Hickory Farms' Multichannel Odyssey

It was only a few years ago that Hickory Farms, the gift food company that’s known for its beef and cheese,  chocolates, desserts, fresh fruits, seafood, and more, actually typified multichannel retailing. At one time, it operated 550 year-round mall-based brick-and-mortar stores and had a growing Web presence, a popular holiday catalog, and great distribution partnerships with the nation’s leading grocers and mass merchants, including Wal-Mart and Walmart.com.

Then it shut down all of its year-round mall stores in a relatively short period of time, leaving the casual observer scratching his head. To some, the move marked reason to be concerned for what is perhaps America’s most recognizable gift food brand. But it was the analysis of behind-the-scenes sales trends that prompted the company’s bold move to de-emphasize its year-round brick-and-mortar presence. In effect, the decision slashed mountains of overhead from the retailer’s books with an improved impact on overall earnings and profit. Here’s why Hickory Farms reinvented itself, how it prepared, and why other strong, specialty multichannel brands might consider doing the same.

Online Retail Sales: Sharp Curve Ahead
Annual online retail sales in the United States are slightly less than $200 billion, accounting for only approximately 5% of the nation’s more than $4 trillion total annual retail sales. But some segments of retail are having much better success online than that. Typically, specialty, consumer electronics, and apparel retailers are among those getting the credit for online success. Meanwhile, online grocers have tested the market and have all but gone away. But Hickory Farms’ combination of specialty and food retailing has proven an online shopping anomaly. The retailer confounds e-commerce statisticians with an astounding 40% of direct sales resulting from online channels. Its atypical quantity of online sales, and the promise of online retailing to come, were both drivers in Hickory Farms’ decision to shut down brick-and-mortar stores.

The fact that online channels generate 40% of Hickory Farms’ direct sales may not sound so impressive considering the company’s lack of year-round brick-and-mortar stores, but before drawing conclusions, recall your last foray into a shopping mall during the holiday season. Chances are, you perused smoked hams and cheeses at one of Hickory Farms’ more than 700 shopping mall kiosks that are deployed for about six weeks during the holiday season. Those kiosks, and their online and catalog counterparts, generate serious sales. “We process roughly 300 to 500 orders per day in the off-season through direct response [catalog and Web] alone,” says Hickory Farms Director of Application Support Dan Buckland. “But in the weeks between Thanksgiving and Christmas, we process more than 25,000 direct response orders per day.” The growth of the direct response business, coupled with the realization that 700-plus strategically placed, temporary holiday kiosks could generate enough sales to create the same revenue earned by 550 costly year-round stores, contributed to the company’s decision to systematically shut down its brick-and-mortar stores.

Ramp Up Systems For Web Sales
Before the Web became a factor in Hickory Farms’ direct sales strategy, it handled direct response (catalog) orders on an IBM mainframe running software that was written in-house. In an attempt to gain control of its bustling direct response business and eliminate reliance on homegrown fixes to problems, Hickory Farms implemented a packaged direct sales solution from multichannel retailing solutions provider Ecometry. Buckland recalls feeling bittersweet relief at the decision to bring Ecometry on. “I’m a systems guy, and I like writing code and building solutions,” he says. “But from a business standpoint, when you’re growing as we were, it’s much more efficient to support a system that’s packaged and prepared to interface with other applications and partners and to let the major work be done by a software company and then fill in the gaps.”

Then the Web started to mature as a retail sales channel and continues to ripen today. According to Forrester Research, online retail sales added up to little more than $50 billion just four years ago, but will contribute $329 billion to the nation’s total retail sales by 2010. Hickory Farms launched an online sales channel in 1995, and its sales growth percentages quickly began pacing higher than industry predictions. But the Web services provider the retailer turned to was one of many in a relatively new industry full of startups prone to overpromising and underdelivering. “In the year the Web development service worked for us, we had a 30% failure rate on getting orders passed to us,” says Buckland. So, it abandoned its first Web services partner and turned to the growing AOL marketplace. “AOL merchants were required to send an order confirmation for every order received, a requirement we weren’t equipped to deal with,” he says. “Order volume grew so fast we couldn’t keep up with the e-mails. We wound up doing it manually, sending work home with employees and getting our spouses and kids to send order confirmations to customers.” Hickory Farms ultimately worked with AOL to create a homegrown solution to send order confirmations automatically.

Then, in 1998, Hickory Farms again turned to Ecometry, this time selecting the vendor’s WebOrder product for help with its burgeoning Web sites. “In the beginning, we operated one Web server, which couldn’t keep pace with the volume of customers coming to our sites,” says Buckland. By 2000, the retailer had upgraded to a three-server, dual firewall, load-balanced Web system with dual cache engines. It also outsourced the operation of its largest traffic generator, www.hickoryfarms.com, to national Web services provider Fry, Inc. The remainder of its sites still run on WebOrder.

The Internet has become a more sophisticated sales channel at the behest of consumer demand. This means online retailers have had to evolve the shopping experience by continuously adding features and functions – not just speed and the ability to handle volume – to their Web sites. Hickory Farms recognized the need to add features that automated shipment method and carrier, for instance. During the holiday rush, it wanted to be able to drop-ship orders to postal hubs using bulk carriers and 3PL (third party logistics) providers like RR Donnelly, APX Logistics, and others, and it wanted to do so in an experience that was seamless to the consumer. During the holiday season, Hickory Farms realizes significant savings in shipping by drop-shipping orders by the truckload to major postal centers via bulk carriers and 3PLs. “The year after we implemented Ecometry, we thought we were all lined up with Airborne to ship all of our holiday packages. That October, Airborne came back and said they couldn’t do it,” laments Buckland. “We process in excess of 25,000 orders per day, many of which have multiple items and multiple shipping locations. On our peak shipping days we’ve hit 60,000 packages. We scared them with our volume, so our whole plan for shipping that season had to change.” Now, Hickory Farms ships orders out of DCs in Maumee, OH, and Chicago. “We have five dock doors in each facility, and we cycle trucks through them packed with up to 8,000 packages per trailer,” he says. The process is seamless to the customer, regardless of shipping method.

Scalable Hardware, Software Ensure Room For Sales Growth
Aside from the portion of its business handled by Fry, Inc., Hickory Farms processes all of its catalog and Web sales through WebOrder, written in COBOL (common business oriented language) and running on HP3000 servers. “Ecometry has an open systems version of its software, and people have been saying for 20 years that COBOL  will die, but it hasn’t yet,” says Buckland. “I’m ready to go to the open systems version when necessary, but right now it’s a dollars-and-cents thing. How can we justify a large capital outlay to migrate to the next generation of what we have now?”

There are, of course, exceptions to the standard means of processing Web orders. To Hickory Farms, multichannel means selling through other retailers’ brands, too, and it’s fortunate (for the sheer volume of sales it reaps) to be a distributor to Wal-Mart, Walmart.com, Amazon.com, Samsclub.com, and others. Orders placed through these channels are processed at Hickory Farms through Ecometry, but require custom interfaces to convert outside file formats to Ecometry’s import format. For example, Walmart.com’s orders come in XML (extensible markup language) format.  “We couldn’t find an XML package that would handle Wal-Mart’s requirements, so we wrote our own program to read the XML and convert it to the input file needed for WebOrder,” explains Buckland. The time and expense it took to develop the interface was well spent – since then, the retailer has noticed a trend toward XML as it partners with other online merchants that also place orders in that format.

Of course, as volume has grown, hardware upgrades have been necessary. When Buckland joined the company in 1995, it was running Ecometry on an HP959-400 and was just barely getting things through the system. Today it runs an HP989-450 and has the proper horsepower to handle the volume. “When you dig down,” he advises,  “you see that slow-running applications are often hardware related,” he says. “You have to have adequate hardware resources to handle the load properly. We have eight Web order sites running today, and I don’t even notice it.”

Cross-Channel Promotions Drive Sales
Hickory Farms hasn’t rested on its laurels waiting for consumers to hit its Web site. It drives business there with unique merchandising strategies, such as a $3.99 personalized card selection for gift-giving called Card-In-The-Box. It markets Web features such as this through other channels, which has proven to be a wise move for multichannel retailers. In a recent benchmark study, multichannel retailers reported that the Web influenced 20% of in-store sales. As a result, retailers are striving to integrate their stores and Web sites by including URLs (uniform resource locators) on in-store materials, using Web sites to tout stores, allowing consumers to purchase and redeem gift cards online and in stores, and offering in-store product availability on their Web sites. Hickory Farms does these things, enabled by Ecometry. It also uses Ecometry to filter lists and generate targeted e-mails to people impacted by snowstorms and similar weather events. When a preholiday snowstorm snarls traffic in the Northeast, for instance, Hickory Farms lets Northeastern shoppers know they can log on and shop from the comfort of their homes.

The emphasis on Web commerce has decreased overhead at Hickory Farms, reducing the staff necessary to take orders and work in stores. “Using last year’s figures, we’re anticipating the possibility of 450,000 orders going through Ecometry during the six-week 2006 holiday season,” says Buckland. “The average call center takes 3.5 minutes per order. Online, that’s more than the equivalent of 131 40-hour weeks that you don’t necessarily need staff for.”

The retailer also implemented a voice portal last year, built on an XML version of Ecometrys WebOrder, which automates responses to order inquiries. This system fielded 55,000 inquiries between Sept. 1, 2005 and Jan. 31, 2006. That’s 55,000 phone calls in five months that potentially didn’t require human intervention.

Need more incentive to build up your Web channel? Last holiday shopping season, about 52 million Americans said they would use Internet access at work to browse or buy gifts online, according to Shop.org. A recent Wall Street Journal article uncovered an Internet retailing trend called Cyber Monday, the Web equivalent to Black Friday. Cyber Monday is the Monday following Thanksgiving, when most Americans return to work and their broadband connections, ready to buy holiday gifts online. About 86% of Americans who use the Internet at work have broadband connections there, up from 80% a year ago, according to market research firm Nielsen//NetRatings. The Cyber Monday phenomenon is felt at Hickory Farms, too. “When people go back to work, they make their online purchases. Especially on their lunch hours, we see traffic go up,” says Andy Grider, senior e-commerce manager at Hickory Farms. In fact, in 2003 and 2004, the company saw Cyber Monday spikes of more than 20% in Web site visits and purchases.

Today, Hickory Farms is a thriving specialty retail brand, despite its lack of brick-and-mortar stores. Driving multichannel business and keeping pace with technology to handle the volume ensures it will remain viable as Internet retailing matures.