FTC Action Could Spur Growth of Outsourced Fulfillment

The Federal Trade Commission's settlement last week with seven online retailers who had difficulty shipping goods as promised during the 1999 holiday season could be just the opportunity providers of outsourced fulfillment services need. With the FTC having levied fines as high as $300,000 and ordered refinement of the companies' fulfillment systems, an already fast-growing segment could grow even faster.

"Fulfillment has been the Achilles heel for online retailers," says David Schatsky, a Jupiter Communications analyst. "(The FTC settlement) layers another incentive for online retailers to get things right." Schatsky says the opportunity created by the FTC action is especially great for fulfillment outsourcers who are in the transition from bricks-and-mortar markets into the new economy.

One such company, New Roads, is positioning itself to take advantage of the opportunity. CTO Tom Lesica says the company intends to refer to the FTC settlement during its client pitches. According to Lesica, even those companies not interested in outsourcing should be paying particular attention to fulfillment as the holiday season approaches. "You have to take the whole operating model post-click and sanity-check it," Lesica says. "As you approach September and October, you'd better batten down the hatches."

Schatsky expects a majority of online retailers to outsource their fulfillment operations in the relatively near future. He says the number of companies providing outsourced fulfillment will grow fast enough that a buyer's market will prevail within the next couple of years, and "companies like New Roads are in a good position."

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