Dot-coms Seek Synergy with Retail Parents

SAN FRANCISCO (01/28/2000) - Dot-com upstarts this year will increasingly try to integrate their online operations with the brick-and-mortar and catalog channels of their retail parents to present one face to their customers, analysts said.

"We started seeing the revenge of the brick-and-mortars the last holiday season. Now they're actually going to turn their presence into a real advantage. But it's really hard to integrate a new channel with your old," said Seema Williams, an analyst at Forrester Research Inc. in Cambridge, Mass.

Built separately or spun off to convey a hipper image, lure venture capital dollars or operate outside corporate bureaucracy, dot-coms and bricks haven't always mixed when it comes to doing business in both places.

Borders Group Inc. is piloting "Title Sleuth" kiosks in three of its Michigan stores to help customers locate books. But if the book's not in the store, a shopper can't order it through the kiosk. Nor can an Internet buyer check to see if a book is in the shopper's local store.

Meanwhile, Nordstrom.com, launched in October 1998, runs independently from its 99-year-old brick-and-mortar counterpart. But managers at the dot-com now see huge opportunities ahead if it could link to Nordstrom Inc.'s inventory systems.

Many companies, including Nordstrom, had the forethought to integrate portions of their operations that made sense. NeimanMarcus.com, which waited until last fall to launch its online operation, had information technology staffers integrate legacy systems with its order fulfillment operation. But the dot-com is forging a separate online team for some front-end technical systems, merchandising and creative aspects.

Borders expanded its Nashville fulfillment center to handle both online purchases and in-store special orders. The online and in-store operations share the same financial department, some customer service representatives and veteran IT staffers.

But a separate IT staff handles the Web site's front end. And the marketing, merchandising and content creation staffs are separate because they need employees with special expertise, said Borders senior vice president Mary Jean Raab.

Well-integrated companies are the exception, according to Carol Ferrara, a retail analyst at Gartner Group Inc. in Stamford, Conn. Ferrara estimated that 75% or more haven't integrated channels.

"I've talked to a huge number of retail clients who are now in a quandary because they have two separate organizations, two separate IT departments, two separate managing teams and new partners and alliances as part of their dot-com company," she said.

"We'll start to see some vendors who try to alleviate the pain," Ferrara said.

"But I think it's going to be a very slow process. A lot of the work will be custom."

DrugEmporium, for instance, has two distinct systems. DrugEmporium.com built an Oracle Corp.-based e-commerce site because it needed a database-driven system to handle its 20,000 SKUs. It also settled on Oracle's back-office applications for easier integration. But its parent company, Drug Emporium Inc. runs J.D.

Edwards & Co. financials and homegrown back-office systems, said Jim Schanzenbach, chief technology officer at DrugEmporium.com.

Challenge in Store

Strategically, there are no plans to integrate now, but if they ever want to merge systems, they face a challenge. "If we integrate operations, the smart thing to do would be to move the corporate environment to the system we have here. It's more state of the art," said Schanzenbach.

At Nordstrom.com, Executive Vice President Robert Schwartz said he would like to enable online customers to locate special items available in stores that aren't stocked at the company's pick, pack and ship facility in Cedar Rapids, Iowa.

"For instance, high-fashion items today are something you don't want to over-inventory, because as you go up in fashion, the propensity to buy without trying it on goes down," Schwartz said. "But our customers want it, so we should facilitate that."

But Schwartz said he has to wait for the brick-and-mortar Nordstrom operation to build a new, sophisticated inventory management system.

Another potential challenge could be disparate operating environments.

Nordstrom.com has Microsoft Corp. technology at its core, while its counterpart is a heavy IBM user.

Schwartz said the company is "buying into the promise of XML" to aid with data exchange across any platform. But some analysts warn that XML could create a lot of work producing data definitions.

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