Private equity firm Apollo Global Management will take Rackspace private in the all-cash deal.
By early spring, online retailers were still assessing what many point to as a defining moment in e-commerce-the enormously successful 1998 holiday shopping season that exceeded all expectations. (One example: barnesandnoble.com reported $17.9 million in online revenue for the five-week period ending Jan. 2, 1999-a 300% jump over the previous year.) Virtual merchants have been studying their approaches, from pumping up available merchandise to producing special holiday home pages. And, for the first time, they now have significant experience in understanding what makes the Internet shopper click.
“We learned at least 30 things, particularly understanding how a Web shopper shops,” says John Roman, vice president of direct marketing for New York-based Brooks Brothers. “We had a hell of a learning experience,” adds John Rindlaub, vice president of brand marketing of barnesandnoble.com, New York.
In short, online retailers learned what worked and what didn’t. “Anybody who says everything went perfectly is just blowing smoke,” says John Hough, a spokesman for Egghead.com. The early analysis boils down to a few simple points: It’s all about convenience, good prices, customer service and available merchandise.
Just as in the bricks-and-mortar world, the holiday shopping season is critical to virtual retailers-maybe even more so in these early days than to traditional stores. For some online merchants, the holiday period accounted for half or more of their annual revenue.
That’s why understanding what worked-and fixing what didn’t-is vital to improving performance for the 1999 season. Online retailers have targeted three keys: merchandise, customer service and marketing. “Now it’s about operational excellence and branding,” says Rindlaub.
How the Furby saved Christmas
One huge merchandising success story for holiday ’98 was CyberShop, Jersey City, N.J. Its buyers recognized early that Furby would be the season’s hottest toy, and exploited that advantage. “We were able to secure a large supply of Furbys and successfully made it known to disappointed bricks-and-mortar retail shoppers that Furby was just a mouse click away,” in the words of Chief Executive Officer Jeff Tauber.
CyberShop sold more than 20,000 of the chatty critters at $99.95 apiece, accounting for 60% of CyberShop’s total revenues for the fourth quarter. CyberShop’s fourth-quarter sales of $3.4 million marked a fourfold increase over the same period in 1997, and accounted for 70% of the company’s annual sales of $4.8 million
A major appeal to online shopping is convenience. It’s easier to order that Furby online than to drive to the mall. Thus anything that complicates that no-hassle experience is a concern for virtual retailers. Whether it be orders, deliveries or the vast number of e-mail responses (1,000 a day at garden.com), Internet stores want to simplify the process. Holiday ’98 helped merchants identify the hassle points.
One retailer that intends to streamline ordering is Garden Escape Inc., Austin, Texas, which operates garden.com. “Online is so convenience-driven,” says CEO Cliff Sharples. “And with a low price point, additional sales become so convenient.”
But Sharples says online retailers make the ordering process cumbersome during checkout by requiring customers to fill out one order form for each purchase. In fact, industry research indicates that up to 50% of items put in the shopping cart feature of a Web site are never purchased. “Imagine going to a grocery store, going to the checkout line and then not buying half the items in your shopping cart,” says Rindlaub. Barnesandnoble.com renovated its site by simplifying the language and making it harder to browse other pages at checkout time, he says, and is planning to improve response times to customer inquiries, such as “Where’s my order?” Before the holidays, turnaround time on such a question was 24 hours. During the holiday shopping rush it extended sometimes to 72 hours.
Another consistent message from online retailers is that they want to ramp up available merchandise from their 1998 selections. Nordstrom’s Web site, for example, offered this past season only 30% of the items available in its catalogs-and their customers want more.
For Christmas, most online retailers increased their product items in anticipation of a big selling season. Garden.com grew its product line from 9,500 to 11,000 items, with 300 products unique to the holidays.
But some found that more wasn’t enough. Take Bluefly.com in New York, which sells designer fashions at discount prices. CEO Kenneth Seiff says the company had a successful fourth quarter, with gross sales of more than $300,000 and a dramatic online traffic boost from 28,297 visitors in September to 664,230 in December. But while items sold well across the board at Bluefly, Seiff was caught short with too little merchandise on hundreds of products, including certain brands of handbags and neckties. “Merchandise is critical,” he says. “You have to get the right categories in the right quantities.” It’s especially critical with discounted merchandise, he says, because it’s difficult to replenish stock.
JCP Internet Commerce Solutions, a division of Plano, Texas-based JCPenney, had 4,000 products available online for holiday 1998; it wants to raise that to 20,000 by fall-equal to the JCPenney catalog selections. In 1998, “customers expected to find the whole assortment online,” says JCP Executive Vice President Richard E. Last. While bedding and window coordinates sell extremely well through the catalog, “It didn’t follow the same pattern online,” he notes. One problem: The JCP site lacked the technology for online shoppers to see the bedding and window coordinates at the same time. The company plans to resolve that issue.
Chipping at shipping
There was some grumbling by customers about high shipping costs at Bluefly. Seiff wants to eliminate any chance customers will use shipping costs as an obstacle to online ordering: “We’ve decided to not make it a detriment to sales.”