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Retailers race to make online shopping go smoothly

9:14 AM, Nov 23, 2012   |    comments
A UPS employee delivers packages in Palo Alto, Calif.(Photo: Paul Sakuma, AP)
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A year ago this Black Friday weekend, Bridget Collins and Chris Moss got great deals on gifts for their children at BestBuy.com. The products never showed up.

Best Buy said it was a software problem, but critics said it was also a major communication mishap and yet another black eye for the beleaguered electronics retailer.

The next few days can be make or break for all the online retailers. More than 500 major retail website clients tracked by IBM SmarterCommerce saw a more than 17% surge in online sales Thanksgiving Day as of 6 p.m. ET.

They will likely see an even bigger day Monday, known as Cyber Monday for the online promotions. To make sure things go smoothly, they have been busy for months trying to prevent possible site slowdowns and crashes, which can cost millions in sales.

But making sure they don't take orders they can't fill by Christmas - Best Buy's mistake last Black Friday weekend - is a huge priority. Disappointing kids - and their parents - at Christmas is a public relations disaster.

With more customers choosing to shop online, the need for a seamless experience has become imperative.

Smartphones and tablets mean people are in "shopping mode whether in-store or at home or anywhere in between," says Vikram Sharma, CEO of ShopLocal, a marketing services company that digitizes the newspaper circulars for more than 100 top retailers, including Target and Macy's. "This has really changed the dynamics of shopping and eliminated the difference between online and offline."

This year retailers are preparing for better deals and more shoppers seeking them. ShopLocal found the amount of shopping research - "pre-shopping" - on retailer sites was up 43% for the weekend before Black Friday vs. the same weekend last year.

Retailers are responding to this increasingly early interest: The number of deals for stores and websites on Thanksgiving Day were up 28% over last year, says ShopLocal.

But if things go wrong when shoppers are done researching and ready to buy, it can mean both lost sales and lost customers during a time when both are highly coveted.

Keeping up

"Customers expect perfection on every step of the way," says Doug Rassner, director of product management for Micros-Retail, a retail technology company that helps run e-commerce and mobile sites. "Retailers are forced to keep up with this or lose their market share."

While Best Buy says last year's order-fulfillment issues affected less than 1% of its customer base, some, including Collins and Moss, say they are done with the retailer after not receiving the gifts they ordered.

"We have still yet to shop at Best Buy," says Moss of Paducah, Ky., who is shopping on other retail websites. "I won't even go in the store."

A year later, Collins of Naperville, Ill., says she never received the gift card Best Buy promised to those affected, in the amount of their original purchase (in addition to receiving a full refund, which she did get).

"I don't even look at their ads in the Sunday paper anymore," says Collins, who has 16-year-old quintuplets. "I am still ordering online, just not doing any shopping at Best Buy."

Once you lose a customer, it's hard to win them back, Rassner says. "Retailers are all scrambling to acquire customers," he says. "And a poor online experience, whether it's holiday or another time, is going to lose you customers. It's a lot more spent to make that customer back up."

So retailers put a lot of work in ahead of time making sure things will go smoothly when it's crunch time.

Retailers typically start planning for their online holiday season in the summer, says Vicki Cantrell, the National Retail Federation senior vice president who heads the organization's online division, Shop.org.

"Everything has to work together," she says, ranging from promotions to product availability to the infrastructure that supports the uptick in Web traffic.

Overstock.com is ready for an estimated 10 million to 15 million unique visitors between Thanksgiving and Cyber Monday, says CEO Patrick Byrne. True to its name, the e-tailer traditionally gets its inventory from warehouses that are shutting down and stores that are liquidating and trying to get rid of surplus products. That ensures that there is only a certain amount of any particular item. The business model means the site is much better equipped than traditional retailers to avoid inventory problems, Byrne says.

"We know that we are getting 214 tablets," he says, as an example. "So our system has to be set up from the beginning that you cannot oversell. When we sell through the last one ... we can't go back to the guy who supplied us."

This holiday season Overstock decided to offer doorbusters on hot items, instructing buyers to seek out specific products in advance rather than relying only on liquidation. But Byrne still doesn't think inventory will be a problem.

"We've bought very, very deep in these products," he says, adding that they've been able to better plan for the holiday season because of it.

And while retailers may have an occasional "high-profile snafu," says Jay Henderson, director of strategy for IBM SmarterCommerce, "the industry as a whole has made great strides (in avoiding website and communication breakdowns)."

Many retailers simulate online scenarios like Cyber Monday months ahead of time to make sure their sites can withstand the expected traffic.

"We try to make sure we're in a position to far exceed any of their expectations of the amount of traffic and volume and revenue they'll see throughout the holidays," says Rassner, whose company helps retailers with these kinds of tests.

That's what Best Buy says it has done - expanded server capacity and done "extensive testing" of its site at more than double the traffic numbers it saw last year to make sure it can handle high-traffic days, says Scott Durchslag, the chain's head of e-commerce.

Best Buy's problem last year wasn't only that it couldn't fill orders, but in some cases it took weeks to alert customers that their item was out of stock. This year, communication will be much faster within Best Buy's supply chain, Durchslag says.

"That's something we monitor on an hourly basis now," he says.

The retailer is also stocking "a lot more inventory" than last year for hot items, has hired additional staff to make the online ordering process go faster and has larger and more distribution centers dedicated to online orders, Durchslag says.

Big challenges

Retail sites ideally will update consumers as early as possible when a product is out of stock and when it might become available, Henderson says. And retailers have to stop marketing products that are out of stock so they don't disappoint consumers.

But "there are big challenges in doing that from a technical perspective and organizationally," he says.

It's not just the traditional online experience that retailers need to pay attention to. With mobile and tablet shopping on the rise, websites need to be compatible on those devices, too.

Retailers' e-commerce organizations were often separate from the store side in the 1990s. And while they are typically all one entity now, Henderson says, some retailers have put mobile commerce in its own "silo," which could lead to communication problems related to available inventory.

Many of the top 30 online retailers, including SonyStyle.com, Victoria's Secret and Bath & Body Works, haven't optimized their websites for smartphones or tablets, according to Compuware, which measures the technical performance of Web and mobile sites. Optimizing means the functionality and design of the site are built specifically for ease of use with the device, factoring in things such as the smaller screen and navigating with fingers instead of a mouse.

Just eight of the top 30 retailers' sites (as ranked by trade publication Internet Retailer) are optimized for tablet use, according to Compuware. Last holiday season, however, none of the top 30 sites were optimized for mobile or tablet.

Underscoring the importance of high-performing mobile websites: Thanksgiving Day sales from mobile devices on the retail sites tracked by IBM Smarter Commerce were up 15% as of 6 pm EST.

E-commerce is still only about 10% of retail sales, and smartphone and tablet sales are only 3% of that, or an estimated $10 billion this year, according to Forrester Research. But because consumers use phones and tablets for so much of their shopping research, Sharma of ShopLocal says it's "very surprising how slow a lot of retailers have been to get to mobile-enabled and tablet-enabled. That's just a huge disadvantage."

When it comes to the holidays, though, there's only so much prep retailers can do. And it still may not be enough.

"Everybody's got issues of one kind or another," Durchslag says. "That's not unique. What's unique is how you respond when they do come up."

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