Pulling It All Together

by Carol Sliwa

January 4, 2001 —

The Holy Grail for any multichannel retailer is to unify its brick, click and catalog systems to create a smoother and more satisfying shopping experience for customers.

But J.C. Penney Co., which has struggled to differentiate its product set and grow profits in its retail division, is discovering that the quest can be a long and challenging ordeal. The Plano, Texas-based retailer recently launched several ambitious projects, including one aimed at integrating customer data and another at managing product content uniformly across all three of its channels.

Unified customer records can help retailers learn more about their customers so they can cross-sell, upsell or directly market additional merchandise on an individualized basis. At the checkout counter, a sales representative might draw attention to brands that a customer favors, or a Web site might be configured to spotlight preferred product lines.

Having an enterprisewide content management system will help J.C. Penney offer all of its more than 200,000 stocked items on its Web site and ease trichannel marketing and merchandising work.

Expensive and Time Consuming

But piecing together a complete multichannel customer history and creating a companywide content management system requires retailers to tie together a plethora of disparate systems, such as databases that house pricing, product, content and legal information. And that integration work can be expensive and time-intensive.

J.C. Penney's effort to identify and pull together information from some 60 databases has stretched completion dates for the projects to next year's holiday season, and "extremely large enterprisewide projects cost upwards into the tens of millions of dollars if they're done right," says Ron Hanners, executive vice president of technology and infrastructure at JCPenney.com. Hanners declined to provide specific spending figures.

"These are mammoth projects. They span years. They span very dynamic teams, working around the world on developing this," says Hanners. "It's pretty overwhelming. I don't think at the beginning we would have even started this project had we thought it was this big."

Industry analysts say J.C. Penney may have no choice, given that competitors are working on similar projects. If J.C. Penney doesn't do the work, it could soon find itself trying to play catch-up.

"Retailers know that a customer who shops in more than one channel spends four times as much as a customer who shops in one channel. So that makes multichannel integration crucial," says Cathy Hotka, vice president of IT at the National Retail Federation, an industry trade group based in Washington.

Adam Sarner, an analyst at Stamford, Conn.-based Gartner Group Inc., says he estimates that 40% of multichannel retailers are currently developing aggressive customer relationship management strategies, recognizing that customers expect a consistent experience across all channels. "A bad experience from JCPenney.com can knock out J.C. Penney stores," he says.

Financial Risk

But such multichannel projects aren't without financial risk for established retailers running on thin profit margins. Wall Street demands profits, and the Web channel represents only a small percentage of sales for J.C. Penney and other multichannel retailers. Sales at J.C. Penney's WWeb site are on track to triple to $300 million this year, yet that's only a drop in the bucket compared with the $19 billion that its stores and catalog sales are expected to generate.

Whether the multichannel integration work will pay off remains an open question. Gaining a better understanding of customers based on their past buying behavior certainly sounds like the right thing to do. But Michael Szego, a consultant at J.C. Williams Group Ltd. in Toronto, warned that J.C. Penney's return on investment (ROI) likely will be calculated over tens of years.

Hanners acknowledges that preliminary studies show the prospects for a speedy ROI to be "sketchy at best."

"We predict the unified purchase history will be valuable and give us some lift in the business," he says. "But what you never know until you put it in place is if it's business that you'd already get or if it's incremental growth. The thing you're searching for all the time in retail is growth and profitability."

The projects come at a critical time for J.C. Penney. Profits for the company's retail outlets and catalog operations have plummeted nearly 50% from $1.275 billion in 1997 to $670 million last year amid fierce competition for consumer dollars.

Offering Everything Online

One reason the J.C. Penney content management project is so massive is that the online arm decided to offer all the merchandise its stores stock through the Web site. The number of stock-keeping units (SKU) averages 260,000 in any given week; with extended assortments, it could balloon to 500,000 by the end of next year.

None of J.C. Penney's "well-paid, top-quality advisers thought we should put all [SKUs] online," acknowledges Hanners. "Inside the company, if you're a technologist and you have to marshal all that content, guess what? You don't want to either."

But ultimately J.C. Penney viewed the Web channel as an integral part of its core business strategy. "Our customers want choice, convenience, selection and affordability," said Paul Pappajohn, president of e-commerce at J.C. Penney.

Hanners says he estimates that the company will have to boost its staff between 25% and 40%, through contracted labor, to do the necessary work to create a single customer history. Rather than create a massive new database to manage, J.C. Penny is working with consultants to design an architecture that will let browser-based applications pull data from existing databases, says Hanners.

Despite the cost, cross-selling and decreasing customer turnover by even a small amount should add revenue to the bottom line, Sarner says. "These things don't happen overnight," he warns, "but you're giving the consumer more and more connections and easier ways to deal with you, and that's going to work in the long run."

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