Competitors Converge Under The Hood
PartsAmerica.com, the online progeny of two leading auto parts retailers, established a business strategy which leverages the stores' existing supply chains to augment online sales.
Either the Internet makes for strange bedfellows or retailers are realizing that a multichannel retailing model isn't as easy as it looks. In April, online retailer Amazon.com announced a partnership with Borders Group, Inc. In the agreement, Borders will turn over its entire Web operation - inventory, fulfillment, content, and customer service - to Amazon.com beginning in August. Borders Group, Inc. struggled to maintain its e-commerce business ever since it launched Borders.com in 1998. Realizing its book smarts were in bricks and not clicks, Borders partnered with the e-savvy Amazon.com to secure the bookstore an online presence. Amazon.com benefits from the secure brick-and-mortar reputation of Borders bookstores. This isn't the first union of this nature, and it won't be the last. The concept of leveraging core competencies while maintaining an established brand is catching on - a prime example started its engines last year in the auto parts industry.
Nationwide Bricks Drive Clicks
If the retail world thought an alliance between booksellers Borders Group, Inc. and Amazon.com was an unlikely marriage, how about the country's number two and number three auto parts retailers' cyber-partnership? In January 2000, $2.2 billion Advance Auto Parts (Roanoke, VA) and $1.5 billion CSK Auto (Phoenix) partnered with Sequoia Capital, a venture capital firm, to launch PartsAmerica.com in September. This online auto parts retailer gets its inventory from the two brick-and-mortar supply chains of almost 3,000 stores and a million auto parts. "Our business model is effective because we take the buying power of two big brick-and-mortar organizations that have a stronger cost structure compared to pure play Internet e-tailers," said John Morel, VP of marketing at PartsAmerica.com. "The cost of creating a brick-and-mortar presence is enormous. With this relationship in place, we can capture the benefits of 24/7 online sales and the footprint of having stores nationwide."
Since its launch, PartsAmerica.com has found that its online auto parts transactions total several times more than typical store purchases. Morel said there is a good relationship of those who tinker with their computers and those who tinker with their cars. "Once we get our online customers into the stores, there are more chances to service them and keep them from driving to a competitor's door."
Advance operates 1,800 stores in 38 states and Puerto Rico while CSK Auto operates over 1,150 stores (Checker Auto Parts, Schuck's Auto Supply, and Kragen Auto Parts) in 19 states. "By combining their geographic networks, Advance and CSK Auto created one online company and one brand that can be marketed to a much greater percentage of the population," said David Waxberg, VP of technology at PartsAmerica.com. Since the store chains operate mainly on opposite sides of the country, establishing a successful Web presence meant augmenting their regional reputations with the national PartsAmerica.com brand.
The business strategy allows online auto parts shoppers to have their items shipped from Advance and CSK Auto distribution centers to their homes, or to pick up and return purchases at local stores - a service that PartsAmerica.com knows its customers appreciate. Not even a year after it launched, the Web site reported that, when given the option, more customers preferred to pick up their orders than have them delivered. Morel thought this was true because customers can receive immediate gratification and avoid shipping costs. A great percentage would also rather visit a store with returns and exchanges than mail them back to PartsAmerica.com. These numbers illustrate that, when given a choice, do-it-yourselfers want to do it all, even when it comes to obtaining the parts.
Middleware Jump-Starts Communications
To succeed in the sometimes sputtering online world, PartsAmerica.com had to provide its customers with real-time inventory access and successfully join the three independent companies' disparate systems to create an integrated supply chain infrastructure. PartsAmerica.com and its partners worked with Integrated Information Systems (IIS) (Tempe, AZ), an Internet solutions provider, to establish the Web site's business strategy, design, and most importantly, how the three companies would communicate order and inventory information with each other.
The project was like replacing the engine of a 2001 Porshe with that of a 1998 Corvette - PartsAmerica's newer Windows 2000 servers did not naturally communicate with CSK's and Advance's AS/400 servers. The retailer store systems contained many proprietary and homegrown applications, therefore the team searched for the correct connections to make it all run smoothly, if at all. IIS used a message queuing middleware technology, specifically MSMQ from Microsoft and MQSeries from IBM, to create a consistent programming interface across the three platforms. (See diagram on this page.) This enables order and inventory information, generated in XML (extensible markup language), to transfer between PartsAmerica.com and its brick-and-mortar suppliers. For example, if a customer orders a spark plug from PartsAmerica.com and requests to pick up the order at his local Advance Auto Parts store, the system needs to access Advance's inventory to ensure that spark plug is in stock. The order request goes from PartsAmerica.com into a system-managed queue of messages (a line of messages waiting to be handled). From here an MSMQ to MQSeries conversion bridge translates the XML message into a form the AS/400 operating systems can understand. That message is sent over a private WAN (wide area network). If the spark plug is available, Advance then sends a message back through the translation bridge and the queue for PartsAmerica.com's Windows 2000 system. The customer receives confirmation that he can pick his part up at the store immediately. Once the companies found the parts they needed to make the process work, both CSK and Advance had to make some in-house adjustments to make the overall supply chain operation purr.
Integrate And Conquer
Prior to the partnership, CSK Auto looked into expanding its existing e-commerce business, but realized that alone, it would exclude 2/3 of the country if it tried to offer in-store pickup. And it felt the key to a multichannel strategy was to take advantage of the local store presence to drive customers to the Web while getting them in the stores as well. PartsAmerica.com took advantage of its brick-and-mortar partners' already established supply chains by turning the stores into mini-distribution centers. Advance and CSK Auto also had to adjust their warehouse operations to ship individual online orders as opposed to only large store shipments.
When an online customer orders an air filter, based on search results of both Advance and CSK Auto's inventory by zip code, the Web site informs the customer whether the filter is available at a local store or if it can be shipped to his house. If the filter is in stock at a store, the order message is sent directly to an in-store printer, where a store employee removes the filter from the shelf to await customer pickup. Once the order is placed, the air filter is no longer in the system's inventory and, therefore, cannot be sold to anyone else. Company reports have shown that since the launch, most of Advance and CSK Auto stores receive Internet orders for in-store pickup. The company noted that many of those orders come from the more well-wired areas of the country where online shopping is prevalent.
Parts that are not available in a local store can be shipped to the customer from one of six distribution centers (three for each retailer) across the country. Orders are sent from the center closest to the shipping address, but if the customer ordered two or more different products, the order might arrive in separate shipments depending on where the parts are in stock. Each retailer's warehouse management systems (WMSs) were developed in-house, but shipping individual orders was not a difficult adjustment. Both Advance and CSK Auto already operated special order systems prior to the partnership. Basically the only change was adjusting the shipping address fields to recognize homes rather than individual stores. CSK Auto added shipping software from Varsity Logistics, Inc. (San Francisco) while Advance made adjustments in-house to its WMS.
Maintaining Brand Awareness
Although PartsAmerica.com still has the online equivalent of that new car smell, both companies are confident in making the site their sole e-commerce strategy with some individualized branding to build on what the stores already have. If customers go into the Kragen Auto Parts stores they might see signs for www.kragen.com. But if those customers type the address into a browser it will take them to a site branded as Kragen Auto Parts@PartsAmerica.com. "It is our way of leveraging the hundreds of millions of dollars the stores have invested in marketing as well as the equity they have built through brand awareness in the marketplace," Morel said. In the future, the stores are considering making use of all the personalized customer information the Web site is collecting through a joint loyalty program. The race to fund a truly successful online selling strategy is on. There have been some companies that have crashed and burned, serving as examples to those who are easing into the Internet curves. Soon the cyber-racetrack will contain fewer individual participants and more team efforts than ever imagined. Multichannel may soon extend into multicompany as retailers take even more passengers on a drive toward expanded customer reach.