Transforming Banks for a Digital Future: The Winners, The Losers, and the Strategies to Beat the Odds
Gift Horse: Nordstrom Inc.
Nordstrom Inc., an upscale department store based in Seattle that targets female shoppers, had a problem. All its major competitors offered some high-value services on their Web sites that Nordstrom's Web site, Nordstrom.com, couldn't. Competitors' online customers could purchase a wide range of cosmetics and order gift cards by simply clicking on a link.
Lacking such services put Nordstrom at a "significant competitive disadvantage," says Paul Onnen, Nordstrom.com's former chief technology officer and now an independent consultant. But putting together the technology to offer and accept gift cards on the Web is a complex process. Using a gift card on the Web site would require a link to Nordstrom's bankyes, Nordstrom has its own bankso that the card number could be validated and the amount of the purchase deleted from the card's dollar value. The transaction would also have to link to Nordstrom's inventory control system on its corporate mainframes, which would deduct the items purchased from the company's inventory list. And if the purchase were executed through the store's catalog rather than its Web site, mail-order software on yet another system also had to be linked to the transaction in order to make sure the product got to the customer.
But the company's Windows 2000-based Web servers were incompatible with the IBM mainframes in the corporate offices, retail stores and the banking subsidiary that handles credit cards, and even with the Hewlett-Packard Co. server running the mail-order applications. Onnen's task: Design a system that could unobtrusively reach through all three business operations' firewalls in real time. And the software to do this had to be written, tested, debugged, tested again, and up and running in time for the 2001 holiday shopping seasonless than six months away. Add the ability to sell cosmeticsno small task in itselfand you have a recipe for a missed deadline.
Nordstrom.com considered, but quickly rejected, the prospect of developing custom software. It could have been done, Onnen said, but it would have been far too expensive, and it would have taken close to a year to test and deploy. Instead, Nordstrom opted for Web services development software from IONA Technologies PLC. Since Nordstrom already was using IONA's XML-based Netfish software on its corporate mainframe, going to the same vendor eliminated the need for extensive compatibility testing.
The entire project was completed in less than three monthswell ahead of schedule, says Onnen. The Web-based application, which translates the gift card transaction data so that each system could process it through its respective firewall, worked correctly from the outset, said Onnen, allowing Nordstrom.com to provide not only gift cards, but cosmetics order fulfillment as welland all in time for the holiday rush.
The value to Nordstrom? Since the company doesn't break out revenue by product category, it's difficult to estimate the kind of revenue opportunity the new services on its site represent. But cosmetics alone is a high-revenue product category for department store retailers, said David Unter, a retail analyst with Deloitte & Touche LLP in Costa Mesa, Calif. Unter estimates that cosmetics represented 10 percent to 15 percent of Nordstrom's total revenue last year, and that sales from Nordstrom.com represented 7 percent to 10 percent of the company's overall sales. Had the cosmetics product category been available for the entire year, given Nordstrom's $6 billion in revenue for the fiscal year ended January 2002, cosmetics revenue from Nordstrom.com could have reached $90 million.
But Nordstrom isn't stopping with cosmetics and gift certificates. Nordstrom is currently testing what Onnen calls a "perpetual inventory system" in the shoe department of some of its stores in the Pacific Northwest. Salespeople can go to a special version of the Nordstrom.com Web site to order out-of-stock shoes. The customer pays no shipping charges, the store is credited with a sale, and the salesperson gets the commissiona transaction that would not have been possible without Web services, says Onnen.
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