Package makes perfect: Brown paper packages tied up with string? When it comes to shipping, e-tailers are learning that presentation is the key to becoming the consumer's favorite thing - Logistics - Company Profile - Industry Overview

Chief Executive, The, March, 2002 by Jane Hodges

no secret among online retailers that they not only need to deliver on customers' expectations about shipping arrival dates, they also need to deliver their products well. Companies that have survived, or thrived, in the past year already recognize the value of developing efficient shipping processes.

The next step is to perfect the packaging and presentation of the goods they ship. After all, they reason, it's the little things that keep online shoppers coming back.

"Fulfillment has been the Achilles' heel for e-tailers," says David Schatsky, research director at Jupiter Media Metrix, the Internet research firm, in New York. E-tailers must carefully balance the costs of a delivery proposition that appeals to customers with the reality that shipping and packaging take a bite out of revenues. "Half of the retailers we've surveyed are losing money on shipping and handling," Schatsky says. In fact, depending on the products shipped and the e-tailers internal processes, shipping can cost anywhere from 5 to even 20 percent of revenues.

How do online retailers handle packaging? The top brass at Blue Nile, a pure-play online jeweler, grappled with the complications that come from shipping expensive valuables. Meanwhile, gourmet food seller ChefShop.com has learned to work with manufacturers whose delicate cellophane-wrapped crackers and glass-bottled balsamic vinegars aren't typically sold direct - or packaged to appeal -- to consumers. Nordstrom.com, which ships shoes, cosmetics and clothes from multiple distribution centers, both in-house and outsourced, must assure uniform Nordstrom branding, even when vendors drop-ship shoes.

Boxing Baubles

"When I got to this job I had hair," jokes Bob Paquin, CIO and COO at Seattle-based Blue Nile.com. The former L.L.Bean CIO knew he faced a career challenge when he began overseeing the logistics infrastructure of a $50 million company that ships precious gems rather than Gore-Tex parkas.

"When I came into this job we didn't have the repeatable processes in place that we have now," Paquin says. Last year, Paquin focused on introducing new forms of automation, such as a barcoding system, to the company's inventory and fulfillment processes. By maintaining an efficient shipping operation, and by avoiding the expensive marketing campaigns that hurt so many dot-corns' bottom lines, Paquin's team helped Blue Nile mark its first profitable season during fourth quarter 2001.

But that didn't mean shipping couldn't improve. "Customer presentation is something we continue to focus on," Paquin says. Blue Nile ships with two partners: FedEx, for diamonds and orders over $500, and the U.S. Postal Service, for orders under $500. "If you have products that cost less than $500, it's hard to justify eating the cost of Federal Express," he says.

Jewelry is lightweight, assuring that Blue Nile pays the less-than-one-pound rate at FedEx, but there are other costs, including insurance on all orders -- a flat rate per each $100 of the purchase value. When it comes to presentation, there are other complications. A diamond ring in a teak box, for example, will slide around in a FedEx box in transit. "We want to wow the customer," says Paquin. "It wouldn't do any good if the customer gets a diamond ring that looks like it was just thrown in a box!"

The challenge of "immobilizing" jewelry boxes wasn't that easy, says Paquin, whose team considered whether new types of padding might increase package weights, and whether the cost of additional padding would affect the packing materials budget itself.

The initial solution was to stuff packages with crumpled white paper. But to enhance the presentation, Paquin says, the company now places those teak jewelry boxes inside a second, blue and gray paper box featuring the Blue Nile logo. Then, perforated sheets of blue and white paper that "scrunch" easily go around the paper box. Not only does the gift box stay put, but the consumer receives a more colorful and branded experience.

Packaging Perishables

Across town from Blue Nile, ChefShop.com considers packaging a key part of the business. "Our partners are in manufacturing, importing and sometimes distributing," explains Jeff Bergman, vice president of purchasing. "They're not in the business of selling to consumers because of packaging concerns."

Indeed, ChefShop's goal is to create demand for boutique and unusual gourmet brands on its site. "When an end-customer gets a product from us, they want to see a product wrapped well," Bergman says. ChefShop does, too: If an order arrives damaged at a customer's address, ChefShop replaces it at no charge.

With an average order of $60, and food selections ranging from $2.50 Asian snacks to $375 bottles of balsamic vinegar, ChefShop charges a flat $5 shipping fee on each order. "That's not what it costs us," admits Bergman. But because the company's markups correlate to bricks-and-mortar "keystone" markups of 50 to 100 percent over wholesale, it can compensate by adjusting retail prices on particularly hard-to-ship products, he explains.