E-tailers take stock of holiday shopping season
January 10, 2000
by Eugene Grygo , Dan Briody and Ephraim Schwartz
(IDG) -- The busiest online shopping season ever was a mixed blessing for many e-tailers, especially those who were caught off-guard by the order volumes and had their fulfillment infrastructures put to the test.
While e-tailers are finding that there are several lessons to be learned, it's likely that the most important one is to never disappoint customers at Christmas.
"Not being able to deliver on time is inexcusable," said Fiona Swerdlow, senior analyst with Jupiter Communications, a New York-based market research firm focusing on e-commerce. "The holiday season is not a surprise. This is something they [e-tailers] must be prepared for."
Many e-commerce firms did prepare e-mail, TV, radio, and print advertising campaigns that, in some cases, worked too well, Swerdlow said.
"Consumers were very responsive. The problem is that many of the e-tailers weren't able to handle it," she said. "They couldn't handle the traffic that was being drawn to their sites."
Despite an impressive 37 percent increase in the number of shoppers online over the same period last year, according to Media Metrix, retailers catering to holiday shoppers have been tarnished by cases of selling out-of-stock items and of spotty customer service.
Industry observers speculate that the root of the problem of missed orders is that back-end fulfillment systems are not well integrated with front-end electronic-commerce applications. And order fulfillment and customer service is a major challenge that some e-tailers may have taken too lightly.
"The most significant issue was fulfillment," said David Schatsky, director of commerce infrastructure strategies, also at Jupiter. "It caused the biggest disappointments among customers.
"I think there are really two classes of problems," Schatsky added. While Web site outages and performance turned many customers away, not being able to get the goods "into the boxes and getting them into the hands of the shippers" was the more serious problem, he said.
Fulfillment is made even more challenging when there is great diversity among the products being offered, such as those from Macys.com, said Jim Sluzewsky, a spokesperson for the e-commerce subsidiary of Federated Department Stores (FDS). "Fulfillment is much stickier in retail," Sluzewsky said. "For books or CDs, a title doesn't come in more than one color and more than one size."
To meet these sticky situations, Macys.com relied upon a diverse infrastructure consisting of merchandise from Macy's stores, Macy's distribution centers, two FDS distribution facilities, and the network of Fingerhut distribution centers, Sluzewsky said. FDS acquired Fingerhut this past spring.
Another aspect of the problem is that while many retailers such as FDS have new and improved fulfillment infrastructures, they still must cope with the "onesy and twosy" single and small orders -- exceptions to the systems in place, said Marie Menendez, vice president and senior analyst at Moody 's Investors Service, based in New York.
"Suddenly you need to fulfill single orders. How do you handle an exception problem that flies in the face of these previous infrastructure improvements?" Menendez asked.
Inattention to customer service was also a problem this past holiday season, especially with pure-play e-tailers.
"I won't deny that online retailers have underestimated the amount of effort to apply to the customer-service angle. It's a huge effort. The dirty little secret is not everybody can do [order fulfillment and customer service]. The goal is to keep the customer satisfied by knowing how to transfer bits to atoms," said Brent Cohen, chief operating officer and co-founder at eHobbies, in Santa Monica, Calif.
But Cohen believes e-tailers are also getting a bad wrap on customer service, especially when compared to their bricks-and-mortar counterparts. E-tailers provide better customer service, not worse, by being able to answer more detailed technical questions than a seasonal worker at a traditional retail outlet can, Cohen said.
"If someone calls us and asks, 'How much track do I need for HO gauge trains in a 17-by-12-foot room?' we can answer them. I'd like to see a Toys R Us or any retailer do that quickly," said Cohen, who noted that they team their customer service representatives with the buyers.
The most difficult part of customer service comes from the fact that the warehouse and customer service are not physically next to one another, so companies rely on accurate databases to know what is in stock at any given moment in time, Cohen said.
No matter how quickly changes are included in the database when products come off the loading dock, are taken from the shelves, or shipped out to customers, the real key to success is putting people into the mix to constantly update and check inventory, Cohen said.
Though many analysts had speculated that the shipping industry might falter under the added demand that online retailers would place on them over the holidays, the shippers reported glowing results, putting responsibility onto the e-tailers.
The problem now for e-tailers is how to gauge demand and thus plan inventories for the next Christmas shopping season in light of the fact that there are many disappointed customers out there. E-tailers might wind up with either too much or too little inventory.
"Either way, it involves risk," said Menendez from Moody's. "You may have spent the money and built up the inventory for demand that doesn't exist."
Before e-commerce, retailers were able to plan based upon years of past experience, but no such body of evidence exists for shopping via the Internet, Menendez said.
"There's no history to go by," she said.
E-tailers may have to find out the hard way.
"If you disappoint customers this year," asked Menendez, "are they going to come back next year?"
Web "free delivery" is here to stay
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