Focus On: Four key innovative IT solutions

The economic downturn of the past 15 months has impacted retailers in every area of operations, and technology is no exception. Most industry experts agree that the days of platform overhauls and costly technology swap-outs are long gone. With capital already tied up in IT infrastructure, the next decade will teach chains to augment existing solutions with evolving, albeit proven, technology that will keep them flexible and successful going forward.

“It is time for a refresh of purpose, and innovative solutions can help,” said Paula Rosenblum, managing partner, Retail Systems Research, Miami.

Going forward, ease is the name of the game, according to Rosenblum.

“Interfaces need to be easy, access to real-time information is a must, and the ability to get the right information into the hands of decision-makers is crucial,” she said.

As retail IT executives plan for the year ahead, here are some key innovative solutions that have found a niche within the retail industry.

Mobile applications: Cell phones, smartphones and PDAs (personal digital assistants) are fast becoming critical tools that help consumers perform daily tasks, so the timing couldn’t be better for retail chains to integrate the power of consumer mobile applications into their business strategies.

By the end of 2010, 1.2 billion people will carry handsets capable of supporting rich, mobile commerce applications, according to Gartner, the Stamford, Conn.-based technology research firm. This will set the stage for retail chains to successfully merge mobility, the Web and retail.

“Going forward, the mantra for retailers needs to be ‘mobile, mobile, mobile,’” Rosenblum said. “It may be a budding technology, but consumers are demanding it and retailers need to respond.”

Some chains are already ahead of the game. 7-Eleven for example, is using mobile technology to expand its assortments. With a new focus on the gaming category, the Dallas-based convenience store giant is pulling out all the stops to reach a new demographic of shoppers: the 16- to 34-year-old crowd.

“This group is focused on using technology more than any other customer segment, and it is also a sweet spot for the gaming category,” said Michael Jester, 7-Eleven’s category manager for gaming and electronics. “They are never without their phone and always on the lookout for new gaming merchandise.”

The chain began carrying electronics and video games a year ago, and assortments are growing. Yet 7-Eleven knows it can’t sacrifice its core assortment of convenience items to expand the category. By partnering with Redmond, Wash.-based Microsoft, 7-Eleven is helping Gen Y shoppers electronically order merchandise directly through their cell phone.

Shoppers can download the Microsoft Tag application onto their iPhone, Palm, Blackberry or other smartphone device. Using their phones, consumers can snap a digital photo of dedicated “tags” displayed on point-of-purchase signage. Images are uploaded to a dedicated URL where shoppers can use 7-Eleven gift cards or other prepaid cards to order the chosen merchandise. Orders are directed to a third-party distributor that will fulfill the order.

The chain is planning a 25-store test for early this quarter, Jester reported.

“We see this as another service they can use while they come in for their coffee, soft drinks and snacks,” he added.

Other retailers, such as K&L Wine Merchants, are using mobile technology to merge the online and offline experience. The multichannel retailer regularly examines online traffic patterns and the browsers customers use to access its Web site. When K&L noticed that a majority of consumers were accessing the site through browsers supporting mobile devices, it decided to recreate the store experience for mobile users.

“To do this, we needed to optimize the mobile navigation experience,” explained Brian Zucker, coowner, K&L Wine Merchants, Redwood City, Calif. “We wanted to ease the search experience.”

The company turned to Cambridge, Mass.-based Endeca, a provider of search and information access solutions, and Unbound Commerce, Newton, Mass., which serves up the information in a mobile-friendly interface. Endeca’s search engine is linked to K&L’s databases, which store the chain’s online wine catalog, customer reviews and food pairings. The solution then synchronizes common attributes, such as blends and wine origination. As mobile users link to the site’s search application and input their key words, the search engine delivers a compilation of results to Unbound Commerce, which displays the information in a mobile-friendly interface. Users can drill down for more specific results by clicking on terms such as brand, year or rating.

Approximately 10% of K&L’s daily online traffic comes from mobile users. The chain hopes to enhance the mobile experience in the future by adding m-commerce, or a mobile-ordering application.

Advanced Analytics: Staying one step ahead of shoppers is never easy. But that’s what some retailers are doing through advanced analytical solutions, which look into the future, predicting what can or will happen. Such solutions provide simulation, prediction, optimization and other analytics, not simply information, to empower even more decision flexibility at the time and place of every business process action.

Such solutions can serve many purposes. For example, by integrating an advanced analytics solution to existing loss prevention technology residing in a prototype store, Home Depot is collecting data it needs to beat thieves at their own game.

Although the home improvement chain has lowered its retail shrink rate during the past decade, it decided in 2009 to take its efforts one step further and learn how to use cutting-edge technology to protect its assets, with a goal of “becoming a leader of retail loss prevention,” said Mick Pinneke, senior director of asset protection, Home Depot, Atlanta.

Home Depot is tweaking its plan in a prototype location, referred to as the Asset Protection Innovation Store, which launched last July. While the store does serve shoppers, its main role is to help the chain test the effectiveness of solutions in a controlled environment.

The store provided the perfect setting for Home Depot to evaluate the value of advanced analytics in theft prevention. Although the chain’s stores are outfitted with closed circuit television systems and some of its merchandise is protected with electronic article surveillance tags, the retailer still lacked insight into shoplifters’ patterns. By using a variety of analytical tools and models, Home Depot is investigating potential outcomes and scenarios related to loss. Besides analyzing what happens before and during a theft, advanced analytics also provides insight that will allow the chain to predict what thieves will do as they try to leave the store. The results will help the chain maximize the effectiveness of its loss-prevention business processes.

Specifically, Home Depot deployed video cameras in its tool corral and hand tool departments, two high-theft areas due to the coveted merchandise they feature. The cameras are connected to a DVR loaded with analytical software, a combination that detects patterns related to shopper merchandise selection, traffic patterns for the aisle, shopper dwell time at specific aisle locations, as well as which patterns and behavior lead to a sale.

“We have learned to identify specific theft patterns and make it easier for us to pinpoint intentions of the bad guys,” Pinneke said.

The technology has other benefits as well, with Home Depot using it to uncover merchandise affinities, step up marketing signage and even focus on specific pockets of aisle real estate that may be overlooked by shoppers. Home Depot plans to roll out the application mid-year.

Best Buy Co. also knows the value of advanced analytics. The consumer electronics chain is conditioned to analyze vast amount of data and patterns across the thousands of product categories. However, the chain struggled with how to conduct this practice across more than 1,000 locations in an effective, timely and efficient manner.

“We didn’t have a system that integrated all customer activity across the enterprise, so we couldn’t determine the next best message for individual customers,” said Matt Smith, VP marketing, Best Buy, Richfield, Minn.

Eager to deliver relevant, timely and consistent messages across all customer touch points, the company turned its attention to predictive analysis. It added Retail Action Manager, from Minneapolis-based FICO, in 2009. FICO’s analytical models reveal relationships between the product combinations that customers buy, as well as the context in which they buy them.

The solution is currently integrated with the chain’s e-mail channel and is also being tested within an online application. During the next six months, the retailer will scale the solution through additional communication streams and will also “continue to build and enhance the infrastructure that surrounds it so Best Buy can better understand customer purchase sequences,” Smith said.

The Wet Seal is going one step further and using advanced analytics to optimize sizing across its assortments. The retailer selected SAS Size Profiling, from SAS, Cary, N.C., a leader in business analytics software and services, to more effectively distribute clothing sizes in its individual stores. The system uses analytics to transform historical sales data into accurate projections of future demand by size. Integrated with existing merchandising systems, it applies this intelligence to purchasing and allocation workflows.

“Using SAS Size Profiling means our customers will find the fashion they want in their preferred sizes through most of the main selling season,” said Wet Seal CIO Jon Kubo. “We expect this will minimize markdowns and lost sales as the use of accurate, store-specific size profiles for each style will minimize situations where we order too many or too few of any specific size.”

The Wet Seal anticipates the solution will enhance customer service and boost its margins.

Cloud Computing: When it comes to reliable, cost-effective scalability and data integrity and redundancy, cloud computing is coming into its own across the retail industry.

Virtual clouds enable companies to “electronically share” computing resources rather than physically host local servers or personal devices to handle applications. Cloud networks are comprised of large groups of servers often linked together through virtualization techniques. The actual hardware is housed in an offsite data center where companies ideally “rent” usage. Such a scenario proved a perfect option for Domino’s Pizza to support its ever-growing e-commerce channel.

Approximately 20% of the Ann Arbor, Mich.-based pizza chain’s domestic sales come from online orders, and this rate continues to grow. The chain is currently preparing for its biggest season: Super Bowl.

“Each year during Super Bowl we set a new high in terms of incoming online transactions,” said Jim Vitek, director of e-commerce, Domino’s Pizza. “Super Bowl often produces spikes at least 50% higher than our busiest Friday night. Since we can’t take a chance on outages, we began considering new platform options.”

Unlike traditional retailers, Domino’s sells a limited number of SKUs, and consumers customize merchandise. This becomes a challenge as online volume continues to increase. The ideal solution needed to support its growing online volume and process existing Java-based code, as well as backend core objects. It also needed to provide dynamic scalability and hosted services, including firewalls, servers and networking infrastructure, all at a low price point.

The design, scalability and price of the Azure cloud-computing platform from Microsoft, Redmond, Wash., fit the bill. Unlike its current configuration, Domino’s cloud-based platform kicks physical databases out of the transaction flow.

“Storage is virtual and scalable, and the virtual cloud platform supports incoming transactions at a faster rate,” Vitek added.

Domino’s has completed a proof-of-concept test of Azure and, according to Vitek, it can successfully process incoming online orders and flow transactions down to store level for fulfillment. Currently, the chain is building out and integrating backend functionality, including pricing applications, store location support and coupon processing.

Digital receipts: Imagine a world without paper receipts. It may sound far-fetched, but this prediction is much closer than expected with the evolution of digital receipts. According to industry experts, digital receipts not only help streamline the shopping experience but also deliver a new data stream that support personal communication with customers. As an added bonus, they have a “green” component by cutting down on paper.

Peek…Aren’t You Curious, the San Francisco-based start-up children’s apparel retailer, began delivering digital receipts when it first opened its doors a little more than two years ago. Shoppers opt in for the service, provided by AfterBOT, Atlanta, following the transaction on the point-of-sale system.

“They walk out of the store paper-free, then view receipts on a dedicated Web portal, in the comfort and privacy of their home, when they are ready,” explained Bob Graham, CIO, Peek. He noted that by having all customer information and shopping data in one place, the chain is able to reconcile any disputes within seconds.

Peek is one of several retailers taking digital receipts to the next level through a consumer-facing service with the help of AfterBOT and Mountain View, Calif.-based Intuit. Consumers can opt-in to download the receipts into a money-management application that resides on a Web portal, managed by Intuit. Here, shoppers can manage their receipts with Peek, as well as those from other retailers, including Best Buy, participating in the program.

To keep shoppers engaged with the service, Peek features a kiosk, from Atlanta-based NCR, that enables them to learn about the service and join the program.

Oakland, Calif.-based Cost Plus World Market recently jumped on the AfterBOT/Intuit digital receipt bandwagon as a way to enhance its loyalty program.

“This service allows us to electronically collect more customer data and use it to communicate targeted messages to our shoppers as they review their receipts,” said Cliff March, the chain’s VP applications.

March anticipates a day when non-competing program participants will join forces and collaborate on marketing initiatives to target messages to shoppers they have in common.