Integration: The Foundation Of Customer Loyalty

As the calendar page flips, marking the end of the summer, many consumers' minds shift to back-to-school shopping. When a child is young, the buying ritual consists of purchasing backpacks, notebooks, and crayons - usually all available at one store in one trip. But as they grow up and head off to higher education, the necessities (and receipt totals) could add up to more than the first semester's tuition. This student may search the shelves of a discount store for a coffee maker and microwave-safe plates, but go to a department store to purchase high-quality bath towels that will last four (or more) years. A few days later the same student might search online for a specialty picture frame to showcase high school friendships.

To tap into buying frenzies such as back-to-school, retailers need to provide as many purchasing channels to their customers as possible. This also opens the door for retailers to vary their assortments in each channel. But it is almost impossible to carry a wide range of price and quality as a single retail identity.

Impossible, that is, unless one retailer operates multiple channels through more than one store chain. Hudson's Bay Company (HBC) (Toronto) has this selling advantage in the Canadian retail marketplace. The $7.4 billion company maintains three different retail chains and a Web site under the HBC umbrella. The Bay is a chain of 101 department stores, Zellers consists of 330 discount stores, and Home Outfitters offers specialty home products in seven stores.

In terms of shopping potential, HBC estimated that over 60 cents of every Canadian dollar is spent on merchandise available in one of HBC's stores. With cash flow like that, the company needs to ensure it portrays a unified shopping experience to its customers and encourage cross-shopping among its chains. However, HBC couldn't portray a truly seamless retail front to its customers until it could view its customers' shopping activity seamlessly. This meant establishing a technology framework that would allow the company to integrate all of its sales channels, as well as eliminate the stores' separate customer loyalty programs and disparate POS (point of sale) systems.

HBC's company-wide unification was rooted in an overall system architecture from IBM (White Plains, NY) called MerchantReach. The technical framework is designed to grow with HBC and allow it to integrate POS, e-commerce, kiosks, wireless applications, and CRM (customer relationship management) with its current store applications. "Before we connected our systems through MerchantReach, the applications could not communicate or share information. We tended to build systems in separate silos," said David S. Kurdyla, general manager, stores and customer service systems at HBC. "The IBM architecture incorporates so many aspects of our stores' systems, it will help us head in the direction we want in the future."

Cards Create A Loyal Following
HBC's goals have as much to do with company-wide marketing as they do keeping pace with changing retail technology. HBC may be a recognizable name among Canadians, but in past years it has taken a back seat to the brick-and-mortar identities of its store chains. "We want customers to know they can shop at an HBC store for everything from Tide detergent to Armani suits," Kurdyla said. "Customers can shop for anything with us anytime, anywhere, and through any channel, and we want them to know it's HBC that makes that possible."

Customers often shop in one store for kitchen gadgets and in another for kitchen appliances depending on selection, price, or quality. Armed with this knowledge, HBC needed to ingrain in its customers' minds a benefit of fulfilling their shopping needs in the HBC family of stores. What better way to do this than reward them for making the uniform choice? Like a proverbial carrot dangled in front of their faces, the retailer led its customers down the road to an HBC store with a loyalty card.

The company learned the value of this CRM (customer relationship management) tool from its previous program at Zellers called Club Z. Beginning in May 2001, HBC transferred all of its 7.35 million Club Z customers over to a company-wide program, HBC Rewards. Cardholders earn points for every dollar they spend in any of the HBC family of stores. Accumulated points can be redeemed for over 600 rewards including travel, entertainment, air miles, or gift certificates. "The objective of HBC Rewards is to expand our current market share by offering a program that links our retail formats and provides our customers with value," said Rob Shields, VP of CRM and loyalty at HBC. The joint loyalty card program is an extension of reciprocal store credit cards that can be used in any of the HBC stores and increases the possibility of cross-selling to the same customer.

This marketing effort will not only steer customers in the HBC direction, but the information the company collects will enable it to better understand its customers. Kurdyla said the company is currently working with Oracle to build a CIF (customer information file) as part of a full CRM initiative. Much of the information HBC gathers from loyalty cards, credit cards, and sales will be combined in Oracle to give the company a better view of who is shopping and where. "We have a concept that we refer to as the treasure chest," Kurdyla said. "The idea is to maintain a life-long relationship with our customers and maximize the value of those relationships. We think of that as filling the treasure chest." The IBM MerchantReach architecture will serve as a pathway between the POS, kiosk, e-commerce, and CRM systems allowing them to share the necessary information. By organizing all its information, the company will be able to target marketing efforts to specific customers, as well as use the data to influence other areas such as merchandising and store assortments.

POS Upgrades Produce Consistent Service
HBC knew it wanted to get its customers to shop across all of its sales channels; the trick was to match the marketing ideas with the necessary hardware to make the goal a reality. The first area it needed to address was the customer-facing part of the business - POS. The two largest store chains in the company were operating on disparate POS systems. The Bay was running a mix of IBM 4683s, which had not been upgraded since the mid-1980s, and more recent IBM 4694 terminals. Last year, 2,500 of the 4683s were about to come off their lease, which forced HBC to decide whether to buy the aged machines or invest in new technology. At the same time, HBC evaluated the POS situation at its larger chain, Zellers. The 330 stores contained equipment from NCR Corp. (Dayton, OH), which required customization to communicate with the IBM back office software. HBC eventually wanted to install common systems throughout the enterprise. The company decided a move to a single supplier would eliminate the inefficiencies caused by the disparate systems.

With major hardware changes needed at both larger chains, HBC invested in IBM 4694 solutions (4820 SurePoint touch screen monitors and 4610 SureMark thermal printers) throughout its entire enterprise.

Since the IT staff for all the stores is based in Toronto, the uniformity eased upgrades and maintenance. "The goal was to pick up the phone and talk to one person about a variety of needs, as opposed to having to deal with multiple sources," Kurdyla said. "It simplifies getting new releases of software if we can make upgrades across the board." The MerchantReach architecture also gives the stores the option to extend its POS capabilities to wireless handheld computers, which it piloted in both chains as a line-busting checkout. (See sidebar on page 40.)

Short-Term Business Benefits Lead To Long-Term ROI
Sometimes the value of a technology installation cannot be quantified. HBC's goal in upgrading its POS hardware and core architecture was to prepare itself to serve its customers across the enterprise. "Last year's system upgrades satisfied some specific business needs for the company, but concrete ROI will certainly factor into future decisions," Kurdyla said. However, it wasn't as if the investments went unnoticed. A Zellers survey discovered that 60% of customers said their wait was less in the checkout line - and they were right. By updating the older and disparate POS hardware and changes in the checkout design, HBC saw a 25% decrease in overall transaction time at Zellers. Replacing the slow dot matrix printers with thermal receipt printers in both major chains also contributed to speedier transactions (decreased by 25% to 40%) and opened the door to targeted messages printed directly onto the receipts. Also, simple navigation of the touch screen monitors reduced training time from a day to minutes by prompting the cashier through the proper sequence of steps. This allows for employees to become effective salespeople in a shorter amount of time.

By determining which technology could help the company reach its long-term business goal of drawing more customers to its HBC chains and Web site, it established a foundation for the future. The enterprise-wide integration will allow the company to view each customer as an individual shopper with definite buying patterns and needs. Now all it has to do is build a seamless company view in its customers' minds.