Private equity firm Apollo Global Management will take Rackspace private in the all-cash deal.
Boom in Q4 e-shopping will present a whole new set of challenges to online merchants and their fulfillment providers
Through the end of September, online sales volume is up 30% over last year to $29.7 billion. And that growth is expected to at least hold, if not accelerate, through the end of the year. At that rate, U.S. consumers will spend $44 billion online this year, comScore Media Metrix projects. And at Media Metrix’s average of $105 per purchase, that translates into nearly 420 million orders. That’s a lot of packages.
It’s only going to go up from here, experts say. In five years, online spending will account for 8% of retail sales and reach $164 billion, Forrester Research Inc. projects. So it’s no surprise that providers of fulfillment services are expecting boom times ahead. Gone is the gloom of two years ago, when the Internet investment bubble burst and many retailers and associated service providers wondered what the future of online shopping would be. “With more people turning to the web for shopping, how could this be a bad place to be?” says Connie Warner, president and COO of Bradley Direct, an outsourced fulfillment provider based in Midland, Ga. “As the industry continues to evolve with electronic commerce leading the way, outsourcing will become even more prominent.”
Estimates of the size of outsourced fulfillment services vary. Some experts put the size of the market at $3 billion right now and say it will be a $9 billion market in five years. Warner is expecting even more dramatic growth. She cites industry reports that estimate 10-15% of the market today uses outsourced fulfillment services and that proportion could rise to as high as 50% five years from now. “Why should all the traditional retailers who are turning to new channels re-invent the wheel?” she says.
In it for the long haul
In many ways, the evolution of Bradley Direct, a division of the 117-year-old W.C. Bradley Co., reflects the recent evolution of the retailing industry. The company started 25 years ago as part of Bradley’s Charbroil grill operation providing warranty services. The business grew from there to providing parts for grills, then it grew further to mailing and fulfilling orders for the Grill Lover’s catalog. In the early 1990s, it launched the Sugar Hill catalog, focusing on hand-painted furniture, gifts and collectibles. By 1999, with years of fulfillment experience and with online shopping ready to boom, Bradley Direct became a third-party fulfillment company.
Unlike others at the time, though, Bradley Direct did not get caught up in the frenzy. For one thing, it stayed away from start-ups. “We wanted to know that when we made the investment to bring a client on board they were going to be with us for the long haul,” Warner says. Further, it made the decision to fund its growth from internal resources. “I wasn’t spending my time looking for venture capital,” she says.
Today, Bradley Direct operates a 175,000-square-foot distribution center with a 200-seat call center at Bradley’s 80-acre corporate headquarters. Unlike other third-party fulfillment companies, Bradley Direct has no intention of opening distribution centers around the country. Two-thirds of the population lives in the eastern half of the U.S. and the company’s Georgia location is well situated to serve them as well as the rest of the country, Warner says.
Bradley Direct’s typical customer today ships at least 100,000 packages a year. The company still fulfills for the Grill Lover’s catalog and web site. Other customers include Touchstone Inc. home decor retailer, Junonia Ltd., which sells to women size 14 or larger over the web and through a catalog, Ranger Boats apparel and Habitat for Humanity’s logo merchandise and books.
Pressure to perform
As the holiday shopping season approaches, Warner says Bradley Direct is ready for the anticipated continued strong performance of e-retailing, having staffed up earlier in the year for expected increases in business.
Nonetheless, if this year’s holiday sales grow as projected, retailers will be under immense pressure to perform well. Because the traditional start of the holiday shopping season-the Friday after Thanksgiving-falls so late in the month-Nov. 29-the season will be compressed into an incredible 20 days at the most. By contrast, assuming a cutoff date of Dec. 18, the 2000 shopping season was 25 days and last year’s was 26.
And while many online retailers plan incentives that will encourage early shopping, many consumers just aren’t in the mood to buy until Thanksgiving is over. Thus retailers and their fulfillment vendors will have to brace themselves for an onslaught. Jupiter Research Inc., however, is pessimistic that retailers will be prepared. “Despite a shorter, more intense selling season this year, just under half of site operators Jupiter interviewed have done absolutely nothing to reinforce their infrastructure in preparation for the holiday season,” Jupiter says in its “Mitigating Risk During the 2002 Holiday Season” report. “To avoid disaster, companies must ensure marketing and technology teams are in sync, review escalation procedures with third-party service providers, and consider performance optimization vendors and usability tuning.” Fulfillment suppliers are particularly crucial because it is on them that timely delivery depends.