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The shape of things to come in e-commerce

Ready or not, retailers face Internet-sized challenges over the next five years

With his hands already in multiple technology, merchandising and marketing projects across web and store channels, James Connell, director of e-commerce, digital marketing and new media for Roots Canada Ltd., has little time to think far into the future of retail e-commerce. “I’m so busy and technology changes so quickly, it’s difficult to anticipate what will happen five years from now,” he says.

But he anticipates change as best he can, he adds, and has a good idea what Roots, known for outfitting the U.S. Olympic Team with its official outdoor apparel, must do over at least the next two years. “It’s all about innovation,” Connell says. “As a brand, we look at innovation as key to our success. When you stop innovating, you’re dead.”

Keeping up

For Roots, as well as almost all of today’s retailers, that means keeping abreast of—and in some cases taking initial steps to participate in—e-retailing trends that are likely to grow in importance over the next several years:

  • Tighter and more customer-serving integration of information across web, store and call centers;
  • More online video and a move toward web TV;
  • Emergence of the cell phone and other wireless devices as both online shopping and payment devices;
  • Social retailing as well as social networking;
  • New web site applications such as a site search feature that, similar to Like.com for Internet search, enables shoppers to search for products based on particular characteristics like color or fabric.

No longer just another channel to sell things, the web and its derivative technology are permeating all of retailing, making stores, call centers, TV and e-commerce sites more interactive and attractive to shoppers. More important, it is eliminating differences among channels. “There will be channel obliteration,” predicts Rob Garf, vice president of retail strategies at research and advisory firm AMR Research Inc.

Ready to rocket

The next few years will see significant changes in retail e-commerce, cutting across technology, retail organizational structures, and consumer demand and interactivity. “We’ll see more changes in the next two years than we have since 1996,” says Michael Golden, who entered the retail e-commerce industry 10 years ago as a site developer and now is president and CEO of Home Décor Products Inc., a home furnishings retailer whose sites include HomeClick.com and AbsoluteHome.com.

Internet retailing, he says, is finally reaching the reality missing from the euphoria of the early days of e-commerce. “From 1998 to 2001, all the hype was about a great online user experience and how we were going to monetize the marriage of online content and community,” Golden says. “That drove the Internet bubble, but no one executed on it.”

Today’s market is fulfilling that early vision—and surpassing it. “Now this is actually happening, but there’s a lot more going on than we had expected,” Golden says. “There’s a convergence of broadband Internet access, mobile commerce, online video, consumer reviews, web TV, social networks and blogs—all wrapped up in web community and commerce.”

The onset of web TV alone offers so much promise, he adds, that Home Décor recently worked out an equity investment from Comcast Corp., the cable TV and Internet access giant. “People are paying attention to what Comcast is doing with on-demand content and that’s why we wanted them as an investor,” Golden says.

Getting married

Within two years, Golden expects his customers to wield TV/web remotes that will flick from a TV program showing a gotta-have-it kitchen to a shopping page on HomeClick.com.

Indeed, the marriage of TV content and online shopping is already happening. M2BWorld, a unit of Amaru Inc., last year introduced to the U.S. market about 10,000 M2Btv Pony Internet TV set-top boxes, which allow subscribers to access both TV programming and online shopping pages produced by M2B. Though only a small presence so far in the U.S., M2B is building on use of its Pony set-top box in Asia.

Web TV also will build on the increasingly common presence on U.S. retail web sites of video content that punctuates shopping experiences with product demonstrations and customer experiences. Web-only mass merchant Buy.com Inc., for example, says it has boosted sales tied to video presentations of new products on the BuyTV online video section of Buy.com. And BabyUniverse Inc., also web-only, recently launched its first live Internet TV broadcast showing products introduced at an industry trade show. It also hosts original video content at BabyTV.com.

Consumers rule

Whether or not merchants are ready for the changes in retailing, they have no choice because their customers already expect highly visual content and the freedom to shop however they want—online, in stores or through call centers, industry participants say. “It’s fun to think about all this because there’s been a power shift,” says Kelly O’Neill, director of product marketing at Art Technology Group Inc., or ATG, a vendor of e-commerce platforms. “It’s all about the consumer taking control.”

But predicting where consumers as well as technology trends will take the web won’t be easy.

Indeed, while retailers like Connell and Golden have their eyes set on new opportunities and challenges, the biggest challenge may be that the rate of change will increase too fast over the next few years. It will be difficult to predict what retail e-commerce will be like five years from now—or to figure out what retailers can do now to position themselves to profit from the web once it’s half way through its second decade.

“We’ve hit a level of maturity with e-commerce and we’re ready to skyrocket to a whole new level that most retailers are not prepared for,” researcher Garf says.

Take the mobile phone, now nearly ubiquitous among consumers. It is emerging as both a retail payment device and a tool for shopping online, but consumers will undoubtedly find additional shopping uses for it, experts say. With camera phones becoming common, for instance, more shoppers will use them to share product images with friends, and some may begin to pick up a common shopping strategy of photographing products and prices in stores, then using those images to comparison shop later online.

Yet while the mobile phone and other handheld devices present new ways of shopping online, they may be only the beginning of a whole new generation of Internet access tools. “Retailers should determine a long-term strategy to allow customers to access the web from numerous devices, the ones we know of today and the ones we don’t know of yet,” Garf says.

In addition to more interactive web sites, much of the change in retailing will cater to consumer expectations of shopping across channels with consistency in product selection and customer service.

Many of the changes ahead are already in the works—or at least far enough into a concept stage—that retailers can place some fair bets on what they can do now to assure a place at the e-commerce table five years from now.

To start off, retailers will act more as single organizations, regardless of how many separate channels they sell through. Instead of separate merchandising and marketing teams for store and online channels, for example, one organization will run all of a retailer’s channels. “Five years from now the organizational barriers between e-commerce and traditional operational models will totally break down—and in a good way,” Garf says.

A second general shift will come in technology systems that smooth the kinks in many current platforms that don’t fully share customer and inventory data across channels. “There is a lack of integration today among best-of-breed applications, but there will be a major blurring among store point-of-sale systems, e-commerce front end and back-end order management systems,” Garf says. “And the systems integration between retailers and their suppliers will also come together in a cohesive fashion.”

Combined with business intelligence systems that cut across customer touch points as well as back-end inventory and order fulfillment applications, these integrated systems will provide retailers the information they need to know their customers’ interests and serve them with the right products at the right time and place. “The real winner is the retailer who can combine the wisdom of crowds with personalization technology to make more relevant and timely offers online as well as in stores,” says Cliff Conneighton, vice president of marketing for Art Technology Group.

Effective technology systems will have at their core a flexibility to adapt to new applications, such as through web technology-enabled, service-oriented architecture; the ability to gather and store large amounts of information; and speed in transmitting that information throughout a retail enterprise and its supply chain, a process supported by new web development technologies like Ajax (see Cleaning up the store with Ajax, Internet Retailer, February 2007) and other varieties of XML, says Patti Freeman Evans, retail industry analyst with JupiterResearch.

Apollo mission

While Ajax is already speeding up content on web sites, another development tool, Apollo, promises to make web site applications run even faster. Under development by Adobe Systems Inc., the same company that owns Flash and Flex video and rich media technology, Apollo will enable retailers to offer web site features, including videos and shopping carts, that run faster and more smoothly than today’s web applications because they’ll actually run on a shopper’s own desktop. Experts say the technologies will run as smoothly as any native desktop application.

“With Apollo, web applications and desktop applications are coming together,” says David Fry, president of web site development and hosting firm Fry Inc.

Apollo, expected to become available within a year or so, could also lead to business models that favor the convenience of shoppers over any particular brand, Fry adds. For example, non-competing apparel retailers might cooperate in offering a virtual model web application that a shopper runs on her own desktop. After personalizing the virtual model application with her specifications, she could use it to shop at any participating retailer.

Another coming trend in web applications is the growing use of XML to develop mash-ups, or combinations of applications, within a retailer’s own system or even among two or more retailers. A mash-up within a single retailer’s site, for example, might automatically present multiple offerings of women’s and men’s outfits to a wife who shops for her husband as well as for herself. Multiple retailers, such as ones specializing separately in women’s, men’s and children’s apparel, might agree to develop a mash-up that would present on each of their sites selections from all three categories to customers who shop for entire families.

At Home Décor Products, Golden foresees within two years an online room planner application, using already available technology, such as from 20-20 Technologies Inc. and Easy2.com Inc., that would let shoppers design a complete kitchen by choosing among products from a dozen or more suppliers. The key to a successful application would be the availability of true product images and specifications from all of the manufacturers. “I don’t think this is far away. Manufacturers are already going down the path of digital renderings of product,” Golden says.

Riding the buzz

While retailers improve their own web sites and multi-channel offerings, they will also play a bigger role in a growing number of other sites—through social networking, comparison shopping and blog sites, for instance, and perhaps additional organically developed sites to serve foreign or niche markets.

“It will no longer be just a multi-channel world in the classic sense of multi-channel,” says Mark Fox, president and CEO of Novator Systems Ltd., which recently rebuilt its technology to accommodate better integration among multiple sites. “With the way teens are shopping, comparison shopping sites are becoming as important as a retailer’s main site, and more retailers will want to rapidly deploy microsites for niche categories or multiple sites for international markets.”

At Roots Canada, Connell and members of his staff post content on social networking sites like ThisNext.com, where consumers share information about what they like about products from retailers.

The power of social networking sites, he adds, is that they enable small retailers to play on an equal field with larger retailers in building brands. “Big brands can’t generate and dominate trends the way they used to,” Connell says. Roots Canada already is getting significant traffic from ThisNext.com and other sites including MySpace.com, Facebook.com, TotallyLoveIt.com and ShareYourLook.com, he says.

Connell is also looking to improve Roots.com by learning from third-party site Like.com, which lets shoppers search multiple sites for products with particular characteristics. Shoppers can enter a search phrase like “men’s red wool sweater with buttons,” which in this case produced a product that met that description at Amazon.com. Another option is to click the shoes on the photo of a model to call up a list of similar products from multiple retailers. “That kind of visual search will become more prevalent both for Internet search and internal site search,” he says. “We’re looking to see how we can apply that to our site.”

Someone get the phone!

While third-party sites continue to play a bigger role, e-retailing is also about to get a boost from the relatively personal mobile commerce, becoming more widely known as m-commerce (see story, page 14).

The size of their viewing screens restrict the usability of most mobile phones as shopping devices because shoppers must scroll through text listings of products that online retailers make available through mobile commerce. But another option for building m-commerce over the next year or two is mixing old technology with the new, Connell says.

For example, an online retailer could advertise on highway billboards or on commuter trains a limited selection of products available on their web sites for textual listing on mobile phone screens. The idea is to promote on-the-spot buying. “Retailers could have targeted selections of products available to purchase over a digital device,” he says. “Just as we’re providing for the immediate delivery online of digital content like music, we’re looking at ways to provide immediacy into the purchasing of physical goods.”

Making mobile phones even more usable as shopping devices, Connell adds, is supporting their function as payment devices—an option already becoming more available through providers including eBay Inc.’s PayPal and Cyphermint Inc. In payments and overall e-commerce operations, the key to the future is providing something of value to the shopper, Connell says. “We’re trying to innovate,” he says, “to show that the Roots brand adds value to consumers’ lives.”

 
 

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