April 2005

E-Commerce Gets Smarter

By bringing new Web technologies into their stores, retailers are changing shopping in ways no one expected.

By Robert Buderi

Visit the REI flagship store in downtown Seattle for the first time, and you'll stop in wonder. On the grounds surrounding the store, which spans an entire block of otherwise ordinary urban landscape, a hiking trail and mountain bike test track meander around a waterfall and brook. Inside the main entrance, a 20-meter-tall rock climbing pinnacle looms over shoppers. And on the shelves and display stands that sprawl across two gigantic floors of retail space are stacks of backpacks, hiking boots, canoes, kayaks, tents, jackets, and just about every other outdoor clothing item or accessory you can name. You feel younger, stronger, and more ­adventurous just being here.

On any given day, somewhere between backpacks and winter socks, a man and a woman who are soon to be married will be roaming the aisles. One will be carrying a handheld device about the size of a cell phone and pointing it at something he or she likes. The device is an infrared reader: push a button, and a laser beam reads the bar code of the targeted item. When the reader is synched with a specially equipped cash register, the item is added, instantly, to the couple's online REI gift registry. Eric Thorson, operations manager at the store, smiles when he thinks about the couples he's seen. "We have one scanner per couple, and we'll have the future wife run upstairs to women's clothing, and [the groom] wants to be downstairs in the climbing department picking out an ice axe," he says. "It's almost like it becomes the ultimate shopping adventure for the two of them rather than thinking about what would be a practical wedding gift." The scanner can record some 300 items, but, Thorson notes, "I've seen scanners come back that we have to upload and send back out because they filled the memory."

It may seem strange, but those couples traversing the aisles—downloading, uploading, and somehow fusing in-store interactions with website maintenance—are the future of e-commerce. Other retailers provide similar scanners, but the resulting Web registries must be manually ­updated. REI is one of those making e-commerce far more interactive—automating updates and using the Web to make registries available to all its stores and business channels.

The benefits for REI customers are real. Any customer can view the registry, either at an in-store kiosk or online. And if an item is purchased—whether through mail order, over the phone, on the Internet, or in any of REI's 77 stores—the list is instantly updated at all those locations. Customers can buy online but decide to pick up or return at a store. Discounts are the same in all locations, and every item offered on the Web can be ordered through the store or catalogue, and vice versa.

The business jargon for this model of integrated retail sales is "multichanneling"—that is, fusing digital services with in-store, mail-order, and telephone sales, and with any other retail channels. The dige­rati have called it "clicks and mortar" since the Internet boom of the 1990s. No matter the term, it is now the driving force in retail. For while the Internet works fine for some types of goods—such as books, computer products, and music—many shoppers don't want to purchase and pay shipping costs for things like canoes, cars, clothes, and entertainment systems without trying them out, trying them on, touching them, or maybe even talking to a knowledgeable salesperson.

New technologies and ideas are allowing retailers to remove the wall between online shopping and in-store shopping, and to make the gathering of customer data both easier and more valuable. Advanced data-mining and Web analytics techniques now examine not just what you bought online but what you viewed, helping retailers design promotions that will entice you to shop online and in stores. These enticements will themselves arrive over multiple channels—through magazines, regular mail, e-mail, the Web, and wireless transmissions to your car or shopping cart. By looking at just a few of a customer's purchases, a retailer will even be able to predict how much she'll spend over her lifetime, and adjust the deals and promotions it offers her accordingly.

The ultimate goal is more-customized, personal service. The best retailers have always striven to provide the most-­tailored service possible; however, as more and more retailers expand nationally and even internationally, building close relationships with customers is increasingly difficult. "Retailers can't do that now because they have millions of customers all over the country," says Dan Hopping, senior consulting manager for IBM's Retail Store Solutions Division. "So they use technology to make the connection."