E-Business Strategies: Integrate Your Channels

FRAMINGHAM (07/17/2000) - When Melanie Alshab introduced herself as "the CIO of a very large landlord" to other attendees at Internet conferences back in 1997, they brushed her off like pills on a Patagonia vest. No one from the dotcom world wanted to talk to the former Simon Property Group executive because she was from the world of brick and mortar--shopping mall brick and mortar. With online shopping taking off, who needed her company's physical retail spaces anymore, anyway? Similarly, when Alshab networked at real estate conferences, her colleagues there dismissed her Internet boosterism as hot air about a passing fad. Based on what she heard at these events and from consumers, Alshab and her peers at the Indianapolis-based real estate developer couldn't imagine either channel ultimately winning out. "We believed that the physical channels would be around for the long haul as much as the Internet would be," says Alshab.

She also knew that consumers didn't understand why they couldn't return something to a store if they bought it off the website. "For consumers, the need [to integrate the channels] was already there," she says. If retailers were going to respond to this need Simon had to provide much more support than the infrastructures that companies like The Gap already provided their stores: sophisticated computer networks packed with integrated customer relationship management, distribution, logistics and inventory systems.

MIXING BRICKS AND CLICKS After searching in vain for a company that could provide all of these services, the developer decided in 1998 that it would offer them itself through a new subsidiary called Clixnmortar that incubates, develops and launches innovative services that combine physical and online retailing. Simon CEO David Simon named Alshab company president while she juggled her responsibilities as CIO (at press time, Alshab had left Clixnmortar for consulting).

Currently, Clixnmortar offers three services. The first, MerchantWired, installs secure data networks, voice over IP and redundant WANs in retail stores. If Victoria's Secret wants to draw crowds with in-store cybercasts of fashion shows, or if a music store wants to let its customers burn their own CDs by downloading music from Web-enabled kiosks, Tenant Connect.net provides the requisite Internet connection. "These applications require some sort of IP-based infrastructure that needs to be redundant, highly reliable and burst to various levels of bandwidth," explains Alshab. MerchantWired was beta tested in seven malls in 1999 and officially launched in May 2000.

The other two services, Fast Frog (www. fastfrog.com) for teens and Your Sherpa (www.yoursherpa.com)--named for Tibetans who live in the Himalayas and provide support to mountain climbers--for affluent, time-starved adults, facilitate the online and realworld shopping and buying experiences. (The services are being piloted in three malls in the Atlanta area.) Both services essentially work the same way. Shoppers first register with Fast Frog or Your Sherpa at a designated location in a Simon mall, like the valet parking area. There, they are given a personal webpage that they access with a user name and password through either the Fast Frog or Your Sherpa websites.

They also pick up a handheld computer to scan merchandise that catches their eyes in stores. After scanning something, they are prompted to answer a question on the LCD, asking if they want to buy the product now or if they want to think about it. When they're done shopping and they return the device to the specified location in the mall, it gets synched up to their personal webpage, which lists everything that they scanned. Here they decide how they want to fulfill their orders--if they want to buy it at the mall or from the retailer's website. If they opt for the Web, they determine how and where they want it shipped and if they need it gift wrapped. Meanwhile, retailers pay Clixnmortar a participation fee and a cut of each transaction.

Alshab sees several ways that these services can pay off. First, the company is developing expertise in setting up the logistics and infrastructure to help stores conduct sales across different channels. Second, it's developing partnerships with technology companies.

KNOW YOUR DEMAND But that's just the beginning, according to Alshab. "Around Fast Frog and Your Sherpa, there are opportunities that we haven't leveraged yet," she says. One is to let retailers advertise on the PDA, so if customers walk by a Starbucks in the mall they'll receive a message alerting them that they can pick up a latte without having to linger.

Another opportunity surrounds the aggregated information on the products that capture the fleeting fancies of fickle teens. Alshab says that most teens don't buy much when they go shopping, and what they do buy usually sits on a waiting list for a few weeks before money changes hands. So if Abercrombie and Fitch has stocked both denim and suede jackets on its racks and is about to produce another million of each, and if, according to Fast Frog numbers, kids are snubbing the suede, Abercrombie might decide to increase the production of the denim to 2 million and deep-six the suede.

But what if the number of kids subscribing to Fast Frog isn't enough to represent an accurate sampling of buyers? Will Abercrombie be safe adjusting their production cycles?

Shannon Haslund, Clixnmortar's vice president of operations, doesn't think it's an issue. She views the information the company provides to retailers as a value-added service on top of the functionality retailers get through Fast Frog or Your Sherpa. "Retailers are already spending money studying trends between stores and trying to aggregate this information," she says.

What are you going to do about your company's survival? E-mail Staff Writer Meridith Levinson at mlevinson@cio.com.

WHAT AMERICANS DO BEST: SHOP 44,367 Total U.S. shopping centers (1999) 190.5 number of adults shopping in centers per month (in millions) 23 percent of mall traffic is people under 25 5 hours Teenagers and seniors spend the most time in malls per month 30 to 54 The age of women who spend the most money in malls Source: "National Benchmarks of Shopping Patterns and Trends" study by the International Council of Shopping Centers MALL GAMES Giving shoppers portable information tools will create fat new markets from thin air. Trouble is, no one's exactly sure how yet. Our roundtable panelists brainstorm what Clixnmortar can offer to enhance its mobile business model. The participants: Melanie Alshab, Clixnmortar; Philip Anderson, Dartmouth College; Evan Grossman, Hookmedia; Alan Hughes, Deutsche Financial Services; James McGee, Diamond Technology Partners; Elizabeth Rose, BMG Direct; Ralph Szygenda, General Motors.

Philip Anderson: What can Clixnmortar do with a combination of offline plus online that makes the whole worth more than the sum of its parts?

Melanie Alshab: People browse in stores and then buy online. People browse online and then buy in stores. The reason why Clixnmortar is worth more is because that's the way that people engage with the two channels.

Anderson: Isn't it also a defensive maneuver?

Alshab: That's partially true, but if you look at the statistics, the mall business is very healthy. We looked at Clixnmortar as a way to learn what infrastructure requirements would be needed to support consumers as they engage with brands and retailers both online and offline.

James McGee: Customers don't necessarily make that online and offline distinction. Customers just want to get their Gap T-shirt; they're not interested in long explanations of why they can't return it to the store [if they bought it online].

Anderson: With the scanning device, the customer is no longer tethered to a kiosk in the store. What can we do with this handheld device that moves beyond the value propositions that we've been talking about so far? Simplicity, seamlessness and convenience.

McGee: If you were to buy a particular piece of clothing from a store, folks in the store three doors down will offer you some other part of the outfit that goes with it but that doesn't compete with the store.

Elizabeth Rose: The reason mall usage statistics continue to improve is because going to the mall is not necessarily about shopping. It's about entertainment, hanging out and friendship. With this device, you might link different products and different stores together in some sort of entertainment product or experience. Maybe you're running around, zapping different items in a store, as if you're playing a game, like scavenger hunt.

McGee: Put instant messaging on it and you can find out that three of your best buddies are somewhere else in the mall. A restaurant could display a message that says, "If all of you show up for lunch within the next 30 minutes, we'll give you 10 percent off."

Anderson: I'd like to take a snapshot of something and send it as an e-mail attachment to my wife and ask her, "I saw this at the mall. Do you want me to pick it up?"

Alan Hughes: If they're buying larger durables like a refrigerator, microwave or a barbecue, you could offer product insurance and financing options online.

This device could be loaded up with the individual's credit line, and they could buy up to their credit line.

McGee: Ralph, what if I were sitting in a GM dealership with one of these wireless devices and decided that I wanted to buy a Suburban? I could start a bidding auction online to find the best financing and then tell the dealer, "Hey, I'm ready to buy, and I've got the financing in place."

Ralph Szygenda: We're moving to putting kiosks in dealerships so that the device would be very applicable there. We want to sell other products and services besides cars when customers are in a dealership.

Anderson: The revenue model of Clixnmortar looks like a participation fee, a transaction fee and possibly in the future advertising revenue and information aggregation for retailers. Can you think of other revenue models that might work, and do you see some pitfalls with the notion of a participation or transaction fee?

Evan Grossman: Something like this will work only on a broader scale. If it's available just at the Simon malls in your area, that's very much in Simon's interest. I'm not sure how much of that is in the consumer's interest or The Gap's interest. This creates an interesting cannibalization question. Do you open it up to other large mall developers? Do you open it up to other retailers? What we're talking about here is a new retail platform. To make it successful, you need a lot of people to participate. In my experience, most manufacturers are always dying for better purchase data that they never get from their retailers. This is another good source of that information.

Rose: I think Clixnmortar needs to move to a licensing model. It's going to be part of some other handheld device that people are carrying around, like a cell phone. The question that strikes me is, How many devices are consumers going to carry? The real potential is to integrate a bar-code reader into some device that we carry around with us all the time, whether it is our cell phone, Palm Pilot or some other device.

Anderson: It seems to me that the real opportunity here is for services that are mall specific rather than store specific. For example, cross promotions that refer to different stores in the mall or a loyalty program where you get points for whatever you do in the mall as opposed to what you do in a particular store.

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