Can Multichannel Retailers Get It Right This Holiday Season?

Tracy Patterson of Nashville, Tenn. didn't have much time to devote to Christmas shopping. Between her job as a software sales rep, two kids to keep up with and a third on the way, the last thing she wanted was to go to a mall and be jostled by hordes of holiday shoppers. Christmas 1999 seemed the perfect time to give online gift-buying a try.

One evening, Patterson logged on to the Toys "R" Us Web site. Everything she ordered was in stock and slated to arrive prior to December 25. But a few days later, she received an e-mail: "We regret to inform you that your order will not ship before Christmas."

Patterson canceled the order and again braved the chaos of a pre-Christmas toy store. "Was I upset? Sure," she says. "But ultimately, Toys 'R' Us more than made up for the inconvenience. They sent me a $25 gift certificate via e-mail and snail mailed another one for $100--I was impressed with their effort to keep me as a customer."

The following holiday season, Patterson tried again. This time, she ordered items in the beginning of December--well within the window to receive gifts prior to Christmas. From Amazon.com, she purchased three books and a CD, all slated to ship within 72 hours. Later, however, Patterson checked her order status and discovered nothing had been sent--one of the books, in fact, now showed a ship date of December 26. Amazon had made no proactive effort to notify her of the change.

Worse, Patterson realized that her ship-to address had been altered, and two hours of trying to edit it proved fruitless. Since the site provided neither live help nor a phone number, Patterson sent an e-mail indicating the address change. She also canceled the item that wouldn't arrive before Christmas onsite and switched to express shipping for the other purchases. Four days passed before she got a response to her e-mail, and at that time she re-checked her order status. One of the items that should have shipped already was now listed with a ship date of January 15--again, she'd received no notification. After sending yet another e-mail and receiving no response, she canceled the entire order.

Will 2001 Be Better?

Like thousands of others who purchased during the past two holiday seasons, Patterson discovered that online shopping is far from perfect. According to Randy Covill of AMR Research in Boston, 2000, still saw online retailers battling to get it right.

While both pure-play dot coms and brick-and-mortar e-tailers have been challenged by the holiday rush, pure-plays have suffered the most. Ironically, many that led the pack at the end of 1999 are now defunct. Those that survived spent most of 2000 racing to resolve the massive challenges they faced, and 2001 has seen a continuation of this strategy.

To their credit, survivors are learning fast, and online shoppers should notice improvements with each passing holiday season. Savvy e-tailers are now adopting battle plans focused on four key tactics:

1. Adopt a multichannel approach. "Multichannel retailing--having a catalog, a retail store and an e-commerce site--has become the Holy Grail for e-tailers," says Carol Ferrara, a research director in Gartner's CRM practice. "It's absolutely the most profitable model." As numerous studies have indicated, multichannel shoppers spend as much as five times more than their single-channel counterparts. According to Covill, they also buy higher-margin items and purchase more frequently.

For brick-and-mortar companies and catalogers, adding an e-channel to the mix is an obvious move. But for pure-play e-commerce vendors, extending beyond the Web requires a bit more creativity. Some dot coms are now seeking partners who can provide them with a physical presence, as Amazon recently did with Toys "R" Us. "Given that the two vendors now share Web space," Ferrara says, "there are great possibilities for Amazon to leverage the relationship. For instance, Amazon could set up return desks in Toys 'R' Us stores." Similarly, she adds, other niche dot coms might lease space from department stores like Macy's to do focused merchandising.

2. Create an effective customer service strategy. Prior to the 1999 holiday season, e-tailers raced to take their sites live. As pointed out in a recent Yankee Group report titled "When Bad Things Happen to Good Shoppers", customer service strategies were "virtually ignored during this stage. As a result, unanswered e-mail inquiries, delayed customer support, unclear privacy standards and confusing return policies discouraged many online shoppers."

By the end of 2000, most e-tailers were beginning to make strides in customer service, and in 2001 they may find it to be the key hallmark. Patterson's experience highlights a critical issue on this front: E-mail alone doesn't cut it. Customers want multiple ways to get in touch with online vendors, and holiday shoppers this year can expect to see more sites listing toll-free numbers or offering live chat to help meet their needs.

The contact center is key to customer satisfaction. Pure-plays like Amazon have had to build or outsource this function. But catalogers and brick-and-mortars, while likely having contact centers in place, may not have it much easier. They face the daunting challenge of integrating existing contact centers with their e-channels.

3. Forge partnerships that exploit core competencies. It's not uncommon for pure-play e-commerce sites to shine in some areas and fall short in others--typically in marketing, fulfillment and returns. E-tailers are finding that it's often better to forge partnerships than to address such challenges internally. Consider Amazon. Its partnership with Toys "R" Us helped solve its inventory management problems and proved mutually beneficial, since Toys "R" Us needed help with customer service and fulfillment, which have become core competencies for Amazon.

4. Build or buy critical technology components. E-tailers have begun implementing technologies to address their biggest pains. High on the list are demand- and supply-chain solutions, reverse logistics applications that handle returns and live chat technology.

A large number of e-tailers have built their solutions in-house. For online catalogers such as Chadwick's of Boston, it's because they have existing homegrown applications. From the company's perspective, it's better to extend these solutions to e-channels than to face the integration challenges inherent in packaged applications.

Dot com start-ups have their own reasons for going the homegrown route. In some cases, they've found it takes as long to customize packaged solutions as it does to build in-house. "We purchased an off-the-shelf order-processing solution," says Dennis Apfel of Fragrancenet.com. "It took us six months to customize it. In the same timeframe or less, we could have built from scratch a solution that best matched our specific needs."

Challenges Ahead

Though the aforementioned tactics represent great strides, e-tailers will continue to grapple with various challenges during the 2001 holiday season and beyond. Topping the list may be 2001's slowed economy, which, according to Ferrara, has prevented many e-tailers from going forward with needed technology upgrades and implementations. "While we will definitely see improvement on the service front this year," she says, "I doubt we'll see marked improvement, largely because e-tailers have suffered the effects of decreased consumer spending."

Tom Silzell, vice president of customer support at Buy.com, notes that the downturn in the economy has definitely impacted his company. Buy.com bought an entire e-commerce suite from E.piphany but put the CRM piece on hold. "We're implementing parts of E.piphany and have put in many other technologies as well," Silzell says. "But because of the economy, we decided it would be wiser to keep extra cash on hand and let the CRM component wait. It's a shame that retail sales are somewhat down for everyone," he adds, "since we have invested in the technology and are ready to handle triple the orders over last year."

E-tailers also struggle with challenges created by shipping costs, which lots of bargain-hungry Internet shoppers don't want to pay. "It's an odd phenomenon," says Bruce Sellers, executive vice president of sales and marketing at CatalogCity.com, a consumer destination site that hosts over 500 catalog merchants. "Shipping and handling are a particularly challenging objection to overcome, since traditional catalog shoppers are much more accepting of these costs."

To help bolster business and satisfy consumers, many e-tailers offered free shipping last year, a tactic that in some cases proved disastrous. "A lot of e-tailers can't afford to give away shipping," Covill says. "It wrecks their numbers and puts them on the path to bankruptcy."

still, some e-tailers learned to harness the power of free shipping without it becoming the kiss of death. Fragrancenet.com, for instance, used no-charge shipping to build its business and then raised the stakes by offering it only when orders exceed $25. Such a strategy can drive up sales, so long as vendors keep margins in mind when establishing cut-off points.

Other big hurdles for e-tailers this season include:

Returns. According to a recent Yankee Group report, few e-tailers fully understand the true cost of returns, which can easily run four times that of outbound shipments. To address the problem, some companies install reverse logistics systems, but the proper execution of these is critical--and is where many e-tailers fall short.

Shippers like United Parcel Service are developing e-returns solutions for business customers. "The UPS system is phenomenal," says Buy.com's Silzell. "We had 10 people just processing return labels. This took about 10 days and was very costly. We implemented UPS' solution, and immediately over 60 percent of our customers with returns began using it. For us, the cost savings were huge. The process time was reduced to almost nothing. Customers can now print their own return labels at the site, put them on the box, call UPS and boom, it's done. Satisfaction went way up when we implemented UPS's solution."

Managing multiple channels. While a multichannel approach utilizing the Web, print catalogs and storefronts is by far the most profitable, it's difficult to accomplish. Often, each channel has its own databases and applications, and integrating them has proven a formidable task. E-tailers also face issues like cross-channel pricing. "Last Christmas, certain retailers created real problems for themselves by pricing inconsistently between their Web sites, catalogs and storefronts," Covill says. "For an integrated strategy to succeed, they must properly define and manage their business rules across all channels."

Contact centers must likewise reflect this multichannel strategy. When someone calls in, service reps can pull up their order history--what has been purchased online versus at the store versus through the print catalog, as well as buying preferences and so on.

For all e-tailers, holiday seasons represent the ultimate school of hard knocks. If they haven't got it right by the time Christmas comes round, they can pay dearly--in terms of Federal Trade Commission fines, disgruntled customers and, potentially, going under completely.

So how might one summarize the e-shopping experience during the 2001 holiday? "Not perfect," concludes Gartner's Ferrara, "but getting better. I think it's all falling into a nice rhythm, with the e-channel being part of the multichannel experience from a consumer's perspective. Though many sites still lack tremendously, they're improving all the time." For the sake of Tracy Patterson and everyone like her, let's hope so.