One year ago, all indicators pointed toward the most successful and lucrative e-holiday season yet. But by the night before Christmas, far too few delivery sleighs filled with toys clattered on the lawns outside U.S. homes. The e-tailers had failed a significant customer service exam.
Officials at the U.S. Federal Trade Commission (FTC) responded strongly, enforcing its 1975 Mail Order Rule — which some e-tailers had not realized applied to them — and fining seven e-tailers $1.5 million (US$) for delivering holiday gifts late.
The Mail Order Rule calls for merchants to notify customers in advance if they will be unable to deliver a product within 30 days. Retailers are granted one additional opportunity to establish a new delivery date, but consumers have the right to cancel the original order for a full refund should the second delivery fall through.
In addition to telephone and catalog sales, the measure governs any sales orders where “a computer, fax machine or some other similar means is used to transmit an order over telephone lines,” according to the FTC. In other words, all e-tailers should be aware of these demands as the upcoming holiday season approaches.
Lessons Left Unlearned
Many experts, including Internet law specialist Michael D. Scott, doubt whether e-commerce companies are prepared to meet FTC standards this year. “Some companies have learned their lessons,” Scott told the E-Commerce Times, “but I suspect most are not aware of the FTC regulations.”
Scott, a partner at the firm Perkins Coie, LLP, is surprised that there has not been more notoriety surrounding the potential legal issues facing e-tailers this holiday season, especially in the wake of the FTC fines. “There are no new laws, yet the FTC has not taken an aggressive stand to notify companies of the existing rules,” Scott said.
Nevertheless, with the FTC delivery standard on the books for the last twenty-five years, Scott wonders why companies have not done more to prepare themselves. “Companies have taken a head in the sand approach, not wanting to deal with this issue this Christmas,” Scott said.
E-tail Between Their Legs
Perhaps no company is quite as sensitive about holiday fulfillment issues as Toysrus.com, which not only faced FTC fines for delivering last year’s gifts late, but also suffered a class action lawsuit brought by a woman in Washington state whose Christmas gifts never arrived.
Toysrus.com made a number of corporate moves to correct their fulfillment problems. In April, the company opened two new distribution centers, one in Mira Loma, California and another in Chambersburg, Pennsylvania. In June, Toysrus.com hired four new executives to oversee growth in infrastructure and fulfillment, and by July, the company had revamped its customer service software to help it through the unique demands of holiday online shopping.
What can e-tailers do not only to avoid last year’s debacle but also to prepare for growth in the number of this year’s online holiday shoppers? Scott emphasizes that companies should become aware of the law and make sure they have the capability of complying with it.
Short of overhauling their entire infrastructure systems, companies should refrain from guaranteeing delivery in such short time frames that they allow no margin for error. Under FTC regulations, if a company does not indicate any time frame for shipping holiday goods, it is still allowed 30 days to deliver the product.
Scott also advocates using fulfillment software that is “exception-driven” and not only “event-driven.” In other words, a company’s software should inform both the sender and the recipient when a product has been sent, and also when a transaction has not been processed or shipped.
In any case, e-tailers should beware of the FTC this time around, Scott claims. “The FTC was not too tough on these companies compared to how much consumers suffered,” he said.
And this time around, the FTC response to holiday delivery disasters may be much more harsh, especially now that no company can claim that it did not have any notice.