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TECHNOLOGY EDGE (FEATURE) Finding the balance

Few brick-and-mortar retailers view their web stores as much more than a chore necessary in today's world. Customers expect them. But web stores don't generate much profit, and they create inventory headaches.

Executives at Found Inc., of San Francisco think these problems stem from an inability to tie together store and warehouse inventories in a way that serves both conventional and electronic transactions.

Found thinks it has a solution. A privately held company, Found has raised more than $45 million to develop this solution.

The foundation

One of the company's original investors, and its current chairman of the board, is Steve Young, former quarterback of the San Francisco 49ers.

Found was born in 1998, when retailers feared being overwhelmed by dot.coms. “Retailers wanted tools that would help them compete against virtual retailers,” notes Richard Lawson, Found's president and CEO. “But we never believed electronic retailers with low brand recognition and limited service capabilities would compete effectively with traditional retailers.”

While that assessment was proving itself in the market, Found was developing a technology called ICaM (Integrated Clicks and Mortar) designed to help traditional retailers use e-commerce to compete more effectively with their real-world competitors. Because of its focus on electronic retail, ICaM helps brick-and-mortar retailers deal with competition.

What ICaM does

Once a day, real and virtual stores typically send batch files reporting sales to a central inventory management system, which aggregates the data and replenishes stock as necessary. Because of the 24-hour lag in updating inventory, no one in a retail organization knows exactly what merchandise a store or central inventory holds at any given time. That poses problems for a retail chain's real and virtual stores, its accounting systems, and its brand image.

Suppose a customer visits a store to buy a specific product, having ascertained at a website the night before the store carries the product. At the store, however, the customer discovers the stock sold out. The sales person can check with other stores or order the product from the central inventory. But the unhappy customer may well go elsewhere.

Another problem arises when a customer buys through a retailer's website and then decides to return the product — to a store. The web site gets credit for the sale, but the store gets charged with a return, which reduces that store's same-store sales figures. “To solve these problems, a retailer needs a system capable of aggregating inventory across all stores and distribution centers in real time,” Lawson says. “But building such a system is expensive.”

If it could be done economically, a retailer wouldn't disappoint customers expecting to find a certain product in a particular store and could always account correctly for its transactions. Found developed ICaM and an associated fee-based subscription system to deliver these and other benefits to retailers.

ICaM installs in the point-of-sale cash registers in each store, in the web-store system, and in the chain's central inventory management system. Data communication lines run from each installation site to a massive database, called the master index, hosted by Found.

With ICaM, retailers manage inventories in real time and expand customer service. The system enables a web store to boost the quality of online service. For example, a customer can purchase a product at a website and wait for delivery or use the website to locate stores that have the product in stock. The customer can purchase the product online or directly from the store and can ask to have the product either delivered or held for pick-up.

The system will also enhance brick-and-mortar services. If a customer asks for a product that's out of stock, a sales associate can use ICaM to find the product in a nearby store's inventory and offer to have it delivered or held for pick-up by the customer. This thereby reduces the number of customers that walk across the mall to a competitive store.

In each case, ICaM feeds accurate data on sales and returns to the retailers' accounting system, while the master index keeps a running, real-time total of actual inventory at every store and warehouse.

In addition, ICaM has a solution to channel conflicts between retailers and brands. Tying a retailer's inventory together makes it possible for a brand or manufacturer to query that retailer's inventory, with the retailer's permission. In practice, this might enable a store locator on a brand website to facilitate purchases, for delivery or pick-up, from retail stores, making it unnecessary for the brand to sell from its own stock. According to Lawson, ICaM functions side-by-side with most existing retail systems — point-of-sale; merchandise planning and buying; inventory management; supply chain management; and others.

Could retailers do this themselves?

Found's idea may be prohibitively expensive for individual retailers to reproduce. In addition to software development costs, Found spent $20 million on Sun Microsystems servers, which house the master index. “We have two server farms, which give us bi-coastal redundancy,” Lawson says. “Each server site can process hundreds of millions of SKUs. Individual retailers query their inventories through the master index. Because we've done this on a grand scale, we can provide the service to retailers more cost effectively.”

“It is a resource-intensive undertaking to bite off on your own,” agrees Kent Zimmerman, director of e-commerce for Indianapolis-based Finish Line Inc., an athletic footwear, apparel, and accessories retailer. An early adopter of Found's idea, Finish Line is installing ICaM in 50 stores and hopes to roll the system out to all 409. The system will manage 100,000 SKUs in real time and synchronize inventory movements between Finish Line's stores and website.

Has Found found a practical and cost-effective way to manage retail inventories in real time? Will it allow electronic commerce to work with retailers instead of against them? Experience with ICaM will tell. Stay clicked in.

Michael Fickes is a Baltimore-based writer.

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