Christmas in July

E-retailers and their click-and-mortar rivals try to apply lessons learned from last year's online holiday shopping fiascoes.

Two short weeks before Christmas last year, San Francisco-based Egreetings Network Inc. added a small selection of digital gift certificates to its Web site, www.egreetings.com.

The certificates - which were redeemable with three different online merchants - were more or less an afterthought, like a last-minute stocking stuffer.

Since Egreetings had just developed its online gift center and the commerce portion of its Web site, it wasn't banking on a big Christmas selling season.

Big mistake. Online shoppers actually preferred buying and sending digital IOUs to having truffles and teddy bears dispatched to the doorsteps of their loved ones, Egreetings learned.

"We were surprised by how much more they wanted digital gifts than real ones," says Nicole Bohn, the company's former director of e-commerce. "Our actual results were 10 to 20 times higher than what we projected for digital gifting."

With the start of this year's holiday shopping siege still four months away, pure-play and hybrid retailers alike are hell-bent on avoiding a repeat of last year's well-publicized electronic-retailing fiascoes. Case in point: Toys R Us Inc.'s eleventh-hour "we're sorry" memo to customers whose early December orders didn't arrive in time for last Christmas.

But Toys R Us was by no means alone. Among the dot-coms, a lack of real-world experience in operations, marketing and administration left many online shoppers complaining about out-of-stock notices, late or nonexistent deliveries and excruciating returns processes. In all, 40% of online shoppers in the U.S. reported problems with online stores during the preholiday shopping season last year.

This year, the stakes are even higher, with the online retail market projected to grow to $61 billion in revenues. That's an 85% jump from the $33 billion that online merchants raked in last year, according to The Boston Consulting Group.

"While some online retailers have had to revisit their business plans and revenue models simply to remain in the game, others have shown tremendous revenue growth," says Donna Iucolano, chairwoman of an Internet shopping research committee at Shop.org, a trade association whose 400 members are exclusively Internet retailers.

Digital Coal

Last year, Internet customers' biggest holiday shopping complaints were about retailing fundamentals, like finding the products they wanted.

According to a survey of 541 online shoppers polled by Chicago-based Andersen Consulting between Dec. 27, 1999, and Jan. 3, 2000, nearly two-thirds of those who reported problems with online stores cited out-of-stock items as their biggest headache. Delivery problems and steep shipping costs ranked second and third, respectively, on cybershoppers' gripe sheets, followed by difficulties connecting to shopping Web sites during the holiday rush.

Egreetings is hoping to address virtually all of these issues with a major information technology infrastructure overhaul that includes migrating from a two-tier to a multitier computing architecture.

Egreetings' chief technology officer, Behrouz Arbab, says the new multitier computing infrastructure should significantly boost site performance and speed. That's because the new infrastructure allows different functions, such as displaying product images and checking inventory levels in real time, to occur simultaneously without creating a huge drag on the Web site's central database.

The infrastructure upgrade fully integrates the front end of the Web site, where online shoppers place their orders, with a back-end database containing inventory information. It also allows Arbab's team to track inventory levels in real time and push new images of available items to the site as other products sell out, thus dealing with the problem of stock shortages.

Egreetings will also be offering digital certificates redeemable at 27 additional online retail partners such as Godiva Chocolatier Inc. in New York and FTD.com in Downers Grove, Ill. The company's strategy is to partner only with what Bohn calls "category killers,'' or retailers that dominate specific niches.

Back to Santa's Workshop

Meanwhile, New York-based SupremeVideo.com plans to participate in its third online holiday shopping season. It will be selling a full line of consumer electronic products, including 36-inch rear-projection television sets, video cameras and MP3 players. But it'll be doing so under the new name of Etronics.com and from a revamped Web site that includes more categories of products, especially digital players and other audio devices.

"Etronics is more Web-sounding," Executive Vice President Alex Rivera says of the company's name change. "We found SupremeVideo too limiting in its appeal. People thought we were just a video camera store."

Yet it's the giant TV sets that are one of the company's biggest holiday sellers. Last year, the company shipped 50 to 100 sets per week during the holiday rush. Unfortunately, too many of them were subsequently returned because of damages that occurred during shipping. The costs of the returns, says Rivera, slashed nearly half the profits off each TV set that was sold.

He estimates that 70% to 75% of all returns made last year due to late shipping and/or damaged products involved big-screen TVs.

That resulted in not only highly agitated customers, but also the guaranteed loss of future business from big-ticket buyers, Rivera says.

"People come back to buy higher-ticket items as their confidence increases. It's the repeat customers that are your bread and butter," he says.

But according to the results of postholiday surveys, most customers won't ever come back, which means not only the loss of the customer, but also the loss of all the money spent on marketing and advertising to acquire them in the first place.

Last year, the average per-customer acquisition cost across all channels jumped by 15%, to $38, according to Shop.org. Pure-play retailers drove the increase, spending an average of $82 per customer. Those figures jumped even higher during the holidays, to the tune of $108 per customer.

This year, Etronics has switched delivery companies, contracting shipments of its largest pieces of merchandise to Nationstreet Inc., a Westboro, Mass.-based logistics and transportation company that specializes in the so-called last mile of deliveries.

Nationstreet doesn't just deliver a big-screen TV to a customer's doorstep. It uncrates it, sets it up in the living room - even programs the channels for the customer - and then hauls away the packaging.

"One of the most important attributes of our Web site is to deliver a product when you say you will and deliver it in good condition," Rivera says of the change.

With Nationstreet as Etronics' carrier, customers can also track the progress of their shipments on the Web.

By the time this year's holiday shopping begins in earnest, that tracking capability will be made seamless, enabling customers to retrieve their shipping data without ever leaving the Etronics Web site, says Rivera.

Cathy Pringle, vice president of marketing at Fort Worth, Texas-based Bombay Co., says the $391 million furniture retailer will laser-focus on what she calls "the fundamentals" this holiday shopping season.

"If you can't deliver product to customers' expectations, it doesn't matter if you have three-dimensional, rotating products, alternate colors and live chat rooms on your Web site. It's ultimately about getting the product into customers' hands," says Pringle, whose company sells its furniture online, through catalogs and at more than 400 stores.

Bombay has been selling online since 1997, and with three holiday shopping seasons under its belt, says Pringle, "the name of the game really is fulfillment."

Bombay's goal last year was "to cut through the clutter" of frequently confusing and obnoxious messages from hordes of dot-com retailers with a clear and simple integrated marketing program. What it boils down to is that shoppers can buy, check on, return or pay for merchandise wherever they choose. If they buy a lamp online, they can pick it up and return it at one of Bombay's brick-and-mortar outlets.

But according to customer feedback, last year Bombay didn't fully grasp online shoppers' desire for customized services and little extras such as engraving and gift-wrapping services. Those services will be added to the Web site in time for this year's holiday season.

"If there was one thing we missed, it was the need for adjunct services," Pringle says. "Our site really focuses on fundamentals, and some of those extras would have been a help to our [online] customers."

Sitting This One Out

One thing all retailers seem to agree on is that a single bad shopping experience pretty much sours a customer forever. Online shoppers, it appears, aren't terribly forgiving. Instead, they'll simply click to another site.

That's one big reason why Seattle-based Body Shop Digital, the three-month-old online arm of the U.K.-based cosmetics retailer, is skipping this Christmas altogether. Instead, it will launch its online commerce operations sometime early next year.

"We're not willing to risk losing our customers for what would amount to $2 million to $5 million during the Christmas season," says Andy Sack, CEO of the new online unit.

"Looking at the carnage from last Christmas online, with the customers complaining about e-commerce, we decided the push would not have been worth it," Sack says. "It would have been a stretch for the organization, and inevitably, things would have fallen through the cracks."

Copyright © 2000 IDG Communications, Inc.

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