To say that the world of internet shopping and fulfilment received a Christmas treat in 2005 is something of an understatement.
In the 10 weeks before Christmas, the country's shoppers spent £4.98 billion online, compared with £3.33 billion during the same period in 2004, according to figures released by the Interactive Media in Retail Group (IMRG).
Almost 40 per cent of the UK population did some of their Christmas shopping online last year, and a quarter of the UK's online shoppers' entire spend was over the Christmas period.
Unpredictable growth
But behind the scenes, traditional and pure online retailers had mixed experiences with both the volume of sales and fulfilment targets. Argos's website went off line for a period of several hours, many supermarkets struggled to offer enough delivery slots and even venerable food retailer Fortnum & Mason failed to deliver to 300 of their 73,000 orders, blaming a record high number of orders over the Christmas period.
The good news is that the internet is now seen as a trusted shopping medium, as companies have invested in building secure and user-friendly websites.
"As consumer activity online has increased, so too has trust, and experience has taught people that stores are generally reliable and secure," says Matthew Tod, chief executive at web analytics firm Logan Tod.
According to Mike Altendorf, managing director of software company Conchango, the uptake of 'always on' broadband has contributed further to growth.
"Customers are voting with their keyboards. The internet isn't just about price any more - people do it because they want to and it's convenient," he says.
But such growth in online shopping has brought with it a fresh set of challenges, mostly for those high street retailers that also have an online presence, the so-called 'clicks and mortar' businesses. These multi-channel retailers, by definition, have to spread services over a wider range of outlets, and this can mean that less time is devoted to online offerings compared with pure internet retailers.
"High street retailers experienced outage problems because their sites were overloaded with too many visitors at key times," comments Conchango's Altendorf. "Those sites that performed best were the pure online players."
Steve Palmer, vice president of marketing at Zeus Technology, which develops products to help retailers cope with seasonal fluctuations in demand, also believes the high street retailers failed to make the most of Christmas web traffic. He puts this down to retailers' lack of experience in the online field but, he says, planning for changes in customer demand is key to a successful online shopping strategy.
"Problems that arose for retailers were mostly to do with huge underestimation of demand and a lack of capacity to meet this," says Palmer. "But to be able to manage surges in online traffic, marketing teams would have needed to make predictions around May so that they could have implemented systems in time."
Misjudging the high levels of demand over Christmas was a problem when it came to fulfilment, too, for both the traditional and online retailers.
Fulfilment house Zendor's experience highlighted the problem. "Our clients give us a prediction of demand and we staff up to that and allow ourselves a 10-15 per cent margin for contingency," says Keith Jordan, fulfilment director. "For some, however, that simply wasn't enough staff. On top of this, it can take two to four weeks to train employees, by which time Christmas has gone. When this happens, we move people around within the group, across accounts and between warehouses."
Underestimating demand
Stock control was another problem. "Stock levels are decided and controlled by the client, and it's not easy to get extra goods over Christmas," says Jordan. "Once you're affected it's too late because it has all been bought.
Moving items around within the client's business, say from shops to warehouses, if certain things are selling better online, can solve the problem."
John Lewis proved to be one of 2005's best examples of a successful clicks-and-mortar operation. Sales through the John Lewis Direct website have grown 70 per cent every year for the past four years, and the same was predicted again in 2005. In anticipation of continued growth, the company strengthened its website operations and planned extensively to ensure it could cope with processes from sales through to fulfilment.
According to Alison Lancaster, head of marketing and catalogues for John Lewis and Neil Weightman, commercial director of iForce, which provides fulfilment for John Lewis Direct, there's no excuse for missing the commercial opportunity that the internet offers.
"Clients' forecasting is improving, so we should really praise that," says Weightman. "In John Lewis' case, the projections were that business would increase but these forecasts were exceeded. We work so closely with John Lewis that we're treated as a store. We can both track how we're performing and realign stock immediately."
iForce also credits its smooth Christmas with the implementation of a new carrier management system. This allows the fulfilment house to see whether a particular courier has a problem and, if so, divert deliveries via a different partner carrier so that service levels can be maintained.
"Our planning meant making sure everything was in place for Christmas. This involves ensuring the website links to back-end operations and fulfilment services," says John Lewis Direct's Lancaster. "By October we'd already appointed a second call centre and secured a second warehouse. It paid off and we had no major web downtime or fulfilment issues."
There is serious profit, both in monetary and brand-value terms, to be had from getting all areas of internet retailing right. And as the example of John Lewis proves, being an established traditional retailer does not mean it is impossible to get it right online, and on time.
All quarters of the industry are now advocating early planning, and more developed contingency plans. Predictions from the IMRG are that total internet shopping for the year will increase by 36 per cent, and that shoppers, who this year spent an average of £816 each, will break the £1000 spend-per-head barrier.
Zeus Technology's Palmer says that the importance of planning cannot be stressed enough. "You've got to plan ahead - take your wildest guess and add 50 per cent. Ask yourself the following: what if a campaign is successful? What happens if millions of people suddenly come to your site? And then put plans for this into practice."
COMMENT
Alison Lancaster, head of marketing and catalogues for John Lewis
The website is such an important marketing tool for us. We have to make sure that our back-end systems stand up too and support the entire buying and delivery process.
Conrad Bennett, technical services director, Webtrends
The danger for some retailers is that if their delivery slots aren't available for their existing customers as a result of new customer demands, then you've failed your loyal and valuable customers.
Mike Altendorf, managing director, Conchango
There will be a lot of website upgrades this year as some of the more reticent retailers understand that websites are here to say.
These retailers will really need to strive for multi-channel integration.
Neill Weightman, commercial director, iForce
The work starts now for 2006. If some clients decide to widen their product offering, we need to know this as soon as possible, in case we need to have a major stock change or allocate more warehouse space.
NEED TO KNOW
Top tips on customer service for internet shoppers
1. Automated emails A lot of retailers are using, or moving towards, automated responses to keep customers informed at every stage of order fulfilment. Keith Jordan from Zendor says: "The system is great because it stops people wondering their goods should arrive. It's also pre-emptive, and retailers can offer tracking information so the customer can contact carriers to check where their goods are."
2. Cookies If your website can recognise return visitors, products can be suggested to increase spend. "If people return to a site and you have their details it makes it a lot easier for them to make a purchase and makes them more likely to return again and again," says Steve Palmer of Zeus Technology.
3. Provide information to prevent returns "We once had an iPod returned because it didn't have any music on it," says Neil Weightman of iForce.
"When people buy something they sometimes send it back because they're confused or embarrassed. If you give them help and provide product information on the website, then you can reduce the level of returns."
4. Old-fashioned service and the human touch Alison Lancaster of John Lewis will always use call centres for those segments of customers who prefer to ask for help, rather than use online or self-help methods.
iForce's Neil Weightman, meanwhile, advocates apologising immediately when you've made a mistake. "The customer is still always right," he says. "And people still value being treated properly. Selling products is not just about price on the internet - it's a service issue now too."
5. Sing from the same hymn sheet Make sure that all links in the e-retail and fulfilment chain are in close and constant contact, and that you know each others expectations. If all areas stay close, when a customer service problem does arise, problems can be fixed more quickly and efficiently.
RETAILERS
WINNERS AND LOSERS
- John Lewis Direct's online arm saw a 76 per cent sales increase year-on-year and, even at peak times, still had a maximum page loading time of two seconds.
- Argos was the UK's largest online high street retailer over the Christmas period, and even upped its Christmas Day sales by 50 per cent.
- Online entertainment retailer Play.com's sales rose by 100 per cent in the first week of December alone, at one point taking 488 orders per minute.
- Fortnum & Mason's website orders increased by 75 per cent in the two weeks before Christmas, but 300 of its 73,000 orders went unfulfilled.
Source: John Lewis Direct, Argos, Play.com and Fortnum & Mason
CASE STUDY
Brief: To create a system capable of dealing with a high number of online orders
Target audience: Buyers of gadgets
Supplier: In-house
Firebox.com offers the sort of gadgets, gifts and products that are traditionally in high demand over Christmas. The internet retailer was founded by university friends Michael Smith and Tom Boardman, and began life in 1998 as Hotbox.co.uk. In 2004, the business had a turnover of £8 million.
Firebox manages its business end-to-end, with the exception of final stage delivery which is handled by partners such as Royal Mail and Citylink couriers, and payment, which is outsourced to Secpay.
Both the site and customers are regularly updated on the stock availability via automated technology developed in-house, and no money is taken from the customer until a product is ready to ship from the warehouse.
The bespoke programme allows customers to enter their order identification number and email address online, and find out the current status of their order via a central database. Emails are also sent at every stage and, when the order has finally been dispatched, Firebox emails again with a tracking number so customers can also track their products there.
"Everything stood up brilliantly over Christmas," says Boardman. "Obviously there are always little niggles but we got on top of them very quickly because we do everything in-house. When you have 600 different lines and around 200 suppliers, there are always issues with suppliers not giving you as much stock as you want and you sometimes over-order, but there was nothing major this year."
Part of Firebox's success over Christmas was down to its "robust and expandable" technology system, which allows the site to handle even greater demand than it experienced over Christmas. The site does around half its business in the last quarter of the year but is designed to be able to cope with high visitor levels all year round.
Christmas 2005 saw an increase of over 100 per cent in orders in the five weeks up until mid-December, with actual sales volume up 50 per cent.
However, based on turnover and the level of orders placed, the number of complaints received over the 2005 festive period actually declined.
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