How REI scaled the e-commerce mountain

When outdoor equipment retailer REI wanted to boost in-store sales, the company looked to its Web site. In June 2003, REI.com launched free in-store pickup for customers who ordered online. The logic behind that thinking: People who visit stores to collect their online purchases might be swayed to spend more money upon seeing the colorful displays of clothing, climbing gear, bikes and camping equipment.

REI's hunch paid off. "One out of every three people who buy something online will spend an additional $90 in the store when they come to pick something up," says Joan Broughton, vice president of multichannel programs at Kent, Wash.-based REI. That tendency translates into a healthy 1% increase in store sales.

As Broughton sees it, the mantra for any multichannel retailer should be "a sale is a sale is a sale -- whether online, in stores or through catalogs." The Web is not simply an isolated channel with its own operational metrics or exclusive group of customers. As the Web has matured as a retail channel, consumers have turned to online shopping as an additional place to interact with a retailer rather than as a replacement for existing channels such as stores or catalogs. For example, Jupiter Research predicts that online sales in 2008 will total $117 billion, which is only 5% of total retail sales; but the New York-based firm also estimates that 30% of off-line sales will be influenced by research that consumers conduct online. That means retailers will need to leverage their online properties in ways that are synergistic and complementary to their off-line operations.

Adopting a complementary strategy means focusing on "the continuum of the shopping process," says Jeff Schueler, founder and CEO of Usability Sciences Corp., an online usability-testing company based in Irving, Texas. The Web has evolved to become an important part of the shopping continuum, and smart retailers such as REI have mixed IT and marketing to maximize its complementary role.

To effectively leverage the channel continuum, companies must pay close attention to why people are coming to their Web sites. Most shoppers, Schueler says, follow a predictable sequence of steps before they make a purchase. Making a purchase is really the culmination of the shopping process. The first steps -- information gathering and price comparisons -- are ideally suited for the Web. In fact, 86% of the people who visit online retail sites do so only to gather information, comparison-shop, get coupons or conduct self-service tasks such as paying bills or checking the status of an order, according to Schueler. Only 14% of online shoppers make purchases on the Web. Any given Web site should therefore not be considered an endpoint for shopping.

At REI, a cooperative with 2 million members, many products for sports such as climbing, mountain biking and skiing are technical. Customers not only want to research before they buy; they also want to try before they buy. To that end, REI views the Web site both as a sales channel and as a vehicle for driving shoppers to stores. Free in-store pickup for online orders is a strategy specifically designed to get people into the stores.

And to make that strategy as cost-efficient as possible, the company uses the same trucks that restock its stores to fulfill online orders slated for in-store pickup. To make this work, REI had to integrate order information from the Web site and replenishment orders from stores at its distribution warehouse in Washington state. REI.com uses IBM's WebSphere e-business platform running on an RS/600 with an Oracle database that interfaces to an AS/400-based order-processing system that's used throughout all REI operations, including the store replenishment process.

In and of itself, integrating the two types of order information wasn't complex, says Brad Brown, REI's vice president of information services. What was difficult, however, was coordinating fulfillment of both online and replenishment orders because "orders placed on the Web [by customers] are nothing like replenishment orders that stores place," he says. Online orders are picked from the warehouse at the time of the order and then put in a queue until the appropriate truck is loaded, whereas store orders are picked by an automated replenishment system that typically picks orders at one time based on either a weekly or biweekly replenishment schedule.

To make in-store pickup a reality, Brown's group wrote a "promise algorithm" that informs customers of a delivery date when they place an online order. Timing can get tricky when orders are placed the day before a truck is scheduled to depart the warehouse with a store-replenishment delivery. For example, if an online order is placed on a Monday night and a truck is scheduled to depart Tuesday morning, the system promises the customer a pickup date of a week later, as if the order would be placed on the following week's truck. However, REI will shoot for fulfilling the order that night; if it can do it, both REI and the customer are happy because the order arrives sooner than promised.

REI has also expanded its multichannel philosophy to include services. In February, the company launched an integrated gift registry that allows people to set up gift lists and enables their friends and relatives to purchase requested items in any retail channel. The registry also allows consumers to post messages to other site visitors, seeking information or specific, hard-to-find products. Customers can create a gift registry in one of two ways: They can use a kiosk or scan products with a handheld device. They also have the option of registering for gifts by calling customer service or going through REI.com. Once a registry is set up, REI sends e-mails to a designated list of recipients, complete with a link to a personalized registry page. According to Brown, the registry is a way to expand sales among consumers who don't traditionally shop at REI.

Creating effective business-to-consumer retail Web sites entails more than simply calculating sales figures. It involves delivering the functionality that users expect and using the site to drive sales through other channels. And only IT integration can make that happen.

This story, "How REI scaled the e-commerce mountain" was originally published by CIO.

Copyright © 2004 IDG Communications, Inc.

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