Web retail maturing

Two years ago, Toys “R” Us’s Christmas dreams turned into a nightmare. What went wrong is what everyone hopes for – customers came flooding to the company’s Web site with their wallets open and left with their electronic shopping carts full. But the company simply wasn’t prepared to fulfil such high demand, and a week before Christmas, it announced that it was only going to be able to deliver a small portion of all the toys that had been ordered in time for Christmas.

It was a hard lesson to learn, but it appears that most online stores have matured enough that they don’t have to worry about repeating Toys “R” Us’s costly error.

“Generally, companies have learned to play the game better,” said Hung LeHong, a research director at GartnerG2 in Mississauga, Ont.

“For the clients that we’ve spoken to, they didn’t mention any kind of massive fulfilment problems, at least not like the kind we saw (in previous seasons).”

This year, LeHong estimates, the sales for online retailers in North America increased by 40 per cent during the holiday season.

“It sounds like a lot, but it’s actually declined compared to last year. Last year (there) was actually a 100 per cent increase,” LeHong said.

He attributes the lower increase to the economy.

Since the fulfilment nightmares of Christmases past, companies have learned to integrate their online and physical inventory management systems, LeHong said. Now when a gadget is sold through the online site, it will appear in the inventory management system as one item off the shelf.

Companies are also doing a better job of driving customers from their Web sites to their physical stores through such incentives as coupons, LeHong said.

“Online retailing is maturing,” agreed Kurt Ritcey, a partner at Deloitte Consulting in Toronto.

Though Canadian retailers got a slower start than their U.S. counterparts, most of the major retailers now have pretty solid fulfilment capabilities, Ritcey said.

“This year we didn’t hear a lot in Canada about major fulfilment problems.”

Retailers were prepared to handle high-demand products, such as Harry Potter Lego, Ritcey said. They monitored how much was available and posted the figure on their Web site.

“The biggest mistake that (Toys “R” Us) made was to think the Web site was just another store,” he said. “They forgot that the delivery side of a Web storefront is completely different. You don’t deliver huge crates in big truckloads to the backdoor of a store. Instead, you have to deliver one off, and that’s a very complex warehouse operation.”

This is why products with high margin have traditionally tended to fair better online and why so many Web-based grocers have gone under, Ritcey said.

Returns still present a big challenge for online retailers and they can destroy profit margins, LeHong said.

Just like the inventory system, the return system was disconnected. When an item bought online is returned to a store for instance, companies don’t always have a system in place to automatically figure out where that item came from originally.

“In the past, if somebody returned something, forget about the profit on that item,” LeHong said. It won’t be until the end of January before we’ll be able to figure out if retailers are better able to handle returns this year, LeHong said.

But even though online retailers have matured, it appears that customers still aren’t a satisfied. In fact, they are far from it, according to PlanetFeedback.com founder and co-chair Pete Blackshaw in Cincinnati.

The company provides a forum for online shoppers to complain or rave about their experiences and during this past Christmas season, those who visited the site had mostly bad things to say. In the 2001 holiday season, 71.43 per cent of those making comments on speciality stores online, which includes the likes of Amazon.com and CDnow Online Inc., complained while only 24 per cent had compliments to dish out. This is a dramatic difference from 2000, when complaints were only at 30 per cent and compliments were at 59 per cent, Blackshaw said. Those who complained were dissatisfied with their overall shipping experience and reported delivery and billing or payment problems.

Blackshaw isn’t sure why the complaints increased so dramatically, but said that consumers are less forgiving when there’s less money to spend.