Frank Tortorici
+1 (212) 339 0231

January 24, 2001
B2C Shakeout Continues As Large Established Retailers Improve Online Purchasing Experience Increasing Pressure On The Pure Play E-Tailers

As in 1999, fulfillment problems and shipping delays plagued
the 2000 holiday season according to a new Accenture study

NEW YORK, JANUARY 22, 2001 - Sixty seven percent of deliveries were not received as ordered and 12 percent had not been received in time for Christmas according to Accenture’s second annual U.S. E-Fulfillment study of Web sites operated by traditional retailers, "pure-play" e-tailers and mail-order catalog companies.

Delivery of orders in time for Christmas was seven percent higher for Web sites operated by traditional retailers and mail-order catalogers than for "pure play" e-tailers. They also did a better job than e-tailers of simplifying the return process.

While proactive communication with the online shopper significantly improved from last year, shipment confirmation increased to 45 percent from 21 percent in 1999, the most common shortcoming was the lack of a promised delivery date.

"Companies often provide minimal and vague delivery information, either because they aren’t confident of their ability to keep a promise, or because they fear the consumer will balk. If they had simply given a lead-time of 10 days (last year’s average), 76 percent of the orders would have been considered on-time and, therefore, perfect," said Robert Mann, author of the study and an associate partner at Accenture. "Though some consumers want speed and they should have that option, most consumers seem to want predictability even more. That means companies need to make a delivery promise for each order, and then keep it," said Mann.

Returns Process Needs Major Overhaul

Both retailers and e-retailers need to do a much better job of managing the return process, according to Accenture’s study. Whereas retailers and catalogers have eclipsed their e-retailer counterparts in this area, they still need to better integrate their online and offline return policies. For example, only 58 percent of retailers allow in-store returns, and of those that do, 40 percent do not uniformly allow the practice, creating confusion for consumers. According to the study, clarity of communication and uniformity in policy execution are necessary to minimize consumer confusion and frustration.

Another key finding was the significant difference between e-tailers and traditional retailers with respect to the time it takes to return an item. For e-tailers, the process was more time consuming and complex. On average, it took 2 minutes longer (35 percent) for an e-tailer than for a cataloger and over a minute longer than for a retailer. This is due, in part, to the fact that e-tailers fail to provide the tools to help in the return process. For example, only 51 percent of e-tailers provided pre-printed labels, which were provided by nearly 80 percent of retailers and catalogers.

E-tailers also created a longer return process by requiring lengthy pre-approval requirements on more than 60 percent of their returns, nearly twice as often as catalogers (17 percent) and retailers (29 percent). This was a particularly time consuming process when emails and phone calls were delayed overnight or over weekends. It should be noted that these additional days were not included in the calculation of return processing time but this time is very real for consumers.

Fortunately, e-tailers are apparently aware of this disparity and of the importance returns plays in the overall experience. E-tailers off-set the complex returns processes by paying for return shipping costs and refunding original shipping costs more often than retailers or catalogers. It should be noted that pre-paid return shipping was seen in less than 30 percent of all returns and that refunds of original shipping costs were offered only 12 percent of the time.

Fulfillment Measures

The study also sought to analyze individual company performance to identify common traits among companies that were performing better or worse than average in four key metrics: order time, perfect order fill rate, delivery time and shipping as a percentage of order cost. These results were based on the 58 companies that were covered in both the 1999 and 2000 studies.

Companies whose relative performance improved and were significantly above average were labeled "over-achievers." Likewise, it defined "under-achievers" as companies with below-average performance and that had a relative drop in ranking over the course of the two years. (Accenture first conducted this study as a benchmark in 1999 - www.accenture.com.)

In addition, the study identified common traits among companies based on size for those whose sales figures were available.

Under-Achievers
17 companies total

Consistent with overall study results, a higher percentage of e-tailers (20 percent) were classified as under-achievers than were retailers (16 percent) or catalogers (12 percent). Both order time and on-time delivery performance were a problem for under-achievers.

Under-achievers had average order and shipment confirmation rates and provided inventory status more often. However, their inventory availability (66 percent) was significantly worse than the study average (90 percent).

Looking at the four key fulfillment measures, 10 of the 13 greatest drops in relative performance among the under achievers belonged to e-tailers.

Over-Achievers
13 companies total

Again, consistent with the overall results of the survey, a higher percentage of catalogers (17 percent) and retailers (16 percent) were classified as over-achievers than were e-tailers (9 percent). All of the over-achievers were superior performers in order time, delivery time and on-time delivery performance.

Actual reported inventory availability was worse than average (80 percent) among over achievers. In addition, four of the top five performers in the four key measures were retailers or catalogers, despite the fact that they comprised only 55 percent of the study participants.

"Interestingly, both under-achievers and over-achievers scored similarly in proactive communication with consumers which was neither high nor low, just on par or average. In the area of actual inventory availability, both scored poorly which suggests that whereas fulfillment has improved in some areas (i.e., package and delivery), in others like reverse logistics and inventory availability, they have not," said Mann.

Small Companies
Under $25 million in Internet sales volume

These companies were better than average in providing inventory status and actual inventory availability. Their results were similar to the overall study in shipping cost, time to receive an order, email order confirmations and email shipment confirmations. However, they performed below average in order time, availability of delivery dates and the rate of on-time or early deliveries (only 16 percent). Mann says, "smaller companies do not have the resources to invest in the technologies needed to predict and deliver accurate promise dates."

Medium Companies
$25 to $100 million in Internet sales volume

Medium-sized companies were above average at providing inventory status and delivery date information, actual inventory availability and their percentage of on-time orders. The time it took to receive an order and email order confirmation rates were on par with the study results. The only problems for medium companies were slightly longer order times, higher shipping costs and fewer email shipment confirmations.

Large Companies
Over $100 million in Internet sales volume

Performance of large companies exceeded the study averages in several areas: order-time, inventory availability, delivery date information, order and shipment email confirmations, delivery time and percentage of on-time deliveries. Shipping cost and inventory status information were on par with the study averages and no metrics for these large companies were below average.

These individual company results reinforce how fierce competition is among Internet retailers. All types of companies (small, medium, large, pure-play, brick and mortar, etc.) continue to extend their information management capabilities as illustrated by the fact that across the board, online holiday shopping improved dramatically over last year as reported by the preliminary U.S. E-Fulfillment study results released in December 2000.

"Advantages in fulfillment execution and performance are more difficult to build and only a select few have it right. Performance is improving at a rapid rate, but mostly for those with significant access to resources. Can under-performing, under-funded companies fix their problems in time to survive? And can capable mid-sized companies continue to compete with the large, established retailers as they continue to pour resources into their operations? Chances are, many companies won’t be able to keep up;we will continue to see a steady shakeout and above all, consolidation in this space," said Mann.

About the Study

To conduct the study, Accenture’s Supply Chain group provided 15 of its professionals with a credit card number and asked them to place almost 600 orders on nearly 100 different Web sites. All orders, ranging from books and toys to clothing and jewelry, were placed over a seven-day period, at different times of the day. Orders not received before December 21 were cancelled, just as consumers would cancel orders if they were not filled in time for the holidays.

Companies were selected for the study by combining last year’s list with information from a variety of industry associations naming the top Internet retailers. Orders were planned for particular sites, products, order placement times of day, and delivery destination. All orders were placed between November 27 and December 4, 2000. In total, nearly 1,000 products were purchased on almost 600 orders, amounting to over $35,000 of merchandise. Orders were delivered to Atlanta, Chicago, or San Francisco where they were logged and checked for accuracy before being returned or donated to local charities.

About Accenture

Accenture is a $10 billion global management and technology consulting organization. The firm is reinventing itself to become the market maker, architect and builder of the new economy, bringing innovations to improve the way the world works and lives. More than 70,000 people in 46 countries deliver a wide range of specialized capabilities and solutions to clients across all industries. Under its strategy, the firm is building a network of businesses to meet the full range of client needs -- consulting, technology, outsourcing, alliances and venture capital. Accenture’s home page address is http://www.accenture.com.

Renamed. Redefined. Reborn.
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