Spector excerpt: REI sure-footed on its way to the Web
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An excerpt from Robert Spector's Book "Anytime, Anywhere'' that focuses on the Kent retailer REI.
Turns out, it's all one business. Web site. Mail-order catalog. Telephone. Brick-and-mortar store. The customer will choose the channel. The challenge for companies is to deliver a consistent multichannel customer service experience.
And the Web? It's a channel that drops the cost of communication and increases the flow of information. It's an incredible tool that's changing the world. But it's not the business. At least not yet.
How quickly the landscape has changed.
It wasn't long ago that the pundits were writing off so-called "old economy" companies, particularly retailers, because the Amazon.coms of the world were going to render them irrelevant. Why, the argument went, would anyone want to go to a brick-and-mortar store, when he could shop online in his pajamas at 2 in the morning in the comfort of his own home? In early 2000, one "new economy" business magazine, in a gushing article about Webvan, cheered the online grocer for heroically "spending $1 billion to spare shoppers the agony of ever pushing a balky shopping cart again."
Well, in the Spring of 2001, the wheels on Webvan's virtual shopping cart completely fell off, and the company filed for bankruptcy and then liquidation. Contrast Webvan's fate with one of this book's featured companies, Tesco PLC, the United Kingdom's biggest brick-and-mortar grocery chain, which makes money on its Web site by employing an approach that is 180 degrees from Webvan's. Tesco fulfills customer orders right from the shelves of its stores.
The "experts" who predicted that the Web would make the real world obsolete are the nephews of the pundits who predicted the "paperless" office and the 30-hour work week.
That's because a funny thing happened on the way to the "new economy." After a slow start out of the gate, long-established companies began figuring out ways to incorporate the latest technological innovations into their own Web-related businesses and to integrate the Internet into a coordinated multichannel strategy.
More important, these companies came to the table with a host of built-in advantages: seasoned management, established brands, ongoing relationships with suppliers and customers, deep pockets, and, yes, hard assets, such as stores, warehouses and distribution centers. Because they are established in other channels, these companies have lower customer-acquisition costs, and greater opportunities for cross-marketing, cross-promoting and cross-selling. They know their individual customers across all channels. The best of them have extensive databases that provide the buying history of particular customers to every employee and every channel those customers choose to use, anytime, anywhere..
But what about customer service? Ironically, the Internet has made customer service more important than ever. In the old days — not that long ago, actually — shoppers stayed loyal to favorite stores for many years. No more. Today's consumer is apt to be more loyal to the deal than the dealer.
At the same time, customers are more demanding than ever. They want what they want when they want it. They want the companies they deal with to know them across all channels, but they demand that their privacy be protected. They want companies to be proactive, but not invasive. They want to be able to track and check the status of their order, and they want to be able to easily return unwanted items.
Consequently, companies are continually pressed to do more and more for their customers. One way to ingratiate yourself is being available to your customers anytime, anywhere, and via any channel. That means providing telephone numbers, fax numbers, and e-mail addresses — that are easily accessible — because most customers want to communicate directly with someone; someone who can take care of them. Is there anything more essential than communication to good customer service?
With the ascendance of the multichannel approach, it's no wonder that catalog retailers such as L.L. Bean and Coldwater Creek, and direct-mail companies such as Gateway are opening stores, and Amazon.com mails out catalogs and forms alliances with the likes of Toys R Us and Borders Books. They understand that each channel represents a touchpoint — a unique contact with the customer.
This book has a simple premise: Winning companies are the ones that provide an excellent customer service experience across all channels. We will explore the operations of a diverse group of companies in a wide variety of industries. We will see how these different companies in different industries have devised — and carried out — common strategies to provide their customers with a seamless multichannel experience.
But that is not to say that these companies have all the answers. We will examine the mistakes as well as the triumphs. All of these companies admit that their initiatives and strategies for "channel synchronization" require ongoing refinement.
"It's a job that will never be done," said Matt Hyde, senior vice president at Recreational Equipment, Inc., the retailer of authentic outdoor gear and apparel. "It's just like our physical stores. You wouldn't say that our flagship Seattle store is the pinnacle of all physical stores and we'll never get any better at it. So, how we play off our online store, our 800 number and our physical stores is going to continue to improve and evolve."
A seamless multichannel approach to customer service requires collaboration and partnering with every part of an organization. Cynthia Henson, vice-president of customer service at FedEx, put it best: "Customer service is not the department, it's the company."
Recreational Equipment Inc. is a distinctively Pacific Northwest creation. REI combines the region's love of its natural treasures (particularly Mount Rainier) with its left-of-center tradition of consumer cooperatives. In 1938, REI was established as a consumer cooperative in Seattle, by a group of mountaineers who joined together for the purpose of acquiring ice axes, crampons and other climbing equipment at affordable prices. Jim Whittaker, who in 1963 became the first American to climb Mount Everest, is a former chief executive officer of REI. In Seattle, having an REI membership card with a low number is a sure sign that you are a native.
Today, REI, which is based in Kent, sells authentic outdoor gear and apparel for a wide variety of activities, including camping, hiking, climbing, skiing and biking. The nation's largest consumer cooperative with more than 2 million active members, REI operates 59 retail stores in 24 states. REI.com is the Internet's biggest outdoor retailer, offering more than 78,000 individual items, more than 45,000 pages of detailed product information, expert gear advice, online clinics; an interactive community system and a complete adventure travel service, REI Adventures. REI also operates REI-Outlet.com . Total sales in 2001 were $740 million, giving REI a healthy piece of the $5 billion-a-year outdoor-goods market. REI, which sells into more than 40 countries, offers versions of its site in French, German and Spanish.
Because it is a cooperative, REI remits a portion of its profits back to its customers, who pay a one-time $15 lifetime membership fee. Membership confers literal ownership. Owners elect the board and at the end of every year are entitled to a patronage dividend — a rebate based on a percentage of how much they spent with REI during that previous year. The percentage ranges from 5 to 10 percent or more, depending on how profitable the company is.
Its relationship with that membership — a community of people with similar interests — was one of REI's biggest advantages as it contemplated its entry into electronic commerce. Another advantage was REI's six-decade history of direct-to-consumer mail-order catalog — with some 10 million catalogs mailed annually — so its order-fulfillment system was already in place.
Broad experience in Web team
When REI began to look at a Web site in earnest in 1996, the team was assembled from virtually every department — marketing, merchandising, information services, adventure travel, retail, real estate, accounting and public affairs. By bringing in people from all over the organization, REI tried to eliminate the fear that the Web site would cannibalize existing REI channels.
"Many businesses have been like deer frozen in the headlights because of their channel conflicts," opined Matt Hyde, who was REI's vice president of online sales and is now senior vice president of merchandising and logistics. "They see the Web as competing with their other lines of business. But we take Web orders from customers who drive by our stores every day. We have many multichannel customers. We can't choose how our customers want to shop. So we offer any product, anytime, anywhere."
Hyde was selected to head-up the Web site project by Dennis Madsen, who was then chief operating officer and who is now chief executive officer. Like every REI employee, Hyde knew the merchandise because he was an REI member/customer. Prior to joining the co-op in 1986 as a part-time employee, Hyde had owned and operated his own guide service for climbing. In addition, he understood both retail and Web technology.
Because the Web was going to be an essential part of REI's business, the decision was made to develop everything in-house — at a time when most companies were outsourcing their Web sites. "It must be a core competency, just like service," said Hyde. "You don't outsource service. Online stores are not a project; they are a business," and must be expected to meet the service and financial targets of a real business. From the beginning, the site was treated as "a profit center rather than a marketing expense, which was highly unusual at the time."
REI has a common inventory and pricing database for in-store, catalog and Web site operations. In 1997, REI.com's first full year of operation, the site brought in about $3 million in sales — above what the company expected, and the equivalent of one of REI's smaller physical stores. By 2001, direct sales — the majority of which came from online purchases — were $116 million, a 26 percent increase over the previous year.
Forbes' 'Best of the Web'
Today, few retailers have a better understanding of how to integrate online and off-line operations. The Web site consistently ranks among the top 10 in both apparel and sporting goods, thanks to its onsite resources, ease of use and customer confidence. The site made Forbes' "Best of the Web" and Time's "25 Best E-Commerce Sites."
REI's multichannel strategy has not been without missteps. Along the way, REI has taken its financial lumps. The cooperative decided early on to spend the necessary money on the launch and marketing of the site, and to absorb the losses. The Web site turned a profit in 1998 and 1999, but slipped into the red in 2000, owing to planned losses to pay for improvements and expansion. That brought about the first net loss — $11.4 million — for REI since the cooperative was founded in 1938. But Madsen said the losses were worth it in order to achieve REI's objective of being, "the last man standing within outdoor recreation on the Internet." (In 2001, REI's online division returned to profitability.)
REI never spun off REI.com because, according to Madsen, "When customers think of REI, they don't think of us as a dot-com business or a catalog business or a brick-and-mortar business. They think of our brand as encompassing all of those channels of distribution. And the expectations they have of us are identical no matter how they shop from us."
REI has found that a multichannel knowledge of its customers enables it to discern whether REI.com is bringing in new business or taking a bite out of existing business. Hyde emphasized, "Because we've been able to take a look at customers shopping across different lines of business, we have found that, overall, multichannel shoppers drive growth and are not necessarily cannibalizing the primary line of business. A lot is added business. Every time we've sliced and diced this data, we've found that cannibalization isn't really happening. What we are doing is converting multichannel customers. We are giving them more choice and they in turn are giving us more share of their wallet."
Customer's choice
As far back as 1996, when REI was preparing to launch its Web site, Hyde recalled, "We realized very quickly that you don't get to choose how your customers shop. This wasn't our choice; it was the customer's choice. We're the retailer. We just need to be there to service them. If you're not online, customers are going to shop somewhere else. Any thinking other than that is pure arrogance. We decided that we were going to be accessible to our customers in any way that they wanted to access us — the phone, the catalog the Internet, in-store kiosks, and our physical stores, and whatever else evolves in the future."
Brian Unmacht, vice president of REI's retail division, noted there was initial resistance by in-store personnel over who would get credit for sales generated by kiosks that are located within the brick-and-mortar stores. Customers can make purchases from the kiosks, which are linked to REI.com. So, if a purchase was made via the in-store kiosk, was it a store sale or a Web sale? REI management solved that problem by having the direct-sales and retail divisions jointly share those sales. Promoting that kind of inter-channel cooperation is "important for setting goals," said Unmacht. "We want people to realize that these sales help all of us."
REI closely tracks what channels customers are using because those buying patterns determine where the company earmarks its resources in the future.
Tracking membership
As a membership organization, REI has a powerful built-in mechanism to gather information. By tracking a customer's purchases made in either a physical store, online, or mail-order catalog, "We can see how our customers are behaving differently and how their shopping habits are changing," said Hyde, "and from that, we understand how we need to invest in the future. This just makes sense. We have twice the product selection online than we have in our physical flagship store. We have entire categories of products that you can't buy in any online store. We have REI-outlet.com, which is product that exists only on the Internet. We have these great physical stores and we have an 800 number. As a customer, not only can I buy my favorite gear in our physical stores, I also have these other choices. If I have an affinity to REI, I can buy my scooter or flyfishing outfit from REI. These are additional sales that we hadn't been getting from the customer."
REI calls that philosophy "Shop the Way You Want," said Unmacht. He pointed out that no matter from which channel an item has been purchased, the technical experts at REI's brick-and-mortar operations are ready, willing and able to provide their technical product knowledge. "It's not uncommon that someone purchases a bicycle or another technical item online, and calls the store for additional support. We send people out from the stores, or the customer can visit the store for more help with the item."
Across all channels
Rather than worry about channel cannibalization, smart retailers try to know their customers across all channels, and learn how those customers behave across all channels. Armed with that information, they can anticipate what they need to satisfy and keep their customers. The day has arrived when customers will not accept the fact that a company won't have complete access to their entire purchase history, be it via store, catalog or online. That means that companies must invest in systems that enable them to integrate this information to more effectively cross-market products and services.
"Customers are not going to tolerate retailers that don't understand them across all the channels," said Hyde, who characterizes most REI customers as single-channel shoppers. "There is another subset that are double-channel customers. Others shop with us all three ways. Our most valuable customers are the multi-channel customers, who will shop online for a certain need and then go into the store for another particular need. For convenience, they might shop online for a known item, such as a tent, to be shipped to their house. But if they want to buy a pair of running shoes, they're going to go to the store and try them on."
Key to REI's multichannel strategy has been to provide a "strong value proposition," said Hyde. "We believed we could be successful if we differentiated our online store from our physical stores, and gave people a different reason to shop online. We always talk about any product, any place and answer any question — that's the breadth, convenience, and strategy."
REI is so committed to communication among its channels that when the co-op expanded its headquarters, the dot-comers were moved to another building on campus. The distance was far enough for to justify buying 24 scooters so that the Web staff was connected to the rest of the business.
In that spirit of cohesion, REI has a unified customer data base, "so the information that I have about you in the stores is something that I will be able to access via the Web, telephones, etc," said Joan Broughton, vice president of online and direct sales. Previously, she was REI.com's executive site producer, responsible for defining and driving the design, content and community aspects of REI's e-commerce sites. "Some of that comes from the personalization and customization that we offer on the Web. Some of it comes from interaction when a customer visits an REI store. When we ring up your purchase and we see that you recently bought a bicycle online, we can mention to them: "Do you know we are offering a bicycle clinic this weekend?" That kind of attention is not Orwellian. It isn't bizarre that you're at an REI store and we know what you just purchased. But it would be nice to be able to have that information and to offer you something that you are interested in. You have to be smart without being too clever.
In the future, "We want to be able to tailor experiences in a way that really gives customers a sense of how valuable it is to be a member. If you are a good customer of REI for a long time, we should be able to recognize that, and reward you appropriately," added Broughton. Eventually, a sales associate at an REI brick-and-mortar store will be able to run a customer's membership card through the cash register and instantly see through a Web-enabled point-of-sale system that she is a snowboarder, and be prompted to offer her a personalized discount on ski wax.
The brick-and-mortar channel
Driving south on Interstate 5, just before reaching the exits for downtown Seattle, a motorist looking off in the distance to his right can't miss the flagship store for REI. The first image one notices is a 65-foot-tall glass-enclosed building, framed by a set of 12 steel-pipe braces, highlighted by a mural of an ascending rock climber. The Space Needle and the Olympic Mountains loom in the background.
Once the car is parked by the store, the motorist morphs into a mountain climber or a hiker or a camper, who is ready to immerse himself in the REI brick-and-mortar experience.
Located on a 2.1 acre city block, the 116,000-square-foot store (with 80,000 square feet of retail space) is enveloped by a forest planted with 54 varieties of Northwest plants, shrubs and trees. A walking trail emulates the feeling of treading on forest duff by using plants that thrive in lowland wet areas and sunnier, drier slopes. A 580-foot-loop bike trail, made of crushed rock, is a challenging course comprised of obstacles, inclines and droops, The trail, which drops 23 feet in elevation and has a variable grade up to 10 percent, is designed as an all-weather path for customers to test ride mountain bikes. A still pond and a waterfall charged with recirculated rainwater add to the natural surroundings. The earth, water and rocks is reminiscent of a stream cascading down a mountainside. The sound of water is all around.
Mammoth wood doors at the store entrance use ice axes as door handles — a tribute to REI's early history, when the consumer cooperative was founded in 1938 by outdoors enthusiasts whose first purchase was an ice axe.
Once inside, shoppers can easily find their way throughout the two floors of specialty shops by following signposts, inspired by trailhead markers, that point the way to the separate departments devoted to climbing, camping, bicycling, skiing and paddling. The imposing interior features exposed beams, duct work, wood fixtures and big windows to emphasize natural light. Interactive features can be found throughout the complex. A little pond of brackish water is used by customers to try out water-purification systems. Camping stoves are activated under a vent in the Stove Center. A sloping 25-foot-long gravel footpath is used for testing the 358 models of hiking boots and shoes. (Similar test equipment is found at stores in Denver and Minneapolis.)
On the restroom doors, the male and female symbols are both stylized in active climbing positions, rather than the usual woman in a skirt or man wearing pants. The symbol on the restroom for disabled accessibility is a figure in a racing wheelchair.
The signature feature of the store is the world's tallest indoor freestanding climbing structure — a 65-foot high, 110-ton pinnacle enclosed by a glass rotunda at the north end of the store. With more than 13 climbing routes, the rock can accommodate 15 climbers of all abilities at one time. ( Each climber is individually belayed for safety by assistants on the ground.) The pinnacle incorporates a wide variety of climbing features, including cracks, overhangs, faces and knife-edges. From the top, there is a view just east to the I-5 freeway, and west to the Olympic Mountains beyond Puget Sound. The "cherry on the cake" is programmed theatrical lighting that simulates the path of the sun.
Clearly, REI has created a space that not only draws customers to the store, but also keeps them in the store. In addition to all the features for testing products, the upper floor of the store includes a 250-seat meeting room for use by outdoor clubs, and a 100-seat deli/café that overlooks the courtyard.
The outdoor retailer is keenly aware that its brick-and-mortar channel is an essential component of seamless service. That's why, at the time when so-called experts were predicting the demise of brick-and-mortar stores, canny retailers such as REI were finding ways to enrich the in-person shopping experience. Even Amazon.com's Jeffrey Bezos, the man who changed many people's shopping habits, has always expressed his feelings about the uniqueness of actually going to a physical place to shop. Bezos understands that people don't restrict their visits to bookstores just to find a particular tome. Sometimes, they just want to immerse themselves in a sea of books and while away a few pleasant hours. "We will never make Amazon.com fun and engaging in the same way as the great physical bookstores are," Bezos has admitted. "You'll never be able to hear the bindings creak and smell the books and have tasty lattes and soft sofas at Amazon.com."
Kiosks
REI is considered one of the leaders in using in-store kiosks to generate greater sales across all channels. In 1997, REI was the first major retailer to install Internet-enabled kiosks, which enabled shoppers to find detailed information on every product in the REI system — not just what was available in the stores. REI continues to upgrade the kiosks' line speeds to improve and quicken the Web-based data transmissions. (The kiosks provide access to all of REI's e-commerce sites.) Since 1999, all of REI's cash registers have been Internet-enabled as well, so that cashiers can look up items online or place orders for goods from their registers. Today, every REI store has a minimum of two kiosks, which are generally located in departments such as footwear and hardgoods, which require a lot of information. Being able to show the breadth of its merchandise is one of the primary advantages of in-store kiosks because few REI stores have the space to carry all of the consumer cooperative's more than 78,000 different items, nor all of the sizes of apparel and footwear.
REI considers kiosks a major enhancement to its customer service. Before their installation, if a customer found out that an item he was looking for was out of stock in the REI store, he would have to stand in line while a customer service representative would look up the item. With the kiosks, the customer can look up any item without the help of a salesperson, view product shots and information, and order it online. The kiosks offer more information than the paper Product Information Guides that used to be found in the stores. Because product information and assortments are constantly changing, the fluidness of the Web site allows REI "to be fresher and current, in an effort to get to more real time," said Unmacht. "You don't have to go back and reprint everything. You have it right there electronically."
Although REI's employees are renowned for their expertise, none of them has the encyclopedic knowledge of REI.com, which provides specific information on every item and every variation on that item. If a customer is curious about the relative thermal characteristics of 30 sleeping bags, the sales person or the customer can find a chart on REI.com that compares the degree ratings (and a number of other criteria such as price and weight) of all the sleeping bags that REI carries. Armed with that information, the salesperson is in a better position to make the sale — not only on the item the customer was looking for, but also on other products that the customer might need. The initial sale paves the way for suggestions for multiple sales.
With all these value-added features, kiosks help to keep the customer in the store a little bit longer and explore other REI services, such as the REI Adventures travel agency. Customers can produce a full-color, high-resolution, topographic map of virtually every wilderness area in the U.S., and print it out. A digital in-store technology called Maps On Demand enables an REI customer to zoom in on a section of the map and print that out in the store on high-quality, paper that is water-resistant and tear-resistant. This feature enables REI to reduce its wide-ranging inventory of hiking maps from Green Trails and the U.S. Geological Service, thereby saving space for other items. Saving space is especially critical in smaller REI stores that can't offer the full product assortment.
With all these options, it's no wonder that the average REI store visit lasts nearly two hours — an impressive figure for any retailer.
Although many REI retail employees were initially resistant to the kiosks, they ultimately discovered that the kiosks complement what they do. Nowadays, according to Unmacht, the No. 1 request among stores managers is for additional kiosks, which have become "more a part of the store itself. It's another fixture, another way we do business."
Before the kiosks, REI was very labor-intensive in its inventory control. "We had customer service counters at all locations. If we didn't have what you wanted, we would send you up to customer service to find it, and they would do all the work," pointed out Unmacht. "We are now de-emphasizing our customer service counters in our new stores because customers have that information available to them."
With each kiosk generating comparable sales of an average 25,000-square-foot retail store, these in-store customer-service aids are a money-maker for REI. They are essential to REI's multichannel strategy because they help acquaint shoppers to the Web experience. Data shows that retail customers who then shop online with REI spent 22 percent more in the retail stores than they had the year before, according to Broughton.
REI is starting to roll out smaller 10,000-square-foot stores that carry its best products. Those stores will have seven kiosks. "We can serve a contingency of our customer base with best products because that's what most of them are shopping for. It also allows them easy and fast access to the broader super set of products," said Unmacht.