18 Apr 2005  Research & Ideas

Prosper with Multi-Channel Retailing

Reps from Abercrombie & Fitch, the Gap, and Bath & Body Works traded pointers in a panel session at the HBS Retail and Luxury Goods Conference on April 3. The upshot: Keep your brand message consistent both in-store and online.

 

For decades, major retailers offered customers only two methods of purchasing: directly at the store or from catalogs sent through the mail. With the advent of the Internet, retail companies that offered only one or two channels suddenly had available a third option that offered unprecedented opportunities, but also created challenges throughout their organizations.

At the Multi-Channel Retail panel, speakers from three retail companies, all heavily invested in multi-channel selling, talked about how they were tailoring their strategies to best sell to customers.

Mike Nuzzo, senior director of store finance and operations for youth retailer Abercrombie & Fitch, Inc., said his company uses all its channels to magnify its brand message.

"For us, it's all about building brands, and branding is just about building an emotional experience for the customer," he said.

The company views its stores as its most critical selling platform, and inside them it works hard to be in tune with its customers' aspirational leanings. Music pours through Bose sound systems and the stores are sprayed with a scent to envelop customers in a very specific environment.

"We try to portray the brand in all major facets of the store experience," he said. "The one thing we pride ourselves on is the presentation of the merchandise in our stores."

While many of Abercrombie's customers are Web-savvy teens, Nuzzo said it is more difficult for the store to control the customer experience on the Internet. The site is set up for e-commerce, but the company views it more as a way to build its brand: Customers can download video clips, watch footage of extreme sports, or learn about an upcoming free concert at one of the stores.

Customers that touch our brand in multiple channels are our most valuable customers.
— Susan Vobejda, Gap Inc.

Susan Vobejda (HBS MBA '97), senior director of brand management at Gap Inc., agreed with Nuzzo that the Internet works best in support of the company's efforts to sell in its stores. "Stores are second to none in allowing that overall experience," she said. However, the gift buying that represents a huge portion of many retailers' fourth-quarter revenues is greatly enhanced thanks to the Web, Vobejda said.

"Gift-giving is truly made better by the Internet," she said, providing buyers with the ability to condense buying, wrapping, and shipping into a few short keystrokes. The limitless capacity of the Internet also enables Gap Inc. to serve customers it can't serve out of the limited space in its stores. Customers can purchase extended sizes on the Web, for example.

"[And] the Web also allows us to reach customers who may not be near a Gap store," she said.

Shopping 24/7

Martha Velando (HBS MBA '02), brand manager at Bath & Body Works, said multi-channel retailing "is all about increasing the size of your brand."

Before joining Bath & Body Works in 2004, Velando worked for parent company Limited Brands on both the Bath & Body Works and Victoria's Secret brands. While privacy concerns about information sent over the Web persist, Velando said Victoria's Secret is very aware that some customers feel more comfortable buying the store's intimate garments in the privacy of their homes.

"There's a lot of customers—male and female—who would prefer not to go to the store," she said.

And, of course, "Availability is 24/7; it's always there and you can shop any time." Vobejda said the Internet has given retailers ways to connect more frequently with their best customers. While some retailers at the beginning of the e-commerce phenomenon feared that adding another channel would simply add costs and erode their other channels, she said the opposite is true in many cases.

"Customers that touch our brand in multiple channels are our most valuable customers," she said.

All three panelists said that while it is important to keep the brand message consistent both in-store and online, retailers must understand that they may need to vary their assortment or make other adjustments.

Vobejda had worked for retail giant Wal-Mart Inc. prior to coming to Gap. She said that when the company launched walmart.com, the first thought was to literally replicate the store online. The company quickly learned that customers weren't willing to pay shipping costs on, say, toilet paper. However, she said the company did learn that its online customers weren't so different from the seventy million who enter its stores each week; slightly tech savvier, perhaps, and looking for higher-end goods "at Wal-Mart prices."

She said the company was careful to do its own price research on the Web, "and made sure we delivered on that promise of 'everyday low prices.'"

Nuzzo said Abercrombie & Fitch had considered using the Web as something of an outlet for clearance items, but quickly decided that its site should be more reflective of its overall sales strategy.

"In fact, we're trying to eliminate the whole concept of 'sale' from the customer's mind," Nuzzo said. "We're looking at promotional things we can do on the Web that don't involve sales or discounting."

Moderator Rajiv Lal, the Stanley Roth, Sr. Professor of Retailing at HBS, asked panelists what they saw as the challenge in managing these channels.

Vobejda said that when a retailer launches an Internet channel, "it is seen as a competitor by the store merchants."

She said that making store staffers understand that the Internet can send traffic to their stores is a hard sell, but it's a development they often see with time. It is important for managers and executives to "help people in the organization understand it's both things working together."

"One of our big challenges is simply inventory management," Nuzzo said. "For the last couple of years, we've focused on maintaining a very high initial markup and generating substantial gross margin, which means tight controls of inventory."

In addition to buying enough to sell on the Internet, the company must manage inventories for stores that have very different sales volumes.

"You have $20 million stores and you have $2 million stores, and the trick is managing the [merchandise] buy so that you don't starve one of those or all of those and still maintain a situation where you don't have to have substantial markdowns."

"And Mike, how have you resolved that?" Lal asked.

"We're still working on it," Nuzzo admitted.

About the author

Julie Jette has been a business reporter for eight years.