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).

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.

More complex than shipping pricing, however, is ensuring that ChefShop's bottles of oils and vinegars, cellophane bags of spices and snacks, and other delicate packages arrive intact. Case in point: Pink Champagne Biscuits from France, an $8 sweet cracker eaten with champagne.

Bergman says that the biscuits, sold in loosely tied cellophane bags, are so delicate and breakable that they're difficult to package, yet in heavy demand.

Like Blue Nile, ChefShop packages boxes within boxes -- it uses 12 different box sizes -- and lines them with biodegradable peanuts or bubble wrap. Indeed, ChefShop is getting so good at its game the company has begun talking with its partners about private-labeling products in ChefShop.com packaging. "If the demand is there," Bergman says, "we'll find a way to package it."

Sole Searching

When Nordstrom, the century-old department store, established Nordstrom.com in 1998, it was well aware of the challenges the online division would face -- including developing its own shipping processes.

What evolved is a "tiered" order fulfillment system, according to Paul Onnen, CTO of Nordstrom.com, that operates independently yet connects with Nordstrom, Inc.'s system, especially for returns. (Items purchased online may be returned to Nordstrom stores.) In addition, the online and catalog divisions share a pick-pack-and-ship facility in Cedar Rapids, Iowa.

But Nordstrom.com found its niche when managers realized they could leverage existing relationships with shoe vendors by letting customers order shoes not stocked in Nordstrom stores -- say, in an unusual design or size. To that end, the company developed its drop-shipping program, by which online shoppers can peruse 30 million pairs of shoes on Nordstrom shoes.com, but the merchandise is shipped directly from the individual vendor, not Nordstrom.

"We still brand the experience," Onnen says. Customers' shoe orders appear as a Nordstrom purchase. Nordstrom.com provides the receipt, tracking and in-store or mail-in return options, care of the drop-shipper.

Nordstrom pays its vendor-partners a slightly higher fee to ship directly -- a practice that's justified, Onnen believes, because carrying unique lines and sizes reinforces the company's service-oriented shopping philosophy, as well as reducing inventory.

"For most of our vendors, we make up the majority of their online sales," Onnen says. And if sending Nordstrom Tyvek bags and packing boxes to a shoe vendor is what it takes to participate in the New Economy, Nordstrom is willing to do it.

Contact

Blue Nile www.bluenile.com

ChefShop www.chefshop.com

Nordstrom www.nordstrom.com

Jane Hodges. ("Package Makes Perfect")

Jane Hodges is a freelance writer based in Seattle. Her work has appeared in Chief Executive, Business 2.0, The New York Times and Fortune.

RELATED ARTICLE: Many Happy Returns

Making outbound package delivery efficient and attractive to consumers is difficult. But making returns easy for online consumers is even harder. "Returns are costly," says David Schatsky, research director for Jupiter Media Metrix. "It costs three to four times as much to process a return as it does to handle an outbound order." Forrester Research predicts that by 2003, retailers will spend $9 billion to process $11.5 billion in returned merchandise bought online. Companies that don't figure out how to make returns efficient risk losing money -- and loyal customers. Predictably, a handful of service firms have begun contracting with e-tailers to simplify returns. Here's a look at how these companies work.

NEWGISTICS

(www.newgistics.com)

Its business: Austin, Texas-based Newgistics is a "reverse fulfillment" company that helps online-only and multichannel retailers with returns. Its logistics technology, shipping partners and physical warehouses also help offset retailer return processing costs.

Typical clients: Spiegel.com, EddieBauer.com, JCrew.com.

How it works: Consumers can return items through Newgistics' ReturnValet program at offline partner pack-and-ship centers (with or without their order's original packaging) in grocery and convenience stores. They can also use barcoded, prepaid USPS shipping labels in their package to send a return from home. Shipping costs are deducted from refunds.

Benefits to the e-tailer: Newgistics claims to save clients 36 to 50 percent off the variable costs of returns handling -- significant for firms that process millions of returns annually. A partnership with shipping and logistics firm R.R. Donnelley helps minimize return shipping costs; Newgistics also can tag and "audit" returned merchandise for accurate forwarding to the right location (back to inventory, to a liquidator, to be destroyed, etc.), which reduces supply chain expenses.

RETURN CENTRAL

(www.returncentral.com)

Its business: Pittsburgh-based Return Central helps B2C and B2B retailers create custom online-based returns processes. It doesn't physically handle returned products, but it uses its partnerships with FedEx, Airborne and virtual liquidators to help e-tailers route products.

Typical clients: PeoplePC, consumer electronics sellers.

How it works: Consumers complete return forms on the e-tailer's Web site indicating their reason for the return. Depending on the reason (defective merchandise, wrong fit, color, etc.), they are then provided with "return approval" and one of several addresses to which they can return the product by mail or another shipper.

Benefits to the e-tailer: Online retailers get a private-label returns area on their Web site and can avoid merchandise returns at the wrong location along the supply chain. Return Central's software allows them to compile data that can be used to better manage inventory. As an added bonus, Return Central clients can sell merchandise that can't be restocked through partner liquidators such as ReturnBuy.com.

RETURNS ONLINE

(www.returnsonline.com)

Its business: Based in Mercer Island, Wash., Returns Online works with Web-only companies, multichannel retailers and corporations issuing product recalls.

Typical clients: First International Digital (a Motorola-affiliated maker of MP3 players), online booksellers.

How it works: Merchandise shipped includes codes that let consumers print prepaid return-shipping labels, with precalculated postage, from the Internet. With the labels, consumers don't necessarily have to travel to make the return; they can call a shipper (FedEx, UPS) for pick-up. Shipping costs are deducted from their refunds. When shoppers go online to log their return request, they can also get instant "e-refunds" to their credit cards if goods are received by the retailer in a timely manner, typically 10 days. Refunds are rescinded if products don't arrive as promised.

Benefits to the e-tailer: Aside from improved customer service and tracking, online retailers benefit from Returns Online's physical infrastructure -- a "reverse fulfillment" warehouse in Atlanta receives and forwards packages to the client's location.