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REI Speedwagon

The sales figures for 2004 are in, and e-commerce is on a roll. Online retail spending soared 26 percent last year, to $66.5 billion, according to business analysis and advisory firm Jupiter Research. That’s 4 percent of total retail spending—compared with nothing about 10 years ago, and with 3 percent in 2003. By 2009, Jupiter predicts, online spending will reach 6 percent of total retail sales.

But that’s just a small part of the e-commerce story. Last year, another $355 billion in retail sales took place in physical stores after consumers had done their homework online. Overall, says Jupiter, for every $1 consumers spend online, they spend $6 dollars offline as a result of research conducted on the Internet.

That’s why retailers want to find better ways to exploit the many ways in which people shop, so that customers research and buy from them, not their competitors. “It’s a leaders-and-laggards thing,” says Jonathan Reynolds, director of the Oxford Institute of Retail Management at the University of Oxford. “In nearly every country, you’ve got one or two particular companies that are ahead of the game. The message to the laggards is, you better have a good story or else risk losing market share to those firms who are setting the multichannel standard.”

Few companies are better at such integration than REI. Case in point: in June 2003, the company began offering customers the option of ordering products online and picking them up at stores. The concept grew out of an examination of the in-store Web kiosks that REI began using in 1998. The kiosks had proven a good source of product information to supplement what the sales staff could provide, but customers also used the kiosks to place orders when stores didn’t have items they wanted—which meant they would have to pay shipping costs for the goods they had just come into the stores to buy. Says Joan Broughton, REI’s vice president of multichannel programs, “You don’t want people to feel penalized by the fact the store doesn’t happen to carry that item they’re looking for.”

Providing in-store pickup seemed a good way to minimize that frustration, and also to serve other online customers leery about paying to have, say, canoes delivered to their doors. Still, REI trod cautiously. The program wasn’t advertised, so shoppers found out about it only when it came time for checkout on the REI website: in-store pickup was offered alongside shipping options. REI had 66 stores at the time. On the first day, 60 of those stores received pickup orders. Today, such orders are trucked out of REI’s central warehouse on distinctively colored pallets and are packaged in special dot-com wrapping, so that when a shipment arrives at a store, employees can easily tell what should be held for customer pickup.

When an item comes in, its bar code is scanned to register its arrival. An e-mail notification is sent to the buyer. During a normal week, 600 products ordered online come into REI’s flagship store. Over the holidays, says Thorson, the number is four times that. That represents $2.2 million, about 4 percent of annual store sales. But online customers who choose to pick up their orders in stores spend an average of $30 more once inside.

The principle behind REI’s approach—understand what people want and use technology to make shopping easier— is recognized by retailers worldwide. Change, however, has come slowly. Many companies set up online stores in the mid- to late 1990s, often building proprietary systems that were not integrated with other parts of their operations. Later, harmonizing operations seemed expensive and difficult. It’s only since the economy has improved that some retail executives have been investing more heavily in integrating their sales channels.

In the labs and strategy rooms where the next generation of e-commerce is being shaped, firms are looking at new ways to use technology to become more profitable. Here’s a look at what’s in the works.

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Tagged: Business, Web

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