Online retailers hope to deliver what they promise for holiday season

From...

by Eric Young

(IDG) -- It was every parent's nightmare. The gift ordered for a child didn't arrive in time for Christmas. At least seven Internet retailers, including CDnow, Macys.com and Toysrus.com, committed that offense last year and paid $1.5 million in fines to settle federal charges over shipping delays. "Many retailers ended up looking more like Scrooge than Santa," notes Jodie Bernstein, director of the Federal Trade Commission's Bureau of Consumer Protection.

Those snafus over fulfillment -- the process of packaging and shipping orders -- have led a host of new and old companies specializing in these services to try to get a bigger piece of this business for the coming holiday season. It's a $35-billion industry that's expected to grow 20 percent next year, according to AMR Research, and already the field is getting crowded.

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There are relatively young companies -- iFulfillment and SubmitOrder.com were both established within the last two years -- that operate warehouses and ship orders for a broad range of merchandise. Others are looking to service specific industries, such as Global Sports, which began handling sporting goods last year, and Artisan Networks, which began handling art and art supplies in 1996. FedEx and UPS also are joining the fray. While the latter has provided fulfillment for many years, it recently launched a new initiative called e-Logistics aimed at dot-coms, advertising it heavily during the Sydney Olympics.

The intense activity in this business, however, has led to questions of whether it's next year's candidate for the same sort of shakeout that has swept the Internet retail industry. "You can't have 17 different companies offering the same thing, just like you can't have 17 different pet portals," says Dan Race, a spokesman for Electron Economy, a company that provides fulfillment software.

Of course, there already are some prominent examples of companies that insist on keeping fulfillment in-house. Although eToys contracted out some of its fulfillment to Fingerhut last holiday season, this year it has decided the task is too important to allocate to another company, and is doing all packing and shipping itself. The same is true for many others, from Amazon.com to Target, which actually bought a catalog company two years ago to lay a foundation for its online business. Robert Ulrich, Target's chairman and CEO, says the company wants fulfillment in-house so "we would be able to control [its] own destiny."

But it appears that the tide may be turning. A recent survey of 30 retailers by Jupiter Communications showed that many intend to outsource in the coming year or so. While two-thirds of those surveyed now handle fulfillment internally, fewer than half expect to continue it in-house by 2002. And there are some good reasons for going this route, according to David Schatsky, a Jupiter e-commerce analyst, who noted the logistics involved in pulling orders and shipping them is too costly and too complex for many online vendors.

Indeed, Nordstrom.com earlier this year decided to have fulfillment for its shoe business handled by the Chicago-based iFulfillment, though it continues to use its own warehouses for packing and shipping other merchandise.

And when the Kmart spinoff BlueLight.com launched its site in December, it was using SubmitOrder.com instead of its own network of warehouses. "We realized the back-end issue of fulfillment is critical," says Alex McNealey, BlueLight's director of operations, about the decision to not use Kmart's system. "The amount of time that it takes to get that up and running to standards we expect was prohibitive for the time lines we were talking about," he adds. "We thought the obvious choice was to outsource."

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Report: China to tax e-commerce
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Buyer beware: Online retailers dropping like flies
July 21, 2000

Retailers get stores, Web sites in sync
(NW Fusion)
Clouds darken over Priceline.com
(The Industry Standard)
E-tailers brace for online holiday rush
(InfoWorld)
Retail exchanges forge ahead despite hesitant, skeptical suppliers
(Computerworld)
Customer service is always right
(The Industry Standard)
Happy holiday ahead for e-tailers
(PC World)
IT speeds delivery of Web orders
(Computerworld)
Seven tardy holiday e-retailers to pay $1.5 million
(The Industry Standard)

AMR Corporation
CDnow, Inc.
FedEx Corporation
Global Sports, Inc.
Kmart Corporation

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