Has FTC Action Improved Online Fulfillment?

And then there were five.

Five months after the Federal Trade Commission fined seven online retailers for failing to meet promised delivery dates for the 1999 holiday season and mandating that they update their fulfillment operations, two of the so-called FTC 7- minidiscnow.com and Patriot Computer Corp.-- no longer are in business. But the remaining five have been working to iron out fulfillment flaws under the watchful eye of the FTC.

Not that a government agency should be the retailers' primary concern. "Forget the FTC," says commission spokesman Eric London. "[The companies] don't want a reputation for having problems with fulfillment." So far, the FTC is content with what it's seeing. London says each of the companies--as well as others the commission has been watching--have been making changes to ensure a better consumer experience.

Toysrus.com determined that fulfillment wasn't its specialty and formed a strategic alliance with Amazon.com that essentially allows the online toy retailer to lean on Amazon's highly refined fulfillment systems. "Santa has Rudolph, we have Amazon," says VP Jean Meyer. Meyer says that because 70% of online toy sales occur in November and December, it didn't make sense to do fulfillment in-house. After its well-documented difficulties during the last holiday season, the company invested enough in its back end and Web operations to "go it alone if we had to," but the relationship with Amazon was a better solution. "We learned our lesson," Meyer says. "When you have a brand as strong as ours, you better live up to it."

Meanwhile, KBkids decided that its outsourced fulfillment arrangement was impersonal and unreliable, and instead built its own system. It also started handling customer service E-mail itself, built a CRM system, and hired a site-testing service to ensure better site peformance. VP Scott Wilder says the focus has been on setting realistic expectations. In other words: Underpromise, and overdeliver. So far, so good, but the post-holiday analysis--by the company, its customers and the FTC--will prove crucial. "At the end of the day, the customer has to be the judge," he says. "But we feel very confident now."

Analysts aren't convinced that things are substantially better than last year. Kneko Burney, an analyst with Cahner's In-Stat Group, says there's a desire on the part of online retailers to improve their fulfillment practices, but most smaller online retailers still are finding the fulfillment waters pretty rough. "To be honest, I think you're going to continue to see a poor performance," says Burney.

Gartner Group analyst Geri Spieler says any apparent improvements in fulfillment are largely smoke and mirrors. Spieler says the predominant approach among online retailers has been to simply slow down the supply chain "so they don't get stuck overpromising." By doing so, she says, they're just delaying the inevitable. "It's not a nightmare in the same way it was last year, but they haven't fixed anything."