Autumn 2007

After a tentative start, retailers are now embracing the multi-channel ethos more fulsomely, and systems suppliers are gearing up to maximise their opportunities, as Marcia MacLeod finds out

To survive in retailing today, more and more companies are realising that they have to make goods available wherever the customer wants to buy: online, on the phone, in print and on the high street. And, while not all companies have spread across channel boundaries - Amazon hasn't opened a bricks and mortar store just yet! - multi-channel retailing is booming as customer service becomes more and more important.

It's not just a case of retailing across channels: increasingly, channels are merging, boundaries are blurring and consumers mix and match to suit themselves.

For a start, not only are bricks and mortar retailers launching distance selling channels, but more etailers are also opening shops; Lakeland provides one example of a successful move from catalogue to web storefront and then the high street.

 

In some cases, the high street stores aren't big enough to stock all, or even half, the etailer's entire catalogue, leading to the introduction of web-enabled stores. 'Web-enabled stores are growing,' says James Cronin, chief information officer of e-commerce specialist Venda. 'These use in-store terminals so staff can access the company's entire stock. If a customer can't find what he or she wants - or has seen something online but can't find it in-store - the sales staff can look online and, if appropriate, order the item.

'We began doing this for Mothercare three years ago. Now we have created web-enabled stores for Virgin Megastores and are putting the first unit in a Fat Face outlet before the end of the year.'

Perhaps the greatest proof of channel interchange, though, comes with returns. Consumers demand flexibility; they don't want to be restricted to posting something back if they can return it in-store. And retailers are increasingly happy to oblige - although Marks and Spencer branches will not take back electronics they don't sell, and at least one branch (Tolworth, Surrey) won't even take back anything it doesn't stock.

Even more flexibility is likely to be built into the returns process. While it is not physically possible (yet!) to send an item back on the phone or through cyberspace, it is possible to post back any item, regardless of the channel through which it was purchased.

'We're being asked to enable consumers to key in item details and proof of purchase information and generate a return label which can be used to send back goods bought in-store,' says Jim McGrath, Elucid product director at Sanderson. 'This option isn't out there yet, but it's coming.'

All of this requires yet more integration, including the linking of EPOS systems to web front and back office fulfilment software. 'Retailers need visibility of all orders,' emphasises Wayne Holgate, commercial director of Axida.

Not everyone has obtained efficient integration, though. Smaller companies, especially start-ups, often have better system integration than bigger names because they don't have legacy systems to deal with. Many retailers that have grown into multi-channel suppliers over the years find it hard to manage their IT.

'There are still retailers, even big companies, running disparate front and back office systems,' points out Glyn Carvill, commercial manager at Priam.

As Carvill indicates, integration doesn't necessarily mean users have to adopt one complete system. While ERP vendors like Oracle and SAP fight to introduce warehouse management, transport management and other fulfilment modules to their megalithic products, Exact Abacus has gone the other way.

'Our background is in end-to-end solutions,' admits sales director Lee Thompson, 'but now we're concentrating on providing best of breed. Our software needed replacing anyway, and customers were looking for individual modules which can be integrated to legacy systems. We now offer purchasing, sales order processing, marketing and stock control modules, and we're even putting our purchasing module into a 40-year old mainframe!'

Many IT vendors are being asked to extend their product range. Priam and Axida, for example, came from the back office to provide web front ends. 'We have just introduced Appease to make it easy for customers to create a web site and manage its content,' Priam's Carvill says. 'We can develop the web front end - or the user can do it with our tools.'

Axida's integrated web shop came out early this year, offering a web storefront with product catalogue and content management, inventory, payment processing, order picking, returns handling and integration with carrier systems. It can also integrate with a full warehouse management system or other software.

'We started with back-end fulfilment, but put in the front end to meet customer demand,' says Holgate. 'JDB Sports was our first customer, but we now have five systems in use and two more in production.'

Actinic, which started as a web front end system supplier, can now handle mail order and telephone sales with its new 'MoTo' screen, launched in September. MoTo is aimed initially at larger customers, but will be 'downsized' in due course.

Warehouse management vendors are getting into the act, too. RedPrairie, for example, now includes basic sales order processing in its warehouse management system, which it never did before. 'We also have to 'parse' information - process it in a way that makes it easy for other systems to read,' says Martin Hiscox, international president and MD.

Systems have to be flexible and scaleable. 'Fat Face started with a good retail system for home delivery,' Hiscox continues. 'They configured it differently when they opened high street stores. Most good WMSes can do that.'

Sanderson expanded its multi-channel business by buying Elucid. 'Elucid addresses web, call centre, mail order and EPOS,' says Ian Newcombe. 'Mailbrain, our other product, is aimed at just mail order and call centre sales.'

New demands in multi-channel retailing even led to the launch of a new software company. Omnica was started by Harry Manley and John Whitely, both ex-Maginus executives, to provide big-name benefits in smaller packages.

'The software industry is changing,' says Manley. 'Users are increasingly looking for a system from a major global player such as Oracle, SAP or Microsoft, because they want software that will last, and they derive comfort from dealing with a big-name vendor. But etailers aren't great targets for big software companies, as they can't invest very much.

'When Microsoft launched Dynamics, it produced a good, flexible platform. No one had developed an etailer's system on Dynamics, which is why we set up Omnica. Dynamics is so flexible and easy to use that retailers can change it themselves, without having to go to their vendor every time they change their business processes.'

Omnica, which should launch its first system in December, has so far developed financials (including credit card processing), purchasing and planning software. The planning module includes WMS and packing station functionality. Marketing, including cross- and up-selling and promotions, is also included, and a web front end is on the drawing board.

Fulfilment companies are changing as much as software vendors, as Manley points out. 'In the past, fulfilment companies looked for large customers with large volumes, but now they're looking downwards to capitalise on the growth of smaller etailers. And as the number of etailer start-ups grows, fulfilment companies are being asked to provide order processing and customer service along with the pick and pack. This allows retailers to start up easily with minimal costs.

'We're also seeing a new entrant into fulfilment: the wholesaler, particularly those handling electrical or home entertainment products. So when a client orders a DVD from a Tesco or Sainsbury, the order goes through to the wholesaler, which despatches the goods, takes the money and sends the retailer a cheque at the end of the month.'

Fulfilment companies may also be asked to help with one channel, but not another. 'A small etailer could manage to fulfil its online channel - but when it comes to launching a new channel, doesn't have the resources,' McGrath suggests.

Whether handled in-house or outsourced, stock allocation and inventory management are key components of fulfilment and must remain flexible, as retailers may switch between one inventory and several, or change the way in which they allocate stock.

'Management of a common stock pool is becoming more important,' says Lee Thompson of Exact Abacus. 'Retailers are becoming more intelligent about the way they allocate stock to different channels.'

Deciding whether to have one stockholding for all channels or multiple inventories depends on a number of factors, including location of stores and distribution centres and how much space is available where.

'Demand forecasting can help,' Thompson continues. 'If there is a lot of footfall in stores, stock needs to be on the shelves; if it is all in-store, online customers can be disappointed.'

'Some bricks-and-mortar companies start out with separate, dedicated warehouses - one for home delivery, one for the high street,' says RedPrairie's Hiscox. 'They may reduce the number of SKUs available online so they can guarantee fast delivery without increasing their stockholding, but increase basket size by increasing the value of the items sold online. The etailer who opens a store tends to fulfil their stores in the same manner they deliver to home shoppers, but with a limited number of SKUs in-store.'

Fulfilment and stock allocation can vary according to product, too. 'Some retailers are multi-brand,' points out Russell Dorset, sales and marketing director for Maginus. 'High-value products need different fulfilment processes from the economy brand: different ways of picking and packing, different packaging, different paperwork and different delivery options - often provided by different carriers. Low-value goods can't be allowed to taint the premium product.

'Some retailers offer niche products that they sell through specialised web sites; the niche product might form only part of their full range. They may use the same call centre, fulfilment company and carrier - or different ones. Over the last nine to twelve months, we've noticed much more product differentiation within one retailer's offering.'

The way in which retailers approach fulfilment depends on their roots. Two Actinic customers provide good examples of the way in which fulfilment can evolve. Outdoor Megastore, for example, began by opening one store in Liverpool selling campaign equipment, but then decided to go online. By putting its telephone number on its web site, it was forced to take phone orders, too - and then had to 'back-fill' the infrastructure to cope.

Now Outdoor Megastore has between fifteen and twenty-five employees serving online and phone orders. A third of product is sold in-store, 10 per cent by phone and 57 per cent online. Its original EPOS system, which had some stock control capability, is now integrated with Actinic's fulfilment suite. The firm's 25,000 sq ft warehouse as more than doubled in size since 2004 and further expansion is planned.

Exact Abacus's Thompson says most successful retailers have a proper marketing strategy. 'They plan who to sell to,' he says. 'For example, a catalogue may go to 55,000 people, a web site to hundreds of thousands. They want to plot where the demand will hit each channel, so that they can ensure the right stockholding is available to each channel. They want information on returns, too, so they know where the item was bought, why it was returned, and who returned it.

'And they have to ensure they're getting the right message to the right customer and can get through consumer filters. Consumers are saturated with messages and are less loyal to brands. If retailers are going to communicate with the customer at significant cost, they have to try to give themselves a chance of actively getting through and being read. Too many retailers still don't do enough to understand their customers and treat them as individuals, not a group.'

That means understanding the consumer needs of each channel - which may vary even with the same individual. Retailers have to know, for example, that a customer may be happy to browse in-store and purchase on a whim, but only will buy online in order to obtain a specific item in a hurry; or that tactile products sell better in store because people like to feel before buying.

Everything should be easy, integrated and transparent to the retailer, to the fulfilment company and to the consumer. As Harry Manley says, nothing should stop the retailer or its fulfilment supplier from responding quickly and efficiently to its clients' needs - whatever the channel they're using.

PANEL

Help where it's needed: Software and systems - striking the balance

'I've never seen a warehouse where you can't improve something.' So says Jeremy Clouson-Jones, marketing manager of Savoye, a company in the unusual position of offering both automated handling technology and logistics software.

He agrees that some product types and operations won't benefit from automation, but points out that many do - even in the complex world of single-picking for home delivery operations. 'Operators will still do the actual picking manually, but then the product can be fed to the right place by the right combination of conveyors and related systems.' This is called 'automated assisted picking'.

Not that Savoye insists on selling you hardware and software together. It is a significant supplier of warehouse management systems in their own right, and numbers a range of third-party fulfilment companies among its users, as well as e-retailers.

He says multi-channel businesses need WMS products that are focused on this type of operation. 'They need to be strong on picking efficiency and labour optimisation. They need to know precisely where products are located.' He says these capabilities are fundamental to the Savoye system.

'Batch picking is by far the most efficient approach for this market,' he maintains. 'The consumer buys one widget, but the picker picks fifty, and then they are separated into orders at the packing point. You need the right data analysis tools to do this properly.'

He adds that Savoye offers some unique capabilities for this market, including a pre-cubing system that measures the packaging volume requirements with great accuracy. 'We take this further than most other systems.'

Clouson-Jones sees little prospect of packaging becoming simpler or more uniform in the near future. 'There are so many different products to cope with.'

However, Savoye has already made a major contribution to packing efficiency by developing the patented PAC 600 system, familiar in deliveries by companies such as Viking, which keeps the volume of cardboard to a minimum on variable consignments, and uses stretched inner wrapping to obviate the need for wasteful inner void fill materials.

Savoye's expertise is in solution design, Clouson-Jones says. 'A properly specified automated system can bring a return on investment in two years, but if the best solution is a guy with a trolley, that's what we'll recommend.'