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E-tailers Prepare For 4Q With Wider Assortments, Capacity

TWICE: The 1999 holiday selling season was something of a watershed for e-commerce. What lessons did you learn from it?

FRANK SADOWSKI: The primary lesson was preparation. Certainly at we spent 10 months getting ready for the last two months of the year, as everyone at this table did. And the challenges we faced were the same: site stability, fulfillment and customer service. But we were fully prepared, and our site and infrastructure performed pretty much flawlessly.

What we would do this year is pretty much more of the same. Site capacity seems to be a number that you just can’t overestimate. We started off last year looking at a 20-times capacity plan and rapidly moved that to a 50-times capacity plan. We consider ourselves very fortunate that turned out to be enough. So for this year the mandate is to not be afraid of the multiples in terms of capacity.

TWICE: Did you get slammed by returns?

SADOWSKI: I spent 25 years fighting the brick & mortar wars and, to my surprise, returns in this channel are actually quite a bit lower. I think it’s because of the considered nature of the purchase. People think about it a lot more before they plug their American Express card into this secure server, and I think that the vast majority of our returns are either initial failure of the product or a duplicate or unwanted gift. The gift-giving nature of the season causes a small rise in returns, which is true of retail everywhere. But it was nowhere near what I have experienced in my past in the world of brick & mortar.

HENRY CHIARELLI: At, we’re going to go into a complete redefinition and redesign process. We’re going to become a Microsoft technology showcase, and are going to adopt all the technologies and the applications and the beneficial features of Microsoft. We’re really starting over again for the most part. We’ve got to keep the site going during that transition period, and we’ll probably launch again late this summer.

We’ll try to tap into the inventories in all 7,000 stores, and figure out how to make the inventory opportunities that are there work to our advantage.

CHRIS PAYNE: I think I’d give us a “B” on being in stock on the popular items last season, and on managing the selection. I think we can do better than that this year. But we executed well.

Software was a huge hit for us within the electronics store. We rolled that out on November 10, and just had a huge success. It’s one of our fastest growing businesses ever at, and I’m looking to expand our effort there. We need to expand our catalog and do a more robust job in order to meet the demand.

We were also blown away by the success of some of the holiday features. I think you’ll find a greater emphasis on them at Amazon this year. Last year was our first with wish lists, for example, and it was just an incredible asset to have — people sending mail to their friends and family around the world, some wishing for high-end television sets and Palm Pilots. That was a very powerful tool.

As far as returns go, I think the end of January will tell the full story, but so far we’ve seen return rates that are lower than historical norms in the physical world, which is true of our other lines of business. This was our first Christmas in electronics, and so far the return rates have been very low.

I was also blown away by the range of products that people were interested in buying over the holidays. I was impressed with not only the core categories that performed very well, but the range of products. So you’ll see some expansion in terms of the selection we offer customers next year.

RICHARD GILBERT: The challenge for us this year will be to build tighter integration with our distribution partners. Prior to October we had a real-time inventory situation. We built really nice hooks into the legacy systems, and when an item became out of stock we took it off the website. We really think that what is focused on is being able to execute on the promise to the consumer, and we don’t want to tease him with an item if we don’t have it in stock. We just take it right off the site. And our assortment is broad enough that we can do that. I think on average we were showing 15 different DVD SKUs, and DVD players were clearly one of the big sellers for most of us in the fourth quarter.

So building tighter hooks to our distribution partners, getting them up to speed in building strong interfaces with them, would be a clear focus for us. And broadening our assortment as well. If we can find another one or two distributors that are really reliable that will work well within a partnership, we’ll certainly do that and broaden our assortment even further.

ROBERT HEIBLIM: I believe, just as we’ve seen in the book business to Amazon’s great credit, and certainly in the automobile business, that you’re getting a greater and greater percentage of shoppers that are approaching the moment of purchase with knowledge they never had before. They made comparisons they never could make before, and had questions answered that weren’t answered before. That bodes very well for everyone around this table who has reported that returns are down.

I can tell you as a person that sat on the manufacturer’s side of the desk that that’s one of the largest item P&L expenses a manufacturer has, and it’s certainly a significant one for a retailer.

Also, when you’re providing a service with this much information to consumers, you’re forming a much more lasting relationship with them. And I think many of us are beginning to realize that. We have a very active call center at etown. We were active 20 hours a day over Christmas, and we’ll be up to 24/7 in March. Consumers ask us a tremendous amount of questions, and they’re very happy that they’re getting answers. And it creates a great deal of loyalty as far as purchasing.

So we’ve seen very, very quickly that consumers like using our kind of service, and that we were able to generate some very substantial volumes for our partners.

BOB LAWRENCE: Since it was our first Christmas, I think this year will truly be our first Christmas. Starting in March, we are rolling out not only branding for Brand Source, but a national advertising program. So from a preparation standpoint, we will be preparing from March on for December.

The thing that we’ve learned is what a huge opportunity this is to throw a bigger net over the customer. It’s a huge opportunity not only to sell people on the Net, but also to drive customers into our stores. We’ll take the deal no matter how we can get it, whether it’s in the store or on the Net, so long as we get it.

Interestingly, we only had one return last season. And the return had nothing to do with product. It was customer service-related. The customer had to call eight times to get delivery, and they finally said, “You know what? Forget it.” So from a return standpoint, it’s truly what everybody said — if you can deliver on the expectations, you won’t have a problem.

MIKE JEANS: Looking back on the holiday season, other than the sheer level of activity being as huge as it was, there weren’t any major snafus or mistakes or things that I would do 180-degrees differently. It’s really a question of continuous improvements.

For us there are probably four areas that we’re going to focus on throughout the year. The first is fulfillment capabilities, to make sure that since we anticipate being significantly bigger this year, that we have the capabilities in place to make sure that customers are satisfied.

Second, we made a big investment over the past year in building our data systems and integrating them. A couple of phases were implemented pre-Christmas, and we’ll be doing some more over the coming months.

An integrated data system is fundamental to being able to scale this business. Order management, fulfillment, finance and accounting all have to be running together so that we’re not at odds. We’re well on the way to doing that, although there’s a lot more work to be done.

Another thing that we’re working on is to significantly expand our product lines. Roxy’s roots are in home satellite systems, and that’s still a very major area of our line.

But we acquired a company last year called, which is heavy into wireless phones and other communications devices, and we see great potential in that whole area, particularly with the convergence of Internet access. We also had some dramatic expansion during 1999 in the audio/video area, which will continue.

The last area is branding. We saw a great response as we began to turn up the dial in traditional media, and we’ll continue to do that.