October 28, 2004, 12:00 AM

Where outsourcing is not a dirty word

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To make outsourcing work, experts say, retailers need to identify how much of an e-commerce operation to outsource, establish short-term and long-term goals, set clear rules of engagement, check that the service provider has the expertise needed to work with the retailer`s infrastructure, and carefully monitor each partner`s effectiveness.

The year of the SLA

The advantages that outsourcing providers offer can become weaknesses if engagements are not carefully worked out, Garf says. By scaling their e-commerce platforms to serve multiple retailers, outsourcing providers can usually offer more features than clients could afford to provide individually. "So it can be a challenge for them to make unique custom integration points for special features like promotions or gift cards," he says.

Outsourcing, however, is subject to stricter engagement rules, experts say. "This is the year of the service level agreement," says Carol Carpenter, director of product management for Keynote Systems Corp., a provider of outsourced services that monitor how well a web site`s infrastructure is performing. "In the past, a lot of SLAs were very technical; i.e., that server utilization must be within a certain percentage. Now, SLAs are written more on business objectives. If a server is down, the agreement covers how that affects an online retailer`s conversion rates."

At CompactAppliance, Roussos says he strives to keep contracts to a minimum length of time. "We won`t sign a contract for more than a year, and we often prefer to go month-to-month," he says. "We`re usually able to get the terms we want."

SLAs are especially important for multi-channel retailers, Garf says. "Many multi-channel retailers are developing online strategies toward outsourcing, but we urge retailers not to look at online as a separate channel," he says. "If a customer buys a product on the web, 20 minutes later they may call customer service or go into a store to change their order and add something. If their order information is not updated in real time, the store associate or customer service rep might not have access to their order to service it."

Crate and Barrel, the multi-channel home furnishings retailer, understands the importance of an outsourcing partner capable of working with a retailer`s underlying infrastructure, says John Seebeck, director of e-commerce. After it launched CrateandBarrel.com in 1999 through an outsourcing arrangement with Fry, which provided its entire e-commerce platform, the retailer wanted to offer an online gift registry that would integrate with its stores and call center. That kind of integration can be more difficult than some web site developers think, experts say. But Crate and Barrel had done its homework in making sure that Fry had experience working with the IBM infrastructure--its AS/400 network and MQSeries messaging software--to support cross-channel use of the gift registry, Seebeck says. "They were definitely an important partner, because they could make the registry work by integrating it with our AS/400," he says.

Seeking an effective outsourcing partner kept Wilsons Leather from falling behind with an under-performing web site, says Linda Angelacci, vice president of marketing. Wilsons had operated a basic e-commerce site since 2000, but the site paled in functionality compared to others. "The platform was limited and didn`t allow us to stay current with what many retailers have, like couponing or special offers, or being able to incent customers to spend a little more to get a discount," she says. Wilsons also operates more than 450 stores.

Wilsons, realizing it needed to offer customers more shopping features, searched for a way to provide those features while limiting its investment. "The site was at the point where it was going to capture a significant portion of limited IT investment capital, but our IT department`s biggest customer is our stores, so we looked to outsourcing," Angelacci says. Wilsons went live in August with a new e-commerce site on a platform developed and managed by GSI Commerce.

Adding features

Replacing what Angelacci describes as a basic e-commerce site with little to entice shoppers, Wilsons now offers features including online gift cards, which can be redeemed either online or in stores, multiple ship-to addresses, gift wrapping, a wish list that shoppers can save for future use, improved site search for more detailed photography and product descriptions, cross-selling suggestions, and a special information section on leather care.

Instead of dealing with several technology companies for site search, fulfillment and other operations, as it had in the past, Wilsons has simplified things by dealing primarily with GSI, Angelacci says. "At one point, we had four or five different e-commerce partners," she adds. "That`s a lot to manage."

And instead of operating the web site with a staff of eight, Angelacci now relies on one e-commerce merchandiser.

The teaching role

But GSI brings to Wilsons more than a set of features that, so far, are functioning well, Angelacci says. To a retailer that hadn`t spent much attention on its e-commerce channel but needed to compete better online, its new partner brings experience and an educational shoulder to lean on, she adds. "We didn`t have the internal expertise and didn`t know how to compete," she says. "They offered the most flexibility for what we were looking for, and somebody from whom we could learn about e-commerce."

Not all outsourcing arrangements go as smoothly. And no one knows that better than CrazyGrazer`s Hall. While he says he`s happy so far with Vcommerce, he agreed to enter a contract with it only after several meetings and extensive research had made him comfortable that it would perform as promised. An earlier technology arrangement, he adds, had left CrazyGrazer without a usable platform.

CrazyGrazer initially tried to launch Oct. 1 of last year. But in a classic replay of how early dot-com companies underestimated the infrastructure they would need to serve customers, the retailer attracted over a million customers--and crashed. "We weren`t anticipating 1.2 million visitors, we had anticipated only a fraction of that," Hall says.

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