Beating the Storm

When Hurricane Katrina hit Louisiana Aug. 29, sending wind, waves and refugees into his Baton Rouge community, retailer Robert Hackley found out how lucky he was. Over the course of the subsequent month, his ShoppersChoice.com lost about $500,000 in business, halting a steady tide of 30% monthly growth, while his phone system was mostly down and valuable employees were unable to get to work.

But it could have been worse, Hackley says. The eye of Katrina came ashore at a point that spared--just barely--ShoppersChoice from the worst of the -category 4 -hurricane`s 140 mile-per-hour winds. Had the hurricane`s eye been a little to the west, it would have caused the strongest and most devastating winds, those on the eastern edge of Katrina, to slam into Baton Rouge and cause extensive damage. "If that hurricane had stayed 20 miles to the west a little longer, it would have wiped us out," says Hackley, founder and CEO of ShoppersChoice.com LLC.

But while ShoppersChoice got a lucky break from what could have been a devastating hit, Katrina came close enough and caused enough problems to serve as a wakeup call to the retailer as it moves ahead with plans for rapid growth over the next few years. With 60 specialty retail sites including BBQGuys.com and The Grill Store and More, the -company is planning a major expansion of ShoppersChoice.com as a mass merchant, growing total SKUs from 1 million to 10 million in the first half of next year, Hackley says.

But those growth plans now include disaster -recovery as a major ingredient. "We didn`t have a -disaster recovery plan before Katrina, but we`re -working on one now," he says.

Katrina woke up ShoppersChoice as well as other e-retailers at a time when the -rising volume of retail e-commerce underscores the importance of -business continuity in the face of disasters, whether it`s -hurricanes in the Southeast, forest fires and earthquakes in the West, or heavy rain and flooding in the Midwest or Northeast.

Void in emergency planning

No longer an industry dominated by boutiques, online brochures, or start-up web properties with long-term sales potential, online retailing has massed the kind of volume that has turned retail e-commerce web sites into assets as valuable--and as worthy of -protection--as physical stores. Indeed, as many multi-channel retailers trim their poorly performing stores from their chains, the value of the e-commerce site as a steady, 24/7 means of serving customers rises even further.

Despite the growing importance of online activity to overall retail sales, however, many retailers are not prepared to deal with emergencies that could cause major disruptions to their businesses, experts say. It`s not that retail executives are unaware of the importance of disaster recovery and business continuity--concern about that issue has become far more common since the terror attacks of Sept. 11, 2001. Rather, the void in emergency planning stems from limited resources and the fact that it`s difficult to place a priority on what type of emergency to plan for. "After Sept. 11, retailers who didn`t have any kind of disaster recovery plan -realized they needed one," says Sunita Gupta, executive vice president of retail consultants LakeWest Group in Cleveland. "Now after Katrina, we`re really seeing a big change in -companies trying to figure out how to plan for disasters."

Setting priorities

But while most retailers have taken at least some steps to make sure they can survive a disaster and continue operating--such as backing up -customer data to off-site -computers--many simply don`t have the infrastructure, like multiple warehouses and back-up contact centers, to protect and assure continuity of all aspects of their business, experts say. "Most retailers under $500 million don`t have multiple distribution centers, even if they`re serving multiple channels," Gupta says. "So the question is: What is the back-up plan for those companies?"

Sometimes it takes a first direct experience with a disaster to help a retailer set priorities. At ShoppersChoice, for example, outsourced warehouse space intended to add capacity to handle peak business periods is now part of a back-up disaster recovery/business continuity plan, Hackley says.

ShoppersChoice maintains its office and warehouse space in two buildings in Baton Rouge, but earlier this year it decided to contract for outsourced warehouse space in Dallas, where it coincidentally also maintains the web servers on which its sites operate. "We`re growing so fast, we needed more space," Hackley says. "But instead of constructing a new warehouse building, it was more cost-effective to go with an outsourced bonded fulfillment center."

After Katrina hit, however, Hackley realized that the outsourced warehouse would serve a dual role, backing up fulfillment in case of disaster as well as for peak -shopping periods. "Most fulfillment will still be in Baton Rouge, but we could switch all of it to Dallas if we had to," he says.

Maintaining such contingency plans imposes additional costs, since ShoppersChoice would have to arrange for -suppliers to ship products to Dallas, finance additional inventory and pay outsourced fulfillment costs while continuing to pay regular employees. But maintaining -customer relationships is worth the cost and trouble, he says.

Re-routing

Indeed, most retailers should make arrangements with -suppliers to be ready to ship to alternate warehouses or to drop-ship to -customers or to stores if their warehouses become unavailable, Gupta advises. "If retailers don`t have a backup plan for their own warehouses, they need to plan to route products from vendors directly to stores or to customers," she says.

One of the immediate concerns for online retailers operating during and after disasters is simply maintaining communications with customers to let them know the status of existing orders and if and when they can place new orders, in addition to maintaining marketing communications, experts say. "Our biggest hurdle in the two-hurricane month was communication," says Tom Cox, founder and CEO of Golfballs.com Inc., based in Lafayette, La., about 100 miles west of New Orleans.

Bunkered

Although it lay directly in the path of Rita, Golfballs.com managed to escape severe physical -damage, but the broad scope of Rita`s as well as Katrina`s impact paralyzed much of its communications infrastructure, causing it to lose 15% of expected September revenue, Cox says. Its toll-free customer service line as well as all of its land-line and cell phone service was out of commission for more than two weeks and it was forced to unplug and move its e-mail servers to another state. When Katrina hit, it knocked out main telephone switches in New Orleans that left a large area without reliable telephone service. "Nearly everything in our area had spotty connectivity," Cox says.

Like ShoppersChoice and other retailers, Golfballs.com kept its web site up because its server is maintained in a protected location. "Our web site never went down; it`s bunkered in a data center off-site," Cox says.

But like many retailers, Golfballs.com and ShoppersChoice didn`t have back-up outsourced customer service operations--a move many merchants have resisted because of the need to train contact center agents in policies and product lines, experts say. "They already do a lot of work to get their regular customer service reps up to speed," Gupta says, adding that she knows of several well-known retailers who don`t have outsourced contact centers as backup.

But first-hand experience with the recent hurricanes is -changing the minds of some retailers, -causing them to consider -outsourcing -customer service for the first time or pushing ahead prior plans to do so. "We hate to do it, because we want our customer service to be different from other retailers` and to train people in an outsourced operation on all of our grill products will be hard to do." Hackley says. "But we`re going to have to look at an outsourced call center because a lot of -customers making $3,000 to $5,000 purchases want to talk to you."

Cox adds that Golfballs.com has been planning to arrange for back-up outsourced contact center operations to accommodate -growing sales, but that now he expects to have an outsourcing arrangement in place this fall. Golfballs.com is -taking other steps as well. After moving its StrongMail Systems e-mail marketing server in September to Seattle, where it coincidentally has maintained other servers to -support supplemental sales through Amazon.com, it has decided to conduct all e-mail marketing through Seattle permanently. "It doesn`t -matter where we e-mail from, so it might as well come from a place that doesn`t have hurricanes," Cox says.

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Next time: Better prepared

Golfballs.com has also invested in a permanent generator as an alternate power source for critical systems in its Lafayette headquarters, including its printing machines for personalizing products, and it is looking into arranging for back-up, out-of-state telephone service that could switch calls to other lines when local service is out. "With an investment of about $20,000 or $30,000, we can protect ourselves," Cox says, adding that his headquarters is already located in a secure commercial building with few windows. "There`s no question we`ll be better prepared next time."

ShoppersChoice usually operates with 25 employees in Baton Rouge, including 12 customer service agents, but only six or seven people were able to get to work for about a week and a half after Katrina. It managed to keep up contact with customers throughout the hurricane`s aftermath, but it had to scramble and innovate with available resources. For starters, it had to acquire a back-up generator for electric power, and a mixture of -employees and managers used cell phones to contact customers. "People in marketing, techies and managers all of a sudden became customer service reps," Hackley says. "We had to take care of the customer."

While its toll-free customer service number was out of commission, it placed its regular 225-Area Code number on its web site--which operated uninterrupted from its Dallas-based servers. In addition, it expanded to its customer service contact page a new feature, Call Me Now, that ShoppersChoice had originally placed only in its shopping cart to reduce cart abandonment. The feature lets customers e-mail their phone number to a customer service rep, who calls back. "It`s been a great way to keep up customer relationships," Hackley says.

Calling all customers

ShoppersChoice also stepped up customer service in other ways. As part of a recently launched rewards program, customer service agents are required to contact -customers by e-mail whenever an order is more than three days late and explain the hold-up. But figuring the hurricanes called for more personal service, Hackley required agents to contact customers by telephone. "A lot of customers may have thought they wouldn`t get their orders because we`re based in Baton Rouge, so we alleviated their concerns by calling every customer," Hackley says.

As it expands its retail scope with its planned 10 million SKUs, however, ShoppersChoice will need the help of an outsourced contact center for back-up, Hackley says. Although ShoppersChoice has yet to work out a policy for how, when and exactly what it will outsource, it has taken the initial steps of identifying in management meetings the best way to get through future disasters. "Our meetings consist of how to make things run normal," Hackley says.

While fulfillment and customer service can present more open-ended challenges for disaster-stricken retailers, the protection of software systems and critical data is more routine.

Still, each retailer must decide the extent to which it will protect information. Computer and accessories retailer ComputerGeeks.com, which hosts its own web site at its home base of Oceanside in -earthquake-prone Southern California, backs up all customer transaction data every day to an -off-site location, says CIO Greg Hansen. "The big thing in Oceanside is power outages," he says.

Automatic backup

ComputerGeeks automatically backs up transactional data as well as data on customer and supplier records every 30 minutes to an on-site data center. One of the site`s IT -engineers carries tapes of that recorded data each day to an off-site secured fireproof vault. The same process is followed to maintain off-site records of weekly, monthly and yearly files.

In case of damage to ComputerGeeks.com`s site server, the IT engineer would take the most recent 24-hour file to co-located computers at Yahoo Internet Services in San Diego, which would enable ComputerGeeks to continue taking orders, Hansen says. "We have too much data to keep it real time, so the worst case is that we lose the last 30 minutes of transaction data," he says.

The lesson of recent disasters came in two parts, says Hackley of ShoppersChoice. For one thing, employees and managers realized how much they could accomplish by working as a team with available resources. "We operated with generators for a few weeks, and we all worked out in the warehouse packaging orders," he says. "We pulled together and winged it."

But next time, Hackley adds, he hopes to have a formalized plan for disaster recovery and business continuity, including pre-arranged outsourcing for customer service as well as fulfillment. "We could consider moving," he says, noting that more hurricanes are a given. "But if we move to California, we`ll contend with earthquakes, and Dallas has tornadoes. The best thing is to have a plan in the works for whatever disaster hits, so we have to take a long look at a continuity plan. We now realize how important it is."

paul@verticalwebmedia.com

Hold that shipment

In the normal course of things, responsible retailers strive to get customer orders processed and shipped as quickly as possible. But when disasters hit, it`s often better to hold back shipments instead of letting them get lost or delayed in transit to disaster-struck areas. The challenge to retailers is knowing which shipments to hold and which to send.

At Camping World Inc.`s CampingWorld.com, director of corporate data Mike Hall found his answer in a fraud-prevention system -modified to work as part of disaster management. For orders already being processed in the fulfillment center, the system can abort orders by ZIP code. "When Katrina hit New Orleans, everyone was scrambling to see how to keep shipments from going there," Hall says. "We realized it would be better to keep our products in our temperature-controlled warehouse instead of in a UPS or FedEx holding facility."

CampingWorld specializes in equipment like power generators, awnings and refrigerators for recreational vehicles, items that remained in demand in hurricane-damaged areas. Although it sent some equipment to the areas as part of organized relief efforts, it needed to find a way to prevent incoming web orders from being fulfilled for shipment to areas where carriers had suspended deliveries.

CampingWorld is using the order entry/customer service module in the CWDirect system from CommercialWare Inc. on an IBM iSeries platform on a corporate intranet. Through the CWDirect web front end, CampingWorld enters ZIP codes provided by UPS, FedEx and other carriers that indicate destinations with suspended delivery services. The CWDirect system puts orders to those ZIP codes on a "Katrina hold" to prevent them from being passed to a fulfillment center. The system is also designed to hold orders to ZIP codes with high -incidences of fraudulent orders, Hall says.

In addition to protecting inventory, the system serves to maintain customer relationships, Hall says. Because the system matches orders in real time with ZIP codes blocked for shipping, CampingWorld can immediately inform online or call center customers that their order will be on hold, and that they`ll get an e-mail notification as soon as it`s cleared for shipping. "The system`s flexibility lets us interact with the customer in the best way," Hall says.