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The Ghost of Christmas Past

The Ghost of Christmas Past

"Hear that?" Walt Mulvey, COO of Cameraworld.com, asks apologetically about the rapping, thumping and scraping noises drifting down the telephone wires from his company's US headquarters. It's not some moralistic spirit come to haunt Ebenezer Scrooge but a construction crew. "They're tearing out some walls to make room for more salespeople," Mulvey says. Less ear-splitting but just as critical for the coming holiday season is the camera and electronics retailer's overhaul of its Web site. This year, for the first time, Cameraworld.com customers will find an online OrderWizard to help them put together the perfect camera package for that special someone. And if the wizard can't help, visitors can click a Push to Talk button, connecting them instantly to one of those recently hired salespeople without going offline or picking up the telephone.

Cameraworld's aggressive offline and online expansion is as good a metaphor as any for the 1999 holiday season, in which retailers, analysts and customers expect online sales to shatter all records. About 100 million Americans will be online by the end of 1999, up from roughly 80 million a year ago. And, depending on whose estimates you believe, they'll at least double or triple their 1998 holiday spending. Online shoppers will spend about $6 billion on gifts during November and December this year, up from $3.1 billion during the same two months in 1998, according to the New York City-based Internet research firm Jupiter Communications. That's a conservative estimate, according to Harris Interactive, a market research company in Rochester, N.Y., forecasting that 1999 online holiday purchases will hit about $9.5 billion.

"I think any of the predictions are going to fall way short of reality," says Mulvey, who bought the then 20-year-old brick-and-mortar Cameraworld store and catalog company in 1997 and launched an e-commerce Web site the following year. But Mulvey and other online retailers-both newcomers and veterans, online-only companies as well as the online extensions of brick-and-mortar brand names-insist they can handle the hordes. "We're going to be ready this year," promises Carl Rosendorf, senior vice president of New York City-based Barnesandnoble.com LLC, which was among many major retailers that struggled to serve unprecedented numbers of users at the height of last year's shopping season. "Our site will be primed for the traffic," he says. Mulvey sums it up this way: "Last year was chaos. This year, it's planned chaos."

Nobody who survived the 1998 holiday season online could accuse Mulvey of hyperbole. Demand hit like a hurricane, washing over even the most optimistic e-business forecasts of $2 billion or so. "Nobody expected what happened last year," says Bill Bass, vice president of e-commerce for Lands' End of Dodgeville, Wis., which did about $24 million in online business during the holiday season, even though its Web site at the time offered only a tiny sampling of its catalogue merchandise. Online since 1995, the catalogue company's systems stayed up all season. But many others bogged down or crashed under the tidal waves of customers and would-be customers who might have purchased something had they been able to access the sites.

Other common headaches for e-customers last year included sluggish performance, order forms that didn't work, shoddy customer service and maddeningly mysterious procedures for returns and exchanges. Many customers complained about items that arrived late, went to gift-givers instead of intended recipients, never showed up at all-or showed up too many times. Mark Doll, national director of e-commerce at Ernst & Young LLP in New York City, said he placed a single order with an online retailer-he won't reveal its identity-and received the product five times. Returns could be nightmarish. "Getting a refund at Target or Circuit City usually takes about 20 minutes," writer Ric Manning groused in The (Louisville, Ky.) Courier-Journal about returning a duplicate CD player that showed up in a plain box with no packing slip or return instructions. "Getting a refund from this online merchant took almost two months."

Ramping Up

E-retailers are striving to solve these problems this time around by adding servers and staffers, streamlining order forms, beefing up inventory capability, integrating live help with online catalogues and promising painless returns.

The experience last year at BrainPlay.com was typical. While the online toy retailer managed to fill orders for the holiday, it meant having every employee in its Denver headquarters pack orders or field customer telephone calls. "Everybody worked 16 to 18 hours a day" in December, recalls Srikant Srinivasan, CEO and founder of the company, which entered into a joint venture in mid-1999 with Consolidated Stores (parent of Pittsfield, Mass.-based retailer KB Toys ) to launch KBkids.com. "We spent the last seven or eight months making sure we don't end up in the same place again this year." In an effort to streamline distribution and centralise order fulfilment, KBkids.com utilises direct marketer Hanover Direct 's 750,000-square-foot Keystone Fulfilment facility in Virginia, which offers 50 to 75 times the inventory capacity the company had in 1998. Now, Srinivasan says, KBkids.com can offer five times as many toys as shoppers will find in any single KB Toys store.

Send.com, which offers high-end gifts such as fine wines and gourmet foods, switched its emphasis from telephone-based sales to e-commerce during the height of the 1998 holiday shopping season. "We turned it on and hung on through Christmas" with 10 employees and a single server, says founder and CEO Mike Lannon. (If Send.com had any doubts about the wisdom of switching channels, it was dispelled when the company filled four online orders for its top-priced item, a $750 Ultimate Wine of the Month package. Send.com, which had then been doing telephone sales for a year, had never before sold even one such item.) This year, the Waltham, Mass.-based company has grown to 100 employees and added 20 times the server capacity as well as increased its national network of wine and food providers. Barnesandnoble.com, meanwhile, has installed a system capable of handling 40 per cent more traffic than the retailer experienced last year, with two redundant backup systems.

Others are working to improve customer service through strategic acquisitions or partnerships. Westbury, N.Y.-based online florist 1-800-flowers.com says it fulfilled all its Web-based orders for traditional holiday items such as poinsettias and pine-trimmed centrepieces in plenty of time last year. But when it came to nonfloral product offerings such as gift baskets, candles, gourmet foods and home decorations, "we were not prepared for what the Web wrought," acknowledges Senior Vice President Chris McCann. "We sold out about two weeks before Christmas."

In April 1999, 1-800-flowers.com acquired Plow & Hearth , adding the venerable catalog company's distribution network-including a 150,000-square-foot warehouse-to its own holdings. A month later, in what McCann describes as a dress rehearsal for the coming holiday season, 1-800-flowers.com recorded its busiest sales period ever, just before Mother's Day. This time, the company met demand. It has since doubled inventory space and added a supplier extranet to further streamline deliveries. Barnesandnoble.com also opened additional regional warehouses and boosted its distribution systems' capacity, Rosendorf says. That will allow the bookseller to offer 10 times as many products online in 1999 as it did in 1998. Merchandise includes 750,000 book titles in stock and thousands of music CDs and software titles.

In addition, the bookseller did "a tremendous amount of research with our customers," Rosendorf says. "Once we'd figured out the decision points, we began organizing ourselves around that." Like many other companies, Barnesand noble.com has added round-the-clock customer service (previously, it was closed on Sundays); the bookseller also launched an interactive telephone voice-response system and the capability to check and manage accounts online. "Last year, if you didn't know whether your order had been shipped yet, you had to call [to check]," Rosendorf says.

Shoppers complained that many sites wouldn't tell them when an item was out of stock until after they'd gone through the order process. Now, Bass says, when Lands' End runs out of a particular item, it automatically disappears from the site. Lands' End, like Cameraworld.com and other companies, will also offer real-time help live over the Web; customers simply click to connect to a human voice that says, for example, "Hello. This is Karen at Lands' End Live. How may I help you shop our Web site?" In September, Lands' End also introduced Shop With a Friend, allowing two people to shop the site together from different computers in different locations.

Even with all the upgrades, some analysts remain skeptical about merchants' ability to weather the double whammy of a good economy and more users-who are becoming increasingly sophisticated.

Some have been working to scale up their architecture, turning, for instance, to mainframe computers, which better handle volume and keep response time reasonable. But others-particularly physical retailers with no previous experience outside their own walls-still stumble at real-time order fulfilment. Often, they haven't been well integrated with their back-end systems because they've devoted so much of their time to other things, such as Y2K preparations this year.

In fact, fulfilment remains the biggest difficulty for any e-tailer that wasn't already a catalogue merchant, says Patricia Seybold, chairman and CEO of the Boston-based consulting and research group that bears her name. Companies like Eddie Bauer, REI, Lands' End and others "already know how to fulfil and presumably know how to handle returns," she says. And for some mail-order catalogues, online sales remain a minuscule part of their overall business. Even though Lands' End's online sales in the first half of fiscal year 1999 were two-and-a-half times what they were for the same period in 1998, total online sales in 1998 accounted for only 4.5 per cent of the company's overall business.

For that reason, e-commerce newcomer The Talbots expects its recently launched online store to fit right in with its venerable retail and mail-order operations. "We have an advantage in that we have an existing infrastructure from our catalogue," says Margery Myers, public relations director for the Hingham, Mass.-based clothing retailer. "That has given us the knowledge that when we wanted to jump into e-commerce, we would have a lot of the critical pieces: order fulfilment, customer service, 24/7 support, inventory management."

Seybold says physical retailers that are not only new to the Web but previously handled only bulk orders to stores will have the biggest order-fulfilment challenges. Likely to do well in that space are companies like The Stride Rite , which wisely turned to an outside fulfilment house because the company's experience was in shipping pallets of sneakers to retail stores rather than in dealing with individual customer orders.

When it comes to order fulfilment, some online-only companies may have an advantage over their physical counterparts because they actually don't have-and don't need-much inventory. The best example: GiftCertificates.com, an aggregator for gift certificates to approximately 200 retail partners (including higher-end companies like The Sharper Image, Saks Fifth Avenue and Chanel). The New York City-based company, another former 800-number business, expects to do a good percentage of the year's business online in November and December. But founder and CEO Jonas Lee anticipates no problems filling orders. The company sells no products, just brand-name certificates either delivered electronically or in small gift boxes. New this year is SuperCertificate to GiftCertificates.com, which lets recipients purchase their own gift certificates from any of the company's member merchants. Someone with a $100 SuperCertificate, for instance, could purchase a $100 gift certificate to Brooks Brothers, or a $25 certificate to Blockbuster Video, a $25 certificate to Bath & Body Works and a $50 certificate to Eddie Bauer.

Higher Stakes

Last year, with holiday e-shopping still a relative novelty, early adopters forgave a surprising number of slip-ups. This year, they won't be so understanding. "Consumers are getting a lot more savvy," says Carol Ferrara, a senior research analyst with GartnerGroup. "Competition on the Web is only one click away. The bar has been raised." With far more choices, "people will do more comparison shopping this year," predicts Janet Asteroff, director of e-business services at the Kingwood, Texas-based Concours Group. Some will use shopping bots to seek out the best deals, including places with discounts for first-time customers or free shipping-but other factors being equal, they'll choose the site perceived as most reliable, says Mary Tolan, global managing partner for the retail practice at Andersen Consulting in New York City and author of a report entitled Pure Play or Channel Extension?: The E-Battleground. Based on surveys of 6,000 consumers, the report concludes that "instead of narrowly thinking about individual products or services, consumers are looking to simplify their lives." To that end, Tolan says, they'll gravitate to the e-businesses that make it easiest to buy, select and receive whatever they want.

Many e-retailers are spending lavishly to promote their wares this holiday season. Send.com will shell out $20 million on promotions in the fourth quarter, Lannon says. In November and December, Seattle-based Nordstrom will spend about $17 million just advertising the 20 million pairs of footwear at its new spinoff, Nordstromshoes.com. But many online merchants say they're dreaming of something far bigger than the best Christmas ever. If asked in late 2000 what they'd like to be able to say about the 1999 holiday season, most retailers respond with one of two wishes: "That we accurately predicted the volume in December and that we were prepared for the chaos," says Cameraworld.com's Mulvey. "That customers had a great experience shopping with us," says Bass of Lands' End. "I want them to say, 'I shopped on your Web site last year, and I'm going to come back this year-and spend twice as much money.'"

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