Online retailers have been as busy as Santa's elves in their efforts to spruce up company Web sites in time for...
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a busy holiday shopping season. But you wouldn't know it to look at them.
That's because the technological changes to their Web sites -- while complex and designed to enhance the online shopping experience -- are mainly taking place behind the scenes and are largely transparent to the holiday shopper.
These back-end changes, which involve everything from search engine optimization to implementation of the latest order fulfillment software, show that online retailers -- or e-tailers -- have shifted their focus from flair to functionality in the ongoing drive to increase sales.
"These days, [shopping] on the Web is all about finding it, getting it and getting out," said Cathy Hotka, principal of Cathy Hotka & Associates, a consulting firm that works closely with the CIOs of several Fortune 1000 retailers. "It's quick. It's functional. It's predictable. Basic is better."
And that is a key lesson, as the channel continues to grow in importance for the retail industry. This year, research firm ComScore Networks predicts that Web site purchases will total between $15.1 billion and $15.5 billion this holiday season, up between 23% and 26% from November and December 2003. That compares to overall industry growth estimates of less than 5%, according to National Retail Federation figures (see sidebar).
Overall, Web sales make up about 2% of all retail revenues. In the third quarter, the U.S. Department of Commerce tallied e-commerce sales at 1.9% of total retail sales.
From frilly to functional
In the early days of e-commerce, online retailers often relied on the "gee-whiz" factor to attract customers. Bandwidth-consuming gimmicks like Flash movies, music and other stimuli were staples of company Web sites. Eventually, experts said, these novelties grew old and the public's patience for them wore thin.
Today, industry players said e-tailers are more focused on what it takes to build long-term customer loyalty. As a result, they are providing customers with cutting edge online shopping capabilities in the context of a highly streamlined and secure shopping environment.
"When the Internet started, everyone decided that they wanted to do all kinds of little gimmicky things," said Schmuel Gniwisch, CEO of Ice.com, an online jewelry store based in Champlain, N.Y. "We did this a long time ago and came to the conclusion that (gimmicks) are too expensive. They aren't user-friendly, there is not enough broadband out there and let's just get down to selling."
To be sure, many e-tailers are continuing to add some new options for online shoppers that might be considered flashy, including virtual clothing models and three dimensional, multi-angle views of merchandise. But back-end projects are more commonplace.
Case studies in online enhancement
Ice.com processes anywhere from 3,000 to 8,000 transactions per day. Yet a project last year confirmed that the site's search engine capabilities were lacking. Using a traffic analytics tool called Visual Site from McLean, Va.-based Visual Sciences LLC (which costs about $100,000 per year), the company learned that customers often left the site after getting inaccurate product search results, Gniwisch said.
That information led Gniwisch and his staff to Celebros Inc., a search technology vendor in Santa Barbara, Calif., for a complete overhaul of Ice.com's search engine. Today, the search engine has been completely improved. Gniwisch said customers are now getting better initial search results and can then narrow their search by inputting certain specifications such as size or price range. These enhancements have resulted in a 30%-40% higher conversion rate of browsers to buyers, he said.
"The objective really is to empower the shopper a little more, to make the experience more user-friendly, so that they don't have to go elsewhere," Gniwisch said. The new search technology is expected to cost Ice.com between $20,000 and $25,000 per year for licensing and service.
Last year L.L. Bean also learned some hard lessons about online sales during the holiday shopping season.
"Last year, we had a record-setting December," said Rich Donaldson, spokesman for the Freeport, Maine, company. "In the process, we felt like we fell down a little bit on our service, just in terms of our ability to respond or, in some cases, to accommodate peak volumes."
This year, the company, which also has a large catalog business and plans to grow its number of bricks and mortar stores, has taken steps to expand CPU capacity to handle spikes in demand.
While the company prefers not to go into too many technical details, Donaldson said, L.L. Bean also has added some new customer-facing technology to its Web site, specifically a new virtual "save for later shopping bag."
"Our corporate mantra this year is to focus on service," Donaldson said.
More e-tailer trends and their IT implications
Just like L.L. Bean, industry analysts and online retailers said the best service requires a seamless cross-channel relationship with customers. This means that all facets of an organization must be connected in real time, including but not limited to the online establishment, the bricks and mortar store and supply chain.
"Everyone is striving to be a multi-channel retailer where their channels are working together, not separately, and they're supporting and complementing one another," said Scott Silverman, executive director of Shop.org, a division of the national retail federation that focuses on Internet and multi-channel retail.
Once this holistic approach to the business is implemented, analysts said, e-tailers are free to offer more comprehensive services, such as enabling consumers to order products online and then pick them in the nearest store. Yet while that capability sounds simple enough, a great deal of back-end technology and business process improvement needs to happen before it can be implemented.
"From a technology standpoint, retailers need to have much better view of their inventory across the entire chain, including their distribution centers and their suppliers," said Rob Garf, a retail analyst with Boston-based AMR Research Inc. "It needs to be real time and provide visibility across the entire chain, so that when the customer buys a specific product and goes into the store to pick it up, the product is actually there."
Another trend in the online retailing industry is the move toward highly detailed product catalogs that allow consumers to research and compare products from different manufacturers. Garf said getting a project like this off the ground requires business process improvements in areas such as content management and data synchronization.
"It's about getting robust and clean product data directly from manufacturer partners, so that info can be transferred to the retailer and then stored in some sort of product information management system," Garf said. "Then those front-end applications and other applications can access that data information."
In the end, Garf reiterated that the key to achieving business process and technology alignment is taking a holistic approach to all retail operations.
"It's all about multi-channel retailing," Garf said. "Retailers that are just focused on their online operations without understanding the greater context of the multi-channel environment are going to lose customers."