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Home for the Holidays

E-tailers vow to get merchandise to customers on time, even if it means scaling back expectations.
Scott Leibs, CFO Magazine
November 1, 2000

Just a year ago, E-tailers were warming up for a rousing chorus of "It's Beginning to Look a Lot Like Chaos," but as the holidays approach, companies are singing a new tune. The past 12 months have given them time to expand the technological and logistical underpinnings of their operations, as well as to change critical business processes. This year, they say, Christmas Eve will be a silent night indeed, free of the customer complaints that rained down like pine needles from a month-old tree.

Consumers sure hope so. According to Boston Consulting Group, 24 percent of orders placed online shipped late last year, and 16 percent never shipped at all; of those that did ship, 40 percent were incorrect. Consumer complaints led the Federal Trade Commission to fine seven E-tailers a total of $1.5 million for providing inadequate notice of shipping delays or making promises about fulfillment they couldn't keep.

In response, many companies have made quick and fundamental decisions regarding their fulfillment processes. Toys "R" Us, for instance, last year's most well-publicized disaster case, initially spent heavily to beef up its fulfill-ment operations, before changing course this past summer and striking a partnership with Amazon.com that will leave much of the heavy lifting to the online veteran. Other companies, such as Hallmark, which is plunging into the flower business with a sophisticated Web operation that will allow customers to order flowers until 8:45 p.m. (est) for next-day delivery (www.hallmark.com), have also spent millions on new or expanded systems and fulfillment operations. Says Steve Bellis, president of Hallmark Flowers, "We feel we need to own it and manage it ourselves, because that's the only way we can guarantee quality products and service."

In addition, companies are helping themselves by simply promising less. Ken Hite, chief information officer of CornerHardware.com, says, "We plan to market Christmas specials heavily in November, but cut them off by December 12. That way, we avoid committing to last-min-ute deliveries." He's not alone. Many com-panies are refining their advertising and promotion strategies, and the verbiage on their Web sites, to discourage last-minute shopping. And analysts expect customers to cooperate as well. "Consumers will shop earlier," says Robert LeBatt of Gartner Group Inc. "They've learned that the online channel is not the place to be on December 23."

Frosty Receptions
Perhaps the most critical lesson learned from last year, however, is the heavy price corporate reputations pay for such meltdowns. Eric Meerschaert, executive director, customer service and fulfillment, at Organic Inc., an Internet services firm based in San Francisco, says that reinforcing the brand image and enhancing product differentiation have emerged as the logical next steps for companies that have mastered customer service and fulfillment, but "even the ones that address service and fulfillment issues do so defensively, making sure they do no harm, versus finding ways to truly extend the brand online."

Successfully enhancing a brand online, says Meerschaert, doesn't necessarily require much in the way of technology. In fact, technology sometimes works against the goal. "Many companies will generate an automatic response to customer E-mail," he says, "but never follow up with a substantive answer. Sure, they responded, but they may do more harm than good."

But technology can play an important part in marketing a brand or simply keeping a site functioning during the holiday crush. Akamai Technologies Inc. hopes to do both. The Cambridge, Mass.-based company operates a global network of servers designed to move Web content closer to users. By duplicating content and shortening the distance between a Web user and an information source, Akamai can boost performance and provide redundancy in the event of network congestion or server failure.

VictoriasSecret.com turned to Akamai this past spring when it was getting ready to broadcast a fashion show over the Internet. A similar event in January 1999 posed performance problems for its internal servers, so for its second attempt, the apparel maker offloaded much of its regular content to Akamai, devoting its own resources to the Webcast. That event, coupled with a June sale that attracted more shoppers than last year's holiday season, convinced the company that partnering with an outside network services provider made sense.

"Going into the holidays," says Dan Smith, director of New Media Systems for the company's E-tail unit, "we want to let Akamai handle much of the content so our servers can handle transactions. That way we can optimize them for that task, which is a key part of our overall capacity planning."

SmarterKids.com, which sells educational toys and other children's products, also increased its reliance on Akamai as part of a broader effort to improve its site performance for 2000. "It's well documented that shoppers will abandon slow sites," says Rich Secor, the company's CIO and vice president of IS. SmarterKids.com has worked hard, he says, to understand just which aspects of content load more quickly from the Akamai network than from its own servers, and has portioned out its content accordingly. That can be a time-consuming effort, but Secor says it's worth it. "You have to convert browsers to buyers," he says, "so any effort spent on the front end is a smart investment."


Please Come All Ye Faithful
But the back end matters, too. Secor once visited his company's warehouse and stood by the conveyor belt with a stopwatch, timing each order. He and his staff saw ways that software enhancements might shave time off each transaction, and worked with the vendor to get those improvements made in time for the holidays. SmarterKids also added layers of protection to its servers so that problems could be detected more quickly, and staff members could be alerted automatically at the slightest suggestion of a slowdown. "Last year, we had people here on standby during the holidays," says Secor. "I don't think we'll need to do that this year; the automated systems should alert us."

Victoria's Secret isn't content to give customers a view of the merchandise. Site visitors can also check inventory in real time, so they know immediately whether a product is available or out of stock. Express.com, which sells DVDs, CDs, video games, and related merchandise online, offers a similar system. "[Customers] actually [see] the count for a given item drop by one when they put a DVD or CD in their shopping cart," says Susan Daniher, the company's vice president of marketing.

This year, many companies want to go beyond mere assurance that an item is or isn't in stock, however. Express.com and Victoria's Secret, for example, plan to enhance their marketing efforts by capturing and analyzing more data about customers.

"We're trying to understand the differences between the new buyers who come to us via the Web," says Victoria Secret's Smith, "and those 'cross-channel' buyers who use the Web plus the catalog or store visits." Smith says the company can use the information it collects in its data warehouse to tailor product selection and presentation, on the Web site, and perhaps reduce the number of catalogs it mails each year, which now tops 400 million.

But that doesn't mean E-tailers can now focus exclusively on customer service and elaborate marketing. Some analysts say that while much is known about how to solve the problems that have plagued E-tailers for the past two seasons, the spring dip in Nasdaq valuations has choked off the money supply needed to fund improvements. And more than a few observers predict that this season will not be without its victims. "We'll see fewer failures," says Henry Bruce, vice president of marketing for Optum Inc., which sells fulfillment systems to dot-coms and bricks-and-clicks companies, "but there will be some. After all, how many E-tailers do we really need?"

The Darwinian struggle may be exacerbated by slowing growth rates. While E-tail volumes increased about tenfold between 1998 and 1999, this year most analysts expect them only to double. For E-tailers that are prepared, volumes may not pose major problems. But for those that aren't, "God Rest Ye, Merry Gentlemen."




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