Private equity firm Apollo Global Management will take Rackspace private in the all-cash deal.
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“We found several vendors that were very strong in tech, but didn’t have design experience,” Hammond says. “One showed us an example of one of their web page designs, and it looked like a print catalog. Another didn’t have an in-house design team, and when we got their outside design partner on the phone we could tell he didn’t hit the mark.”
You did what for the client?
Walker and Hammond also demanded that prospective vendors supply a list of clients with needs similar to Bigelow’s. When a vendor said it helped a client handle a particular problem, they insisted on knowing exactly what the vendor did. And when a vendor representative promised something, they made sure the vendor’s senior executives agreed.
After reviewing about 10 vendors, Bigelow eventually settled on Tellus LLC. In addition to offering solid technology and experience that addressed Bigelow’s needs for online merchandising and marketing, Tellus convinced Bigelow that it would be a helpful partner that would offer creative ideas as well as sound technology and service, Hammond says.
As much as it likes working with Tellus, however, Bigelow was also careful to work out contract terms that let it walk away if the vendor ever fails to meet promised performance levels. “In our contract, we can pull the plug any time we determine a major deliverable has not been delivered,” Walker says, adding that Tellus gets paid only after Bigelow signs off on each project.
In addition, Bigelow negotiated a provision that would give it the source code to its Tellus e-commerce platform should the vendor ever become unable to support the retailer.
Challenges in vendor contracts can arise when a retailer fails to identify a particular need, or simply forgets to clarify what a vendor is expected to do while implementing an e-commerce platform. Even retailers who do a thorough round of due diligence may forget something that leaves them at a loss.
At Fish Net, for example, Amour identified the need to build on ThePetPlace.com’s strength in selling fish aquarium supplies with improved merchandising, marketing and shipping capabilities that would not only support aquarium sales, but also help to reach overseas customers and expand more into dog, cat and other pet supplies. It worked out with ProfitCenter Software better, sales-generating ways to manage paid-search keywords and natural search engine optimization, effective cross-selling and merchandising, and the ability to show foreign customers the full landed cost of orders.
But Amour forgot to tell his new vendor to build in the capability to show in the shopping cart a lower price than the minimum advertised price acceptable to product manufacturers which it displays on its merchandising pages-a tactic that can help online retailers close sales when manufacturers do not permit them to advertise discounts.
The lack of that feature temporarily left ThatPetPlace.com without the ability to generate some sales with discount pricing, but ProfitCenter has been willing to accommodate the retailer’s requests for changes-a quality Fish Net sensed about the vendor during its extensive vendor review process, Amour says.
“The fact that they were a subsidiary of Systemax Corp., which also owns retailer TigerDirect, and were a strong company financially, we felt comfortable going with them,” Amour says, noting that he reviewed the vendor’s financial statements and met with senior executives to assess its financial strength and commitment to service. “They’ve been good about adding features, even if not always within the timeline I’d like. But generally if it’s something I really want I’ll see it within six months.”
Nailing the contract
Retailers often overlook contractual details, or, at best, work out only partially effective agreements with vendors, Miller says.
He suggests retailers complete three separate but interrelated agreements with each vendor it hires: the master service agreement, which covers overall legal and payment terms for all work a vendor provides; a statement of work agreement, which stipulates exactly what a vendor will provide in its project, and when; and a service-level agreement, under which the vendor promises to meet minimum page-loading speed and site up-time. Terms in any or all of these agreements can stipulate the level of fees the retailer will pay in the event of missed performance levels.
In addition, the service-level agreement should specify, in case of a power outage, how the retailer will recoup its web site’s page design templates, customer shopping history and account data, and all product and pricing content.
It’s also important to get a sense of a vendor’s true market niche and financial health, experts say. Miller notes that retailers should clarify if a vendor truly offers an end-to-end e-commerce platform, as many claim, or focuses only on one piece of the puzzle.
The individual pieces include the e-commerce front end, including the shopping cart; the order management system, which connects the shopping cart to the fulfillment warehouse; the warehouse pick-and-pack fulfillment operation, which ships orders through a carrier; the call center/customer service center; and the back-end accounting systems.
One rule of thumb for judging a vendor’s financial stability if public records are not available is to compare how many new clients it signs per year to other vendors operating on a similar business model, that is, offering either licensed or on-demand software, Wu says.
Sweating all the details of a retailer’s needs, and what and how vendors can deliver, will pay off in the long term, experts say. “Make sure you understand the partner’s capabilities in launching a new web site or other e-commerce technology,” Rubin says, “and they will be there for you when you grow.”