate
on this was not the greatest in the world," he acknowledges. Now
employees use hand-held scanners to check bar codes every time a hat
goes into a box, whether it's for an individual customer or a store. If
the product selected doesn't match the order, the system refuses the
transaction.
From that perspective, Lids no longer distinguishes between its
retailers and its individual customers, Knauth says. "You are basically
just another store to me," he says.
That philosophy is a folksier version of Patricia Seybold's advice for
anybody aspiring to become a click-and-mortar contender: "Own your
customer's total experience."
Anne Stuart is a former senior editor at CIO.
It's everywhere now. But a year ago, nobody had used the phrase click
and mortar—at least not publicly.
Credit for coining the term generally goes to David S. Pottruck,
president and co-CEO of San Francisco-based Charles Schwab & Co.
Pottruck used the catchy phrase in a speech at an internet conference
in July 1999 as he described the discount brokerage's successful efforts
to coordinate all its services so that customers can trade stock online,
in person at its walk-in retail branches or by telephone, either using an
automated touch-tone system or by talking to a call center
representative.
In his speech, Pottruck predicted that future business success will
hinge not on pitting brick-and-mortar companies against online-only
efforts, but in successfully integrating the two. After all, Pottruck
observed, "We're all embedded in the real world." And since then, clickand-mortar has quickly evolved into a cornerstone of netspeak,
indicating, in Pottruck's words, the marriage of "the best of the physical
world and the best of technology."