In its second-largest acquisition, Amazon buys the company for $970 million.
Roots Canada Ltd., the Canadian apparel retailer, knew that demand for Olympic clothing that U.S. athletes wore in Salt Lake City would be strong. But executives had no idea that so many people would want a beret. “The Roots people thought they would get 100 customer contacts a day and 65 would result in orders,” recalls Mark C. Layton, CEO of PFSweb Inc., which Roots hired to handle order taking and fulfillment. They also thought they’d sell 10,000 berets, at best.
But something about the berets in particular caught the fancy of Americans. After the snowboard team swept the medals, the berets suddenly became hot. The Roots call center operated by PFSweb took 90,000 calls that day. And the volume never let up until the Olympics were over. “Demand far exceeded original projections within a couple of days,” Layton says. Roots ended up selling as many as 400,000 berets.
Roots was quick enough to realize that providing an excellent shopping experience to Americans ordering the merchandise could be the foundation for its planned expansion in the U.S. “Roots wanted to capture that demand; they didn’t want to let it get away,” Layton says.
And so PFSweb found itself doing more than just answering phones and taking orders. One of the first things it did was to move customers from the telephone. It made web servers available to Roots, set them up to take orders and payments, which the Canadian web site was not able to do, then re-directed U.S. traffic from the Roots Canadian server to the PFSweb servers. The site was up within 48 hours and it soon was accounting for more than half of the orders. PFSweb also installed a turbo-fax system that ended up receiving up to 20,000 faxes a day.
Luckily for Roots, PFSweb, which has been fulfilling orders and providing e-commerce services to product manufacturers and retailers since 1995, had the infrastructure to handle the demand and could call it into service on short notice. Most retailers do not have that sort of capacity. “No one has infrastructure like that sitting around,” Layton says. “A retailer can’t build that type of infrastructure for demand that will last only two weeks.”
The value of outsourcing
The Roots experience demonstrates the value that outsourcing brings to a retail operation. “What happened with Roots meets many of the primary reasons why companies want to outsource,” Layton says. “It’s an alternative to capital investment, it gives them speed to market especially when they are up against a competitor or trying to meet an opportunity, and it’s scalable. Without a scalable platform to meet the demand, the demand would have just gone away.”
With the economy coming out of the recession, Plano, Texas-based PFSweb is starting to see an upturn in its own business as corporations look to outsourcing as a way to avoid investments in technology and as a way to take quick advantage of opportunities. “Our lead pipeline is as strong as it’s been in two years,” Layton says.
With the recession, many companies laid off staff. That resulted not only in less staff to meet growing demand today but also a loss of skills and expertise. And so as they need to re-build, the staff ability is not there, Layton says. “We can plug PFSweb into their environment and they get the technology, the scalability and the capacity,” he says.
But it’s not just the reviving economy that is driving business PFSweb’s way. It is also manufacturers’ evolving desire to have more control over their brands and the changing nature of the retailing business.
“Manufacturers are realizing that the traditional supply chain may not be the best brand enhancer,” Layton says. For instance, he cites computer component manufacturers who spend a lot of money creating an image and a demand for their products, but then rely on distributors and retailers to sell them. A salesman who’s just been pitched by a competitor and may be getting a higher commission from the competitor will steer a customer specifically seeking a product from one manufacturer to a competing product. “Manufacturers feel they can service their customers better by selling the product direct on their own web sites,” he says.
In addition, many manufacturers are also realizing that product in a supply chain may be preventing them from making technological enhancements that could give them an advantage over competitors. “The engineering staffs of these technology companies are far out ahead of the supply chain in features and functionality,” Layton says. “But every time they make an advancement to a product, it obsoletes everything in the supply chain-everything a retailer has in stock, everything on its way to retailers, everything the manufacturer has in inventory. Manufacturers are realizing that the supply chain is not a good place to have all this.”
And so manufacturers are looking for ways to move product more efficiently. If they sell direct to consumers on the web, they turn to outsourcers for electronic commerce, order processing and fulfillment services. If they want to keep product moving through the supply chain more efficiently, they turn to outsourcers for communications to and from retailers to make sure the right amount of product is at the right place at the right time.
PFSweb’s experience in selling and fulfilling products electronically predates the web. PFSweb traces it history to when Layton formed Daisytek International Corp., a seller of computer supplies, in 1988. Daisytek initially sold via online bulletin boards with CompuServe and Prodigy. Later it installed online kiosks in CompUSA and Office Depot locations to help those retailers deepen their offerings of computer supplies. Even at that time, there were so many brands of computers and peripherals that no retailer could stock all the products a customer could conceivably want.