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For E-tailers, Pleasing Holiday Shoppers Comes at a Price

During the just-wrapped Christmas shopping season, e-tailers were more aggressive than ever before in offering discounts and other kinds of come-ons to customers ordering over the internet. But they paid a high price for that strategy.

For E-tailers, Pleasing Holiday Shoppers Comes at a Price

This time around, e-tailers stretched the cutoff date to the max. They promised delivery by Christmas for orders placed by Dec. 23, or even later. On top of that, many offered free shipping. As a result, they were forced to absorb additional transportation costs that undercut profits.

The hope among these generous merchandisers was that grateful buyers would become loyal customers. "They realize that the way you first get a customer is often during the holidays," says Maria Haggerty, president of Dotcom Distribution, a provider of e-commerce logistics services. "They're viewing a lot of these increased year-end costs as customer acquisition [expense]."

In addition to the extra cost associated with squeezing delivery windows, there's a risk involved. Consumers have been shown to be highly intolerant of service errors. In a survey by Voxware, Inc., nearly 30 percent of respondents said they would stop shopping with a retailer if they received just one incorrect order. And 62 percent were less likely to continue patronizing the seller if they did not receive an online purchase within two days of the promised delivery date. All the same, the flood of last-minute shipments during the 2013 Christmas shopping season led to numerous instances of late deliveries - and angry customers.

Ramping up to serve holiday shoppers has become the price of admission. "We definitely have the mentality that this is our opportunity," says Haggerty. "Everybody's out to really shine for our clients." Service providers start hatching plans to handle next season's surge on the day after the last one.

For distribution and warehouse operations, more bodies are usually needed. Lots of them. Dotcom Distribution comes close to doubling its workforce just before Thanksgiving. During times of peak activity, it will operate seven days a week with two shifts, adding a third when volume gets especially high.

All those fresh faces create a training challenge. How can a distributor quickly bring new hires up to speed on a facility's procedures and technology? Dotcom Distribution takes it in steps

"We break down everything into their simplest elements," says Haggerty. "A new person might make boxes all day long on the first day, to acclimate to the facility. We'll train them on one element at a time."

Instead of having one worker handle multiple tasks at, say, a packing station, Dotcom will adopt an assembly-line approach. "Speed lines" will be staffed by individuals performing one job: taking a particular item off the cart and placing it into a gift box, then passing it on the next station.

"That's really how you have to manage it," says Haggerty. "You can't bring masses in and train them on everything."

It usually takes only a couple of days to train a willing individual on the system. The most competent might end up training five or 10 others. Within a day or two of Cyber Monday, says Haggerty, the core team is in place.

It's more than a question of adding staff. Even the busiest warehouse can only handle so many people. Efficient operations need to be supplemented first by an investment in infrastructure, and second by the appropriate material-handling technology, says Keith Phillips, chief executive officer of voice systems vendor Voxware.

Internet storefronts have become ubiquitous over the past five to seven years. Merchants who have failed to make the proper service adjustments "are starting to see the ramifications of not being fully prepared," says Phillips.

Dotcom Distribution has the additional challenge of handling both e-commerce and brick-and-mortar orders. Product starts flowing into stores in August, but an effective pipeline needs to include rapid replenishment based on data gathered at point of sale. By midday on Cyber Monday, three days after Black Friday, Dotcom is already receiving orders from stores that have sold out on their initial stocks.

Every holiday season brings surprises. In 2013, Dotcom had several clients who staged promotions "that blew their forecasts out of the water," Haggerty says. That type of good news can turn into disaster, however, if the retailer can't meet the unexpected demand. (And actual demand always seems to be unexpected, notwithstanding the use of highly sophisticated forecasting tools.)

This year, Dotcom did things a bit differently. It relied more heavily on analytics, using real-time data to determine what should go to the stores. Instead of examining orders on a store-by-store basis, it could see exactly where and how product was moving. As a result, it could process replenishments more efficiently, and get product out the door more quickly.

The system today "is more refined," says Haggerty. "We've been able to break down more elements of the process, to get staff up and running a little bit faster. We get better every year."

Meeting peak-season demands in a warehouse can be a grind, but it can also foster a sense of team spirit - especially when the consequences of failure are so dire. "It creates great camaraderie," says Haggerty. "We get good ideas from people with a fresh view."

Still, the job gets tougher every year. Cyber Monday 2013 set new records for volume. FedEx estimated that it handled around 22 million shipments worldwide, an 11-percent increase over the busiest day of the previous season. Rival parcel carriers reported similar gains.

Dotcom Distribution relies on all three of the major players in U.S. parcel delivery - FedEx, UPS and the U.S. Postal Service. "At the end of the day," says Haggerty, "we just want to make the customer happy. We have a relationship with our clients and suppliers. We're all in this together."

Next: Black Friday vs. Cyber Monday?

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