May 14, 2004


Store wars: How retail ecommerce executives can win the battle for the last aisle

Store wars: How retail ecommerce executives can win the battle for the last aisle

BY Alex Richardson 02 May 2004

Editor's note: This article originally appeared in the May/June issue of Kiosk magazine.

Over the next two years, leading ecommerce executives in retail will see a growing need to implement in-store digital merchandising strategies in order to gain sustainable competitive advantages and improve profitability.

With the exception of, most leading banks and retailers have beaten the dot-coms at their own game. An estimated 200 consumer ecommerce sites folded in the past five years including well-known names such as ToySmart, eLuxury, Toys.Com, NetGrocer, and Webvan, just to name just a few.

Shoppers now have the ability to easily order most goods from their home computer; yet nearly half the U.S. population continues to visit a Wal-Mart or grocery store once per week.

Why? One could argue that it's difficult to order ground beef and bagels online; however, I suspect that it's a result of consumers' basic need for convenience-the immediate gratification that comes from doing business with trusted retail brands. Branded stores provide consumers a safe, "trusted" way to purchase goods.

The fact is it's becoming impossible for ecommerce executives to continue to ignore the traditional storefront--especially considering the union of numerous in-store self-service applications such as web ordering, in-store pick-up and self-service check out.

Stores within a store--60,000 SKUs in six square feet

The battle for the "last aisle" is one of the biggest challenges facing ecommerce and retail executives in the next 36 months. Previously, retail consumers have demonstrated an insatiable desire for convenience and time-savings.

I believe that the "store within a store" will grow dramatically. Banks (which typically spend about $1 million to construct a new branch) have practiced the "store within a store" approach for many years using ATMs and mini-branches inside of grocery stores.

Other successful examples include the Behr Paints kiosks, located in Home Depot stores. Using these kiosks customers instantly find the right paint color for their home. And at 7-Eleven stores, customers can use VCOM ATM kiosks to pay bills, order flowers, cash checks or buy lottery tickets.

Think merchandising

Initially, many retailers think about kiosk technology in terms of hardware first, and then, the software. They begin with "What type of kiosk or display monitor do I need?" or "How will the unit be branded?" From my experience, this type of thinking leads to a failed kiosk pilot or roll-out.

A good exercise to help you make a paradigm shift is to stop pretending that you are an IT expert. Stick with what you know best-merchandising.

The rule of thumb is to think like a consumer when launching digital applications. When merchandising, what retail aspects would you consider? Would you create a men's department"? Where would you place women's shoes? Would you place men's socks adjacent to men's shoes or create a general sock department? Where would you place the loyalty program or gift cards? How will your customers pay for their merchandise?

Create a customer showcase, not a technology showcase

Another obstacle to success is the typical urge to create complex hardware/software solutions that push "technology sizzle" as the main project goal. As with other technology industries, smart people are often attracted by the glitz of IT and focus on technological showcases that demonstrate the high levels of their intelligence.

Marketing leaders must rally together to ensure affordable and scalable solutions that clearly demonstrate ROI in a matter of months, not years. A good strategy for making sure that your kiosk project transforms from a small pilot to a large scale rollout is to first focus on "making it work" and then put on the glitz as a last step. Digital merchandising applications are intended to improve the consumer experience and promote brands. To accomplish this, it must work effectively, 24 hours per day, 365 days a year.

ROI is important

In general, the best way to improve customer service is to hire great people and train them well. And, it's no secret that within the retail industry, employee turnover is high. This in turn, costs the industry billions of dollars in recruiting, screening, and training.

ROI via labor savings, especially during a time of high employee turnover, combined with the reduced cost of ecommerce hardware and software can support your burden of proof for the investment in ecommerce.

Ecommerce 101--the four basic elements of a successful retail ecommerce application

* Attraction: This is the ability to quickly demonstrate to the consumer how the application solves problems.
* Interaction: How the application helps consumers find the answer to their problem. Interaction also involves the cross and up-selling of more profitable goods and services
* Transaction is the way the application is used to make the cash register ring. For example, leveraging the consumer e-mail addresses to send promotions or product information.
* Satisfaction: Can the retailer's application fulfill the promises? Will it be delivered in store or at the consumer's home? Is it a secure and private transaction? Does the application work?

Self-service is the best service

In our industry, as well as in other facets of life, success, or failure, can be determined by how well you help consumers solve simple problems through the basic self service model.

Ecommerce leaders who help customers solve problems and provide convenience will be the winners in 2004 and beyond.

Alex Richardson is Managing Director of Karter Capital Advisor, a new Venture Capital firm focused on helping emerging technology companies accelerate their plans for success. Alex is also Founder, Director and former CEO of Netkey, Inc.

Posted by Craig at May 14, 2004 02:20 PM