Reduced Feedings

Even in the depths of the Great Recession, U.S. online retail sales grew a healthy 11 percent last year, according to a recent Forrester Research study. What’s more, the study classified 42 percent of all retail sales in 2009 as having been “web-influenced.”

Neither of those findings has been lost on PETCO.

The San Diego-based retailer, which operates more than 1,000 stores in all 50 states, is successfully navigating the worlds of paid search, paid ad placement, comparison-shopping and third-party sellers – with the help of Mercent, which provides a software platform that automates retailers’ online third-party operations and offers an online-retailing consulting service.

Although John Lazarchic, PETCO vice president of e-commerce, declines to say exactly how much the company’s online sales and profits have increased with Mercent’s help, he characterizes the gains as “significant.”

“We have definitely seen an increase in our sales through these channels that far outpaces our overall growth rate,” he says.

Mercent customers achieved an average of 30 percent year-over-year online revenue growth in the fourth quarter, says Eric Best, Mercent chairman and CEO. They also posted 78 percent growth in sales through Amazon.com during the same period.

For PETCO, the benefits do not end with better numbers. “One of the primary reasons for going to Mercent, besides additional sales, was just to free up the resources internally,” Lazarchic says.
Before signing on with Mercent, PETCO supplied data separately to as many as 15 online comparison-shopping engines or Internet shopping portals, each one with a slightly different format. Someone at the retailer had to manually enter the data to make sure it matched the third-party site’s fields and criteria.

Now PETCO sends a single data feed to Mercent, and the vendor’s platform ensures the information conforms to the needs of each site. Mercent also keeps pace with changes in site requirements. “Going forward, we don’t have to make any changes, even as the comparison-engine space and portal space tend to grow and change,” Lazarchic says. “We’re pretty well covered.”

Managing the feed
Retailers face two challenges in feeding data to third-party sites: navigation and mapping accuracy. Combating them, Lazarchic says, was a “never-ending headache.”

Take the question of defining a dog bed – should it be a “round dog bed” or a “cedar dog bed”? The answer might actually be “both,” but “you might have the option of picking just one,” Best says. And that answer could vary on PriceRunner, Shopzilla and Amazon.

“If you look at the mapping incorrectly, your product shows up in the wrong location,” Lazarchic says. “Then the customers don’t see your product.”

Mercent, Best says, helps retailers “understand which category is going to perform best from a sales and profitability standpoint.”

As a second challenge, retailers have to guard against inaccurate mapping (erroneous bar coding, for example) or else their products may not link correctly between the third-party seller and the retailer.

PETCO began data mapping and back-end work with Mercent in February 2009. The initial setup required several months but fell in line with expectations, as the retailer “didn’t dedicate a whole lot of internal resources to rush the project through,” Lazarchic says. Setting up comparison-shopping did not differ much from setting up any online product feed and proved relatively easy, but integrating with Amazon took some time because of the need to transfer customer orders back and forth and coordinate payment, shipping and confirmation.

The potential pitfalls of connecting with Amazon convinced PETCO to work with Mercent, Lazarchic says. “Their basic sales pitch was that they could actually manage the Amazon feed better than we could.”

Perfecting operations
Mercent came into being because of Best’s connections with Amazon. He had gone to work for Amazon’s third-party seller programs after it bought his first company, an e-commerce integrator, in the late 1990s. The company now supports 80 online advertising and shopping channels, and its customers, including REI, Guess? and Brookstone, encompass retailers that operate only online and those with strong bricks-and-mortar presence.

That flexibility attracted PETCO to Mercent, as did a pricing policy based on the amount of new business its software and services generated (Mercent charges retailers a minimum monthly fee, and deducts that minimum from the commissions it earns). As a result, “risk was limited because you’re basically only paying for what they do sell,” Lazarchic says.

The retailer is currently testing Mercent’s automatic pricing technology, which reviews competitor’s prices and adjusts and optimizes clients’ prices based on profitability rules determined by the retailer. The technology incorporates the retail price, cost of shipping and scores achieved in customer ratings. “If the test goes as expected, we would be rolling that out into a more full-time program,” Lazarchic says.

Optimizing third-party online retail operations only makes sense, Lazarchic says, because of e-commerce’s importance to both sales and marketing. “As with almost every retailer, we see more and more customers move to the web,” and a recent Forrester study projects 10 percent annual growth in the category over the next five years.

Lazarchic quotes studies that indicate that for every dollar retailers invest in e-commerce capabilities, customers use online research to help drive an additional $5.70 of in-store purchases. Studies also show customers who shop online and in the store are nearly three times more valuable to a retailer than consumers who utilize just one channel, he says.