Lessons from last Avoiding online fulfillment snafus this holiday season As the 20th-century philosopher George Santayana said, those who do not learn from the mistakes of the past are doomed to repeat them. And with the holiday shopping season about to kick in, many marketers that were burned by online-related fulfillment snafus are determined to get it right this year.

Looking back on last year’s problems – clogged fulfillment streams, out-of-stock merchandise, late or even undelivered holiday orders, and disappointed customers – companies such as Toys `R’ Us and KBkids.com are confident that they’ve learned some hard lessons.

Woodcliff, NJ-based Toys `R’ Us, whose difficulties in shipping gifts in time for Christmas garnered plenty of media attention, has quadrupled its fulfillment space, opening new facilities in Ontario, CA, and Chambersburg, PA. Including its Memphis, TN, distribution center, Toys `R’ Us’s online division has about 2 million sq. ft. of fulfillment capacity, compared to about 500,000 sq. ft. of space last year. Toys `R’ Us also installed a new operating system, Allaire Corp’s ColdFusion, which according to Mike Blancone, vice president of logistics for Toys `R’ Us, can handle three times the server traffic as last year.

Working out of former apparel and gifts cataloger Genesis Direct’s distribution center in Memphis, Toys `R’ Us last year learned how different fulfilling apparel is from fulfilling toys. Product storage, for instance, proved to be a huge issue, Blancone says. For example, a bin that was able to hold 50 shirts might be able to store only three Sony PlayStation II consoles, slowing down the picking and packing process.

For its part, KBkids.com is banking that taking its fulfillment inhouse will allow it to avoid problems, says chief operating officer Michael Wagner. Last season, KBkids.com outsourced its fulfillment to Hanover, PA-based third-party provider Keystone Fulfillment Services, a subsidiary of multititle cataloger Hanover Direct. But when you use a third party, you lose some control over the fulfillment process, contends Wagner, who also believes KBkids.com lost valuable time. The toy company batch-loaded the orders every night to send to Keystone’s facility for fulfillment. “But with our new facility, the orders can go directly to the warehouse for shipment,” he says.

KBkids.com is spending $4 million-$5 million to convert a 300,000-sq.-ft. facility in Danville, KY, formerly owned by its $1.8 billion retail parent, KB Toys, into its own fulfillment center. KBkids.com will have a core staff of 50-75 workers, but during peak holiday season, the company will employ about 400 workers in the Danville facility, Wagner says.

Of course, bringing fulfillment inhouse is no panacea, any more than using a third-party fulfillment means orders must be batch-loaded only once a day. Taking fulfillment inhouse poses its own challenges, namely giving up operations expertise and experience. What’s more, opening a new facility ain’t cheap. On top of rent or lease payments, equipping the distribution center with racking and other gear can cost tens of millions of dollars. And don’t forget the need to hire staff.

“The natural evolution of a third-party relationship is that customers feel that after they have enough learning under their belt and that they’ve mastered the basics of their launch, they want to try their hand at doing order fulfillment and order management themselves, believing there are efficiencies and flexibility to be gained,” says Frank DiMaria, president of Keystone Internet Services, a division of Keystone Fulfillment.

Experience is the best teacher Virtual companies and start-ups still have a lot to learn about the direct marketing business – and not just about the back end, says consultant Bill Kuipers of Haskell, NJ-based Spaide Kuipers & Co. Take inventory forecasting and adapting to spikes in demand: “Most catalogers are not as likely to get caught by the online sales spike because the catalog model itself is based on forecasting and fulfillment, and that’s something these Internet retailers have yet to master,” he says.

Still, even some of the experienced, well-capitalized multichannel marketers have had problems adapting to the Web. When $1.1 billion multititle cataloger/retailer Williams-Sonoma went live with its flagship brand’s Website in November 1999, it figured its brand name would attract shoppers. And in fact, within two months, the company had raked in an estimated $8 million online. But the San Francisco-based kitchenware company overestimated its inventory needs, leaving it with post-holiday overstocks.

“Williams-Sonoma wanted to take absolutely no chances in being out of stock for Web shoppers,” says Kevin Silverman, managing director at Chicago-based investment bank ABN-AMRO. Since 1999 was Williams-Sonoma’s first year on the Web, this holiday season it will improve its forecast for spikes in Web sales, which typically follow catalog drops, he says.

In concert with the August online launch of PotteryBarn.com, Williams-Sonoma is converting one of its two giant Memphis distribution centers from retail to what the company calls “direct,” which is the catalog and Internet businesses. Both Memphis facilities will be part of the direct division; the retail distribution center is now in Mississippi.

While you’ve most likely addressed any holiday- or online-related operational issues you may have had, Kuipers notes that there are still lessons you can learn from the above examples.

First, if or when you move or convert your distribution center, make sure it’s fully equipped to handle your product. This may seen like common sense, but it’s where the problems at Toys `R’ Us began.

Second, hold weekly strategy meetings with different departments, such as marketing, operations, and inventory, to strategize about holiday and nip any potential problems in the bud. “Not planning is the number-one sin of operations,” Kuipers says.

Third, make sure that your customer service reps (CSRs) are well informed about your business, your products, and your marketing channels – particularly the Web. A helpful, informed CSR can go a long way toward salvaging a sale or a customer relationship should problems arise in the height of the holiday madness.

Finally, bear in mind that the Federal Trade Commission is likely to watch the industry closely this year for service problems. The FTC in July fined several online retailers – including Toys `R’ Us and KBkids.com – for not sufficiently warning customers last holiday that merchandise would be shipped late.


A Brilliant Exception I recently experienced a true moment of clarity about what it takes to consistently deliver excellent customer service in the direct response industry. Great service in any channel can result only from a highly polished service organization, rather than simply good people with good intentions and cool technology.

It all started as a survey to compare the service quality and response time of the primary online, interactive inquiry channels – specifically, Web chat versus live-voice agent.

The test included Internet-only merchants as well as traditional catalogs with a strong Internet presence. I’ll spare you the details of each individual transaction. The reps were generally helpful and ultimately provided the requested information, although the quality of the responses was inconsistent, and the transactions usually took much longer than a traditional phone call. For the most part, the reps seemed young, trendy, and technical workers rather than professionally developed service agents.

Truthfully, I was underwhelmed in almost every case. Maybe I’m just too impatient, but to me any potential advantage of the technology was overshadowed by the slow and tedious nature of Web chat, lack of rep training, and lack of resources available to the online reps.

Not just technology The experience I had with Lands’ End was a brilliant exception. Lands’ End has long been heralded as a leader in customer service in the direct-response industry, and it is a strong player now in e-commerce as well. Make no mistake: It’s not just because the company has generous policies and nice reps.

I put the same question to two different reps using the “Lands’ End Live” option on the company’s Web site. Gold star No. 1: Lands’ End Live offers customers the choice of connecting to a live service rep using either Web chat or an instant callback. I tested both options, in each case looking for a green striped dress shirt.

The instant-messaging Web chat transaction took exactly 26 minutes. While that is considerably longer than the 10- to 12-minute average length typical of chat sessions, in this case the delay resulted from the rep taking the time to lead me through some possible choices. When the first several options were not quite what I was looking for, the rep indicated that she was going to check with a product specialist. Gold star No. 2: Lands’ End has a network of specialists in place and a corresponding escalation process to expedite resolution rather than fumbling around while the customer waits.

I’m not a big fan of Web chat for two reasons: First, it seems like an eternity between each question and answer. Second, Web chat doesn’t allow the same expressiveness and interactive dialogue that a normal voice conversation offers, so it frequently results in misunderstanding or tedious retyping. From a management standpoint, Web chat is even tougher to staff and manage than a traditional call center because of the extended session times, technical skills, and writing abilities required.

Many companies using Web chat actually service anywhere from three to six different customers at the same time, relying on the slow typing and response time to jump over and service another customer before returning to the first. This is a cumbersome and dangerous process, and I usually recommend against it. For staffing purposes, you should assume only one session at a time per rep, and use multiple sessions only to handle overflow during peak times. The Lands’ End Web chat rep indicated that she would handle only one session at a time.

Instant callback The same product inquiry took 14 minutes using the “instant callback” option. The technology was impressive, and convenient to me as a customer. I didn’t need any special equipment or software at home, which is a major hurdle for voice-over IP options – all I needed was access to a second phone line. Gold star No. 3: The moment I entered my phone number and clicked on the “call me” icon, my telephone was ringing. I thought that someone else was calling and messing up my test. But sure enough, it was Lands’ End. Their software simultaneously routed the call to me and to an available rep. As the rep was speaking to me on the telephone, she was able to take over my session on the Web site and “push” relevant pages to me. Gold Star No. 4: The pushing process did slow the transaction, but it definitely provided a significant value over a blind phone call because I could see the products the rep was suggesting. This is a great use of technology.

Can you do this? What was remarkable about the whole experience is that the inquiry-handling process was absolutely identical in both transactions. These tests were conducted at different times with different reps through different channels, yet each rep lead me through the same steps and showed me exactly the same product options. When the first two options weren’t quite right, both reps asked me to hold while they checked with a product specialist. Both product specialists recommended exactly the same option. This may not seem like a big deal until you consider that Lands’ End carries well over one hundred thousand SKUs.

The technology was almost irrelevant. The service experience is actually a function of how well the service reps are trained and supported. Lands’ End has established complete proficiency in all the essential elements of service:

* great training in product knowledge, system resources, and service skills;

* a well-defined inquiry-handling process;

* great organizational support, including product specialists;

* a defined process to resolve product inquiries promptly but accurately when a question goes beyond basic search options;

* great systems support, with extensive search and product information; and

* leading technology that provides the customer with a variety of contact options.

Technologies such as Web chat and voice-over IP have now become key elements of the customer-care platform along with the fundamentals of good people, generous policies, and strong order management systems. Even though traditional telephone support is still vital (although grossly under-supported by most pure-plays), it is equally important to support emerging alternatives.

The point is to offer the customer consistent, accurate, and prompt responses regardless of how the customer chooses to contact you. Our job is to take care of the customer as best we can. The more tools we have to do that, the better – as long as we use them well.