March 28, 2002, 12:00 AM

Sponsored Supplement: Fulfillment: Retailing’s new make-or-break challenge

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In 1995, when Layton believed the Internet was about to develop as a retailing medium, Daisytek formed Priority Fulfillment Services as a division to outsource web fulfillment and services. It scored a coup in 1996 when it landed a deal with IBM Corp. to fulfill IBM printing system supplies around the world, an arrangement that still exists.

PFSweb went public as a separate company from Daisytek in December 1999, selling 20% of its shares to the public. In July 2000, it completed the spin-off and distributed the balance of its shares to Daisytek stockholders. As the Internet boomed, PFSweb grew with it, always trying to balance growth with reasonable investments. But when the implosion happened, it took a lot of PFSweb’s customers with it. “We lost a lot of clients that didn’t want to go on,” Layton says.

Thus the company had excess capacity that it used to great effect with the Roots deal. And because it managed to hold on throughout the nearly two years of the dot-com drought, today the company has not only the technology to meet demands but the staff as well. It employs engineering personnel as well as financial and project management experts on its staff of 600. “On one side, we look like a Big 5 consulting firm,” Layton says, “and on the other we look like a best-of-class provider of infrastructure.”

In fact, that depth of staffing helped PFSweb deal with the load at Roots. Roots has only six retail stores and an outlet store in the U.S. and it wanted to build its expansion in the U.S. on the customers who came to it for Olympic material. Yet there was no way Roots would be able to fill all orders immediately, since demand so far outstripped supply. And so PFSweb put together a program of informing customers about their order status. “Communication was key,” Layton says. “We knew the demand and we knew the manufacturing cycle so we were able to tell customers that they could expect their orders by a certain date.” A measure of how successful that communication was: Fewer than 3% of orders were canceled.

Roots’ experience is as good an example as anyone will find of the new kind of retailing that mass communication and the web make possible. An event that millions witness-the Olympics, in this case-creates demand for a product that consumers want right away, while the emotion that caused them to want it is still strong. To fill the demand, a retailer needs to take the orders instantly and fulfill them right away-or at least let the consumer know that they are back-ordered and when they are likely to arrive. “One primary reason people turn to the web is they want immediate gratification,” Layton says. “So executing the order is critical.”

Once the order is successfully in the customer’s hand, the retailer can then look at what else it can build on that relationship. In Roots’ case, it was seeking expansion into the U.S. “They’ve created brand value with cool styles and fashion. What they needed was for the U.S. customer’s experience with Roots Canada to be positive,” Layton says. “We talk about being the brand behind the brand. Our mission is to make the customer experience, especially on the web, outstanding.”

A less than 3% cancellation rate of back orders is evidence that PFSweb achieved that goal. And that can only be good for Roots and PFSweb.

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