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JULY 2008

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  1. JULY 2008 No Retreat! Investing in eCommerce, Despite the Times

  2. Welcome! • The webcast hosted by Acquity Group, featuring Lauren Freedman of the e-tailing group will begin shortly, • No Retreat! Investing in eCommerce Despite the Times • General Reminders: • Audio dial-in: 1-866-682-6100 • This is an operator assisted call, all lines will be automatically muted • Q&A will be taken through the web and answered at the end of the session • Concluding the session, you will receive an email with a link to download the full whitepaper

  3. About Acquity Group • Providing comprehensive solutions for our customers since 2001. • End-to-end provider of strategy, technology and design solutions • Headquartered in Chicago with regional offices in Irvine, Scottsdale, Overland Park, and Dallas • Seasoned professionals with an average 10 years of experience • 70% CAGR, privately-held and profitable • More than 300 customers

  4. 14 years eCommerce consulting Author, It’s Just Shopping 50+ years traditional retail and catalog experience Fortune 500 client projects ranging from strategic planning, merchandising, marketing, to technology development and messaging Proprietary research studies on mystery shopping and merchandising, marketing and EMC (Evolving Multi-Channel Consumer), In-Store Pickup and Gift Registry eCommerce expert and frequent speaker at industry events, trade associations About the e-tailing group

  5. e-tailing group Methodology and Project Goal Macro State of Retail Defining and Driving your Multi-Channel Strategy Investing in eCommerce Roadblocks to Success Commitment to eCommerce Executing Key Tactics Readying your Company for Performance Checklist Agenda

  6. Project Goal • Understand where merchants stand on critical multi-channel • and eCommerce questions • Are you truly committed to eCommerce? • Are you concerned you don’t have the right investments planned? • Will you have the guts to make the necessary investments in the tough times? • Is your eCommerce hampered today based on your legacy systems? • Will you have the ability to evolve your multi-channel efforts in a timely fashion to keep pace with best-in-class merchants?

  7. No Retreat Research Methodology Conducted one-on-one interviews • Questionnaires and in-depth interviews with 24 merchants specifically for this report Integrated research from the e-tailing group 7th Annual Merchant Survey • 1Q 2008 • 200+ senior executives with eCommerce responsibility • America’s Gardening Resource • BeallsFlorida • Borders • Chicos • Circuit City • Crutchfield • eBags • Famous Footwear • Godiva • Golfsmith • GSI Commerce • JCPenney • Orvis • Petco • Peets Coffee & Tea • REI • Sephora • Sports Chalet • Sports Giant

  8. Macro State of Retail: eCommerce forecast • Q1 2008 online sales up 13.6% to $33.79 billion • Outpaced 2007 total retail sales growth of 3% • 2008 eCommerce sales to reach $158.3 billion up from $136 billion in 2007 • 2007-2010 average annual growth 12% • Currently 193 million US Internet users (2/3 of population) • New consumers coming online projected to be just 3.1%

  9. Conversion Rates Remain Flat • Average 2-3 range • Relative to last year merchants saw somewhat higher conversions (45% vs. 35% LY while (24% vs. 35% LY) were about the same)

  10. Senior Management Satisfaction is Waning • Maturing channel; Flatter growth • 45% Somewhat satisfied • 37% Very satisfied

  11. Limited Resources Devoted to eCommerce • Staffing is not increasing commensurate with channel growth

  12. How would you define your multi-channel selling strategy andhow high of a priority is this strategy relative to other initiatives? • EG Reports: • Multi-channel efforts centered on the critical role, high priority, and significant status that multi-channel has attained in most organizations

  13. Multi-channel is an Ongoing Concern “It is less of an initiative and more of anongoing business concern. We continually ask ourselves, ‘How is this accessible across all of our channels?’ It'spart of our DNAwhere we allow the customer to make choices about the channel rather than forcing them to behave in a way that does not suit their needs. Knowing that, we’re hard pressed to see value in a single channel mindset.” Golfsmith, VP Marketing & Brand “The multi-channel strategy is ongoing and is institutionalizedat this point where multi-channel is our first view. Five years ago we had our silos and subsequently also bit the bullet on Nexus. It’s no longer an item on our to-do list, but something we feel we’ve accomplished where we‘drink the kool-aid’ every day.” Orvis, VP, Global eCommerce

  14. Value Extends Beyond Sales “It is an incredible conduit forcommunicatingwith our customers about our brands.” Chico’s, Director of eCommerce

  15. Customers Demand a Multi-channel Orientation “Multi-channel means delivering an enterprise-wide approach to serving our customers in a way thatmakes sense to themandleverages our channels in the way customers want to shop. It is certainly a priority given today’s eCommerce environment...It is part of our overall strategy but mustmake sense for the customerwhere innovations are always aboutsolving a problem. As customer communication evolves and we see shifts in media consumption, we want tounderstand her concernsand make the necessary adjustments. We also have to befocused; while we cannot pursue it all, understanding these customer insights, along with what our solutions can help them do, leads us in the right direction.” JCPenney, Vice President, jcp.com

  16. Maintaining High Priority Status Impacts Performance “The imperatives that made sense in the high growth days may no longer be appropriate in a period of economic weakness. Because of this, we may need to redirect our marketing and IT resources to efforts that we believe will produce better results. The onus is on our team tocontinually prove-out the eCommerce potential and bottom line contribution, then the investment will likely follow suit.” BeallsFlorida,VP, Advertising & eCommerce

  17. Cross-channel Vision Moves Beyond Multi-channel “We don't call it multi-channel but instead refer to our efforts ascross-channel. We feel that ‘multi-channel’ just means more than one channel whereas ‘cross-channel’ is bringing together thestrengths of each channel to create a better overall experience. It’s an extremely high priority where if done right it’s ourbest chance of competing and winning.” Borders, VP eBusiness

  18. Cross-channel Vision Moves Beyond Multi-channel “Multi-channel is still very important; internally the online channel isone of our eight key initiativesand areas of growth for the company. The company supports this position viarequisite investmentwithseamless executiona selling point for shoppers. There is a top-of-mind awareness of how to use the channel where we are continuallyreinforcing multi-channel thinking. For us it’s not just about selling, we see ourselves as‘channel-less’so consumers can get information or conduct commerce and have a very consistent seamless experience as weadopt the best elements from each channel.” REI, Online Sales & Merchandising Mgr.

  19. It Must Be a Competitive Advantage “More than half the orders placed online are picked up in store.It's all about the storerelative to how we compete against pure-plays. We're successful becausewe can make it seamlessfor the customer, but we understand ‘it's a ‘journey’ to get there. We can’t change consumer behavior and the‘right away’ factoris always there with the customer wanting the reward.” Circuit City, Director of Web Sales & Operations

  20. Yet, for a Few The Store is The Focus “Our job is to make it simple and easy for customers to access and enjoy Peet’s no matter what their shopping preferences are. As a historically regional business, we see our strongest growth in the grocery channel as we open distribution in entirely new geographic regions. This has impacted the online business resulting in flat growth.” Peet’s Coffee & Tea, GM, Home Deliver

  21. Who drives your multi-channel strategy? • EG Reports: • Collaboration is an ideal way to drive eCommerce as when all parties are invested through contribution and impacted by results, the right strategies can be put into place

  22. Who is Driving Your Multi-channel Strategy? • Strategy often starts with the CEO, likely based upon growing contribution to company revenues.

  23. Collaboration & Team Efforts are Clearly in Place • The other dominant answer was a team effort – with CEO involvement; feedback on such a strategy including merchant-specific nuances follows:

  24. Knowing your eCommerce growth relative to traditional store business, what impact will that have on investment in people and technology to support the eCommerce business? • EG Reports: • Requires forward thinking merchants who realize multi-channel investment is fundamental to overall retail growth

  25. Investments in eCommerce are Strong, Despite the Economy “We'regrowing our web business fasterthan the rest of the company and we continuously strive to understand what it would take to drive eCommerce even faster.” -Golfsmith “We’re not in competition with the retail guys for funds; we're stillinvesting where we think business can pay off.” -Orvis

  26. The Reality of Tough Retail Times Forces Smarter Decisions “We have learned over time an online acquired customer is just as strong as offline. Withcatalog costsbecoming more andmore prohibitivewe are investing more in thechannel that can best deliver"the contribution" we need though it’s always amoving target. At the end of the day, we always want toget smarterabout how to spend our next marketing dollar.” -America’s Gardening Resource “We need more people but converselylost employeesin a recent lay-off.” -Specialty apparel merchant

  27. Store Requirements Depend on eCommerce Investment “Todayhome delivery is 3-4%of company transactions as a result of astore visit. Not only do we like to but we need to get this business. Multi-channelmaintains its position as a high prioritywhere we’re able to secure a greater investment for the web in terms of both dollars and people which we believe is very unusual in these tough times.” -Famous Footwear

  28. Investments are Heavy in IT “Today IT employs 40 people versus just 9 people three years ago. Thinking has evolved where they are continually evaluating outsourcing some technology, which was done infrequently in the past with their build versus buy mindset. There are inherent challenges.” -eBags

  29. Timing is Everything “New ideas and strategies require investment and we canget more growthout of the business byextending the profitabilityof this channel. At Sephoraeveryone understands the payoutand sees the opportunity so now it’s time to get the tools, especially those centered onClientelling, in place.” -Sephora

  30. Continual Reassessment of Investments is Critical “An annual growth rate of 30% has allowed us tomove from basic tools to more evolvedtechnologies and from manual efforts to those that are automated. …recent and continuing investments were needed, as we'veoutgrown much of our technologyand need a robust and flexible commerce platform. Our business has reached the stage where can no longer manage with lower level investments in technology. Our teamcontinually evaluates toolsuntil we're ready to deploy, as we are doing with both new email and analytics systems this year.” Sports Giant, CEO

  31. What are your biggest internal roadblocks relative to advancing your multi-channel agenda? • EG Reports: • Roadblocks of time, money, and resources will likely continue unabated

  32. Understanding TCO is Imperative “Money is a factor in every business, including multi-channel selling. People do not always have an accurateunderstanding of how much money, effort, and time are required to truly be multi-channel. We believe our direct business can do anything, but inevitably something else will certainly suffer.” -Godiva

  33. Needs Outpace Knowledge “We alwayswant to do more; more user functionality and more ways to better merchandise for the customer. Any time one is dealing with systemsit takes longer than estimatedso it will always be a matter of prioritizing initiatives against one another.” -Orvis “There’s an uncertainty and‘fear of the unknown’regarding the growth path for the online business – many knowledge voids exist. Given thenewnessthere isnot enough collective experiencefor organizations to be confident with their web strategies and investments and it’s afast movingand constantly changing environment to deal with.” -Sports Chalet

  34. IT from Systems to Sophistication Pose Challenges “Many of our needs are in place, so now we have to figure out how togrow content and community onlineto maintain our competitive advantage. We continually struggle with the issue of doing thingsinternally or leveraging a third party, our preference has leaned internally. We prefer thatcontrolbut will testthird partyproviders as they arequicker to market and often best-in-breed.” -REI “All roads lead to IT. We have needs toquality assureand small things can often turn into big issues. We’remulti-countrynow where platform changes impact every location. It becomes a classic case ofprioritizationas the entire company (120 people) needs to bein sync. In the past we prioritized pet projects that were not necessarily in the best interest of the company but it is essential to remain focused. It’seasy to lose controland tohave silosso we’re continually working on this challenge.” -eBags

  35. Ultimately Merchants Make a True eCommerce Commitment “There are many aspects to commitment. It’sfinancial,mindset, andteamworkand it will take all three combined to make it happen.” -Borders “Multi-channel takes serious commitment with continued strong investment and to succeed as a companywe have to keep putting money where our mouth is.” -Chico’s

  36. What level of commitment do you believe is required to compete with the best in your category? Are you ahead? Behind? • EG Reports: • Commitments vary based on business strategies, eCommerce evolution and category competitiveness

  37. Be Smart About the Investments “JCPenneyleads our competitor set– In fact, we have the largest home and apparel site on the Internet. Yet wecontinue to make progressenhancing the customer experience and usability of the site. Thanks to ourcatalog business, however, we are ahead of our competitors in areas such asfulfillment.” -JCPenney “It’s essential in these challenging times that we continually get smarter about our investments anddo the required due diligence.” -Beall’s “Retailers must recruit and invest in people to be successful although the expense is substantial and good people take time to find.” -Sephora

  38. Being a Brand Counts “We're behind, but we have astrong, established brandso in some ways we're actually ahead. Today we could benefit from an expanded assortment, evolved functionality, and new technology.” -Godiva “We have abrand and store to fall back on. Pure-plays are pushing ahead and we’re behind in terms of having a true community site but know that keeping up will be essential.” -REI

  39. Be Smart About the Investments “We’re 100% percent committed;communication and understanding internallyare essential to our success. Prioritization must be crystal clear where half our initiatives are focused on theconversion rateand the other half arecustomer focused. We know what we need to do and now mustnail the execution.” -eBags “Even though you're a smallspecialty store, your customer is also buying on Amazon, Best Buy and Netflix.Consumers don't cut you slack regarding technologyyou don't have; they hold every site to the samedemanding standardsso even smaller merchants must have a certain threshold level oftechnology commitment. With that in mind, we're constantly working to bridge the gap as best we can.” -Sports Giant

  40. On a scale of 1-10 how aggressive will you be in 2008 with your Commerce investments? • Answers broke out into very distinct groups: The Aggressors The Funders The Hopeful Investors

  41. Merchant Funding Chart

  42. Where do you see your main inefficiencies in your current eCommerce platform? • EG Reports: • Inefficiencies centered on content management, flexibility, and admin tools and beyond that they tended to be unique to each merchant

  43. Top 10 Technology Inefficiencies

  44. What is your technology prioritization process? How often do you review the investments being made? • EG Reports: • Annual efforts were a standard though the pace of the industry pushed merchants to review their priorities throughout the year

  45. Technology Prioritization Process Most Often Annual • The chart below shows merchants review and prioritize technologies on an annual basis with some adhering to a multi-year roadmap. • Given the pace of the eCommerce industry and impact of any given technology, 1/4 of the merchants more actively monitor efforts to ensure they have made the right choices for the remainder of the budget cycle.

  46. An Annual Review is Essential “We follow anannual cycle; preparing a wish list in the fall via afull day of brainstormingwith our entire department. It’s essential for us to continuallyre-evaluate the list, assessing what is the best priority for us today as there are continuallynew opportunitiesarising so nothing is set in stone.” -Petco

  47. Prioritization is a Rigorous Process “Relative to technology decisions we take it one step further by putting all potential projects through anextensive scoring process, with an even more arduous ROI process thatranks each on potential return. All may be worth investing in buteverything can't be a priority; with capital expenditures we must wait until the annual budgeting cycle or seek emergency funding, and money is a precious commodity.” -America’s Gardening Resource

  48. What are your top 3 initiatives on your eCommerce to do list that you plan to tackle in 2008 and why? • EG Reports: • Initiatives are as varied as the interviewed merchants though re-platforming and redesign efforts were top-of-mind

  49. Executing Key Tactics • Our2008 Annual • Merchant Survey • addressed the initiatives • being funded this year • and the rationale for • investing in chosen areas. • The top 5 included: • targeted email programs • site redesigns/upgrades • improvements to onsite search • enhancing merchandising features • cross-selling • Aside from email our • interviewed merchants • confirmed similar plans • throughout the coming year.

  50. The Re-platforming Mode Engulfs Many Merchants • Merchants acknowledge • that despite the process • theyneeded to upgrade • technologyto marketing • standards because their • current platform isholding • them backfrom achieving • company objectives. • Our 2008 Annual Merchant • Survey concurred: • almost1/3 ofwill swap out their platformin the coming year • an additional29%will be in the marketwithin 3 years