- The Washington Times - Thursday, November 2, 2000

On-line retailers say they are learning from their mistakes after shipping delays and ordering mishaps left holiday shoppers angry and empty-handed last year.

Some have spent millions to turn their chaotic operations into well-oiled machines. They have upgraded their software, integrated their operations and hired more customer-service representatives.

But the real test for on-line retailers will be within the next few weeks when their sites will be forced to handle an influx of holiday business.

"We expect by and large that retailers will have their act together," said David Schatsky, research director at Jupiter Communications, an Internet research firm. "We don't anticipate the same fulfillment problems."

"On-line retailers have to know their limitations," Mr. Schatsky said. "They need to underpromise and overdeliver."

Despite last year's troubles, on-line holiday shopping is expected to be big business, raking in an estimated $11.6 billion in November and December up from $7 billion last year, according to Jupiter.

Apart from changing their operations, on-line retailers have been familiarizing themselves with a federal shipping rule that resulted in $1.5 million worth of fines for some electronic commerce sites. The Mail and Telephone Order Rule requires that retailers ship merchandise within the date promised or within 30 days of receiving the order if not otherwise stated.

Federal Trade Commission officials, who investigated several electronic-commerce sites after receiving customer complaints, found seven retailers in violation of the rule. The biggest offenders Macys.com, KBkids.com and Toysrus.com each were slapped with $350,000 fines.

If the company can't ship as promised, they have to give notice to the consumer that provides a new shipping date, the rule states. That gives the consumer an opportunity to agree to the delayed shipment or to cancel the order.

Toysrus.com, for example, violated the rule by accepting orders for Christmas knowing that it would be unable to deliver the merchandise on time. Macys.com was promising delivery when it couldn't even fulfill the orders.

"The key is not accepting every last order but satisfying every last customer," Mr. Schatsky said.

To avoid the shipping problems it faced last year, Toysrus.com has partnered with on-line giant Amazon.com. The partnership means Toysrus.com will purchase and manage its inventory but Amazon.com will handle site development, order fulfillment and customer service.

Retailers have shifted their spending from marketing and advertising to infrastructure improvements making large investments in upgraded systems and technology to improve their fulfillment process.

"We've done a significant amount of work," said Jim Sluzewski, a spokesman for Macys.com. "Instead of investing in the front end of the site, we've entirely restructured the back end of Macys.com."

Last year, retailers including Macys.com had a tough time keeping their inventory in sync with what their Web sites offered. Consumers would order products and have no way of knowing they were out of stock because the companies' inventory and ordering processes were not working together.

Macys.com began integrating its system and installing new software earlier this year. By February, the site offered real-time capabilities, which means immediate information for shoppers on such things as merchandise availability. Macys.com also has added about 100 customer-service employees to the 60 employees on hand.

"We believe we are very well prepared," Mr. Sluzewski said. "We've taken this challenge very seriously."

In addition to Macys.com's $350,000 fine, the company also had to create an Internet education campaign about the FTC rule. Information alerting on-line shoppers about their rights will be posted on Macys.com from Nov. 5 to Jan. 15. Banner ads are running on several sites including Yahoo, MSNBC.com, About.com and Alta Vista.

"Everyone realizes the Internet is an imperfect technology and we're making a good-faith effort to improve," said Mr. Sluzewski. "Disappointing customers is the last thing we want to do."

CDNow.com, also fined by the FTC for not complying with the rule, had to make only minor changes to its site.

"We scoured through the site," said Amy Belew, vice president of customer service and operations at CDNow. "We changed a few of our processes … to be more clear and consistent."

For instance, the site would claim shipping time of an order in a certain number of days and later refer to the shipping time in weeks, which could be unclear to shoppers.

But CDNow said last year's holiday season was strong and expects the same this year.

The FTC plans to continue to watch on-line retailers and enforce the federal rule. Officials hope for fewer violations this year but remain skeptical.

"We can't allow that hope to distract us from keeping our eye on the situation," said Eric London, an FTC spokesman. "The FTC is going to stay on guard."

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