While a recent report from Forrester Research Inc. indicated that most Internet-only retailers will be out of business by 2001, another showed that the percentage of Internet retailers has doubled in the past year. Either way, it appears as if companies are still signing up to set up shop on-line.
For a lot of brick and mortar retailers, getting on-line is almost now a necessity in order to compete. Take, for example, leather retailer Danier Leather Inc., which last year decided to get on-line to test the e-tailing waters.
“They were in a catch up position, wanting to test the market, making it very obvious what they were (doing) was going after the American market, and put some investment in to see whether or not they could break into this market before they invested heavily,” said Jane Smythe, principal in e-business services for IBM Global Services.
Danier went to IBM around September of last year, with the hopes of getting on-line in time for the Christmas holiday shopping season. In eight weeks, after a lot of work, the site was up and running.
The process of setting up a consumer-centric storefront can be long and complicated. But for companies interested in getting the job done, the first step is to decide whether the entire job will be done internally, or whether the whole job or parts of the job will be outsourced.
It is typically advisable that outsourcing be considered, according to Carol Ferrara, a senior retail analyst with the Gartner Group in Stamford, Conn.
“We are just now seeing a move away from the grow-your-own, which was the predominant model over the past couple of years,” she said. “There’s two directions — one is packaged applications, and the other is using an ASP or outsourcer for specific functions, for customer service for example, or fulfilment if you don’t have that competency today.”
Ferrara explained that some traditional retailers which don’t have a catalogue division very often don’t have a customer service group, or can’t fulfil orders for individual consumers. These are the companies which would benefit from seeking outside help.
IBM’s Global Services offers a range of consulting, hosting and design services for on-line merchants, and Smythe said the process to getting a business up and running on the Web involves what IBM calls the e-Business Cycle.
“The e-Business Cycle is composed of four different phases: transform, build, run, and leverage,” she explained. “It’s sort of a never-ending cycle that goes on.”
IBM was able to help Danier start at the transform stage of the cycle by doing a consulting engagement with the firm which lasted about five weeks. Together the companies looked at all of the big strategic issues.
“You really can’t start to build a storefront until you understand what your business proposition is,” Smythe said, citing existing business, value propositions for customers, necessary capabilities and business processes as some of the considerations for this stage, which can last anywhere from three weeks to three months.
“Fundamentally at its core, we knew what we wanted to do, which was to replicate the consumer’s in-store shopping experience on-line,” said Kevin Strachan, a spokesperson for Danier. “We wanted the navigation on the site to flow…but we didn’t want to learn the technology of building the Web site. We knew that we wanted to take all our knowledge of consumer buying behaviour in our retail store and apply that to a Web model, but we didn’t want to build the technology. We wanted someone else to do that for us.”
During the second IBM phase – build — a detailed design is created which can take from one to three months, depending on the size of the customer. This is when “a very detailed roadmap will then be handed off to the developers to build. During this time, customers are selecting what the toolsets are,” Smythe said. They are also choosing the hardware and software that will be used, what configurations the architecture will be, where it will be hosted, and what kind of traffic they will have.
The research note also indicated that the majority of “marketing-oriented Web sites” have minimal to average needs, that can be accommodated easily by the NT platform. But three requirements – security, availability and scalability – are more suited to the Unix platform.
Security is another issue. Gartner expects credit cards to be the dominant method of payment, carried over SSL connections. As well, LDAP, used to retrieve and store user authentication and authorization information, and XML, to integrate Web servers and legacy applications, are predicted to be used by 75 per cent of e-business systems by 2002.
Fulfilment, especially in Canada, has been a major barrier for consumer-centric businesses on-line, IBM’s Smythe said. Most on-line companies in the U.S. that are doing well were previously in the catalogue business, so they have experience when dealing with the fulfilment of orders.
That is an infrastructure that needs to be in place in order to succeed, she said, adding that whoever the retailer is working with should be able to offer options. For example, Danier does not sell the same amount of products as Sears would, Smythe pointed out, so integration at the back-end wouldn’t necessarily be a pressing need for Danier.
Smythe said, “That whole business process of fulfilling those hard goods is something that affects a number of things as we’re building a site — what we call integration — right into the back-end of the customers’ databases and right into their business processes, into their workflow. This can be a very time-consuming, very expensive [undertaking] because…their backoffice has grown by piecemeal, sort of little by little, and now in the new networked environment there is a tremendous need to be able to integrate all of that and have it streamlined so that all of the information necessary to run that business is accessible.”
Another problem plaguing sites is content, according to Smythe. Businesses do not factor in the amount of content that will be required not only to fill their site, but to quench their customers’ thirsts for information as well.
“HMV has spoken very openly about how much they underestimated the appetite of the customer for data,” Smythe said of the IBM customer. “I would say most of our customers underestimate the amount of content, the time that it takes to get the content into shape for their e-business, and you need to be refreshing it daily,” she said.
Gartner’s Ferrara also recommends keeping all the data together through a single interface or integrated channel to consumers across all your sites, something not widely seen right now, she said.
“The Web site will tend to be disconnected from the other channels [in the company]. And even the other channels may be separate – for example a catalogue division is sometimes run as a separate group from the store division – and we’re seeing the same approach with the Web site. It’s often a separate initiative, depending upon how it came about within the organization…it’s really a matter of providing a single face to the consumer.”
Consider things like e-mail and campaign managers, data mining tools, and customer service applications such as frequently-asked-questions documents. These need to interface to call centres, Web servers and point-of-sale (POS) applications, she explained, because they’re what are driving the store data. They also have to interface to all the back-end systems, the operational and manufacturing systems as well as financial systems.
Once the business has been set up, it’s on to the next phase of the cycle – run.
This is another decision-making phase. Does the company have the personnel to devote to the new business right away? Or is outsourcing a better option?
In the case of Danier, it decided to have its site hosted by IBM through its managed Web services, where hardware is hosted. These services also include application maintenance services, support for applications as well as managing the responsibility of looking after daily changes on the site.
Some IBM customers simply do not have the staff to devote to the project, and decide to do a transitioning period, during which IBM runs the business for them. Or, Smythe said, if they don’t have enough staff, they can outsource some of the tasks that they can’t handle to companies like IBM and do the rest themselves.
Ferrara recommends having not only the IT department, but all of the business departments within the organization involved in the whole process, including the sales, marketing and customer service departments.
“That’s not an easy sell in a lot of companies,” she pointed out. “And it really needs to be championed by someone who is very high in the organization that commits to this from beginning to end.”
Strachan is the person in that very position at Danier. The “e-commerce champion” at the Toronto-based company said, “You have to just understand what it is you’re trying to accomplish on the Web, and make sure you build towards that goal. And if you need help understanding just what it is you’re trying to do,” you can go to an integrator or consultancy for help.
For small and mid-tier companies, there are other options out there, according to Ferrara. For example, she cited Amazon.com’s zShops, where users can go in and create their own on-line presence.
“Amazon zShops is a good example of a model where it’s very easy for you to get up and running with a couple of templates that they offer,” she said. “They do all the hosting and so forth for you, so you don’t have to make any of that investment. Plus they’re driving traffic to your site, which is a major source of expenditure.”
Larger companies have their name working for them, she said, so their concerns about getting people to their sites are significantly lower.
Whether large or small, Ferrara advised businesses “to think strategically, but implement tactically. And we normally have organizations look to the area of greatest pain. Where is the water gushing for one particular area? It could be marketing, it could be customer service, it could be sales. Start with that.”