E-tailers Prepare for the 2000 Holiday Season

This past summer, a government watchdog agency cited and fined seven online retailers for poor order fulfillment last Christmas season. Now all e-tailers are pressed to do a better job at customer service. Their weapons: increased attention to inventory, customer service, and warehouse management.


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SmarterKids.com CIO Rich Secor

When Rich Secor picked up a business magazine last July and read about how the Federal Trade Commission (FTC) had fined seven e-tailers for failing to adequately address customers' fulfillment expectations, it simply confirmed what he already knew.

Secor, CIO of SmarterKids.com, already had begun to make the company's customer service and fulfillment systems even more responsive and integrated than they had been. His mission started soon after the 1999 holiday season, when he began reading every FTC document he could find related to security policy and the use of customer information. Soon he began scrutinizing the rules and regulations the FTC had set forth for Internet-focused businesses that directly ship to customers.

When he read about the problems that had caused the FTC to cite seven companies--including failing to fulfill orders in a timely fashion and failing to notify customers about shipping delays--his resolve grew. Although SmarterKids.com hadn't experienced any fulfillment or customer service problems last holiday season, Secor knew he never wanted the Needham, Mass.-based company to encounter these issues.

"All of our systems and operations, including customer service and fulfillment, are designed around the goal of pleasing customers," he says. "The amount of customers companies are getting is going up every year, especially around the holiday season, so customer service and fulfillment becomes a particular challenge. Even though our last Christmas season didn't cause any delivery problems or delays or missed shipments, we learned from it. Our goal is to enhance all of our systems and more tightly integrate our operations to anticipate and prevent any problems."

When the FTC Speaks, E-tailers Listen

Secor quickly created the position of FTC compliance director. This employee now is responsible for ensuring all the company's systems, policies, and business units conform to current FTC regulations. Secor also spearheaded a successful campaign to reclaim management of SmarterKids.com's warehouse from external sources, which he says will help foster better communication and integration between warehouse activities and customer service requirements.

To some, Secor's response to other e-tailers' fulfillment pains might seem a bit excessive. However, it's just the kind of proactive thinking that experts believe is needed to make e-tailers ready to greet the new holiday season--a time that analysts believe will experience millions more Internet-based orders than last year. Indeed, online purchases grew to $7 billion in 1999 from $3.1 billion in 1998, says New York-based Jupiter Communications LLC, and are expected to grow even more this year.

The severity of the issues experienced by the seven retailers--CDNow Online Inc., ToysRUs.com, KBKids.com, Macys.com, Patriot Computer Corp., and the Original Honeybaked Ham Co.--varied, with each receiving a fine ranging from $45,000 to $350,000. Although the fines were steep, FTC officials say they hoped the levies would help stem the tide of unresponsive e-tailers that fail to provide acceptable levels of customer service.

At a Glance: SmarterKids.com
Company: SmarterKids.com, headquarters in Needham, Mass., has 120 employees, plus an additional 40 in customer service, fulfillment, and IT during the holiday season.

Online Sales for Q4 1998: $22,000

Online Sales for Q4 1999: $4.3 million

Predicted Sales for 2000 Holiday Season: $5.7 million

Customer Service Systems: Browser-based homegrown system from SmarterKids.com using Microsoft Corp.'s Active Server Pages; Cisco Systems Inc.'s Customer Interaction Suite, allowing for online chat and Web call-back between customer service reps and customers Fulfillment system: Logility Inc.'s WarehousePro Other pertinent systems: Homegrown audit reporting system that uses data from a Microsoft SQL Server database to pinpoint potential problems.

"We're hoping these actions sent a message to e-tailers to wake up and realize that they have obligations to consumers, particularly when they make quick-ship claims," says Heather Hippsley, assistant director of the FTC's enforcement division in Washington, D.C. "All of the companies we brought actions against competed on their shipping claims. If they say their order turnaround is 48 hours or that they ship within 24 hours of an order being completed, it has to be true."

Most of the fined companies are taking the FTC's reprimands seriously. CDNow, for example, is working on initiatives in both customer service and fulfillment. Amy Belew, vice president for customer service and operations at the Fort Washington, Pa.-based music e-tailer, says she plans "not to miss a beat" this year. Belew insists, however, that CDNow's FTC troubles didn't stem from a holiday blow-up but instead from the timing and clarity of its communications with customers.

"Some of the companies cited had severe problems in not being able to fulfill orders and not having effective communications, but that really wasn't our issue," she says. "Our FTC issue centered around the timing and clarity of our communications. We needed to size up a few things on our end in terms of the way we send emails out to customers regarding shipping notices and backordered items."

Focus on Fulfillment

Fulfillment is a particularly thorny issue for traditional retailers now entering the dot.com space. Witness KBKids.com and ToysRUs.com, both traditional toy retailers that have had significant troubles developing their online and fulfillment systems. Both were cited by the FTC for fulfillment issues.

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