Oct. 4, 2010 – Dissecting the e-commerce world

Are returns a common and expensive problem for industry e-commerce providers?

Should fraud be a deterrent for dealerships considering entering into e-commerce?

These questions and others were addressed during a recent Webinar hosted by Powersports Business called “Growing your e-commerce profits.” The Webinar, free to dealers and industry members, was held Wednesday, Sept. 8.

The online training was presented as a part of a partnership between Powersports Business and PowerSports Network (PSN), one of the industry’s leading e-commerce and Web site providers. The companies have been providing free Webinars for the industry this summer and fall. The Webinars will lead into a two-day dealer education conference & expo called Profit Xcelerator. The event, which drew more than 350 industry members last year, will be held Oct. 15-17 in Las Vegas. See www.powersportsbusiness.com/PSBCE/index.cfm for details on the event.

The Webinar featured five panelists discussing e-commerce, including Gwyn Price, vice president of recreational brands for Dominion Powersports Solutions, which includes PSN?and Cycle Trader; Craig Cervenka, business development manager for PSN; Sam Nehme, president of Broward Motorsports in Florida; Tim Barcz, senior e-commerce manager at J&P Cycles; and Neil Pascale, editor of Powersports Business.

During the Webinar, PSN provided national data that showed the hottest-selling items and how often dealers are discounting those items.

At the conclusion of the Webinar, attendees asked a number of questions on improving e-commerce profits. Here are some of those questions and the panelists’ answers.

QUESTION: An aftermarket company asks, “What can a vendor/supplier do to help dealers sell our products online?”

Nehme: Is this an aftermarket supplier through a national distributor or a stand-alone supplier? If they are a stand-alone supplier, do they have the catalogs online to where, for instance, PSN will have an option (for dealers) to add the XYZ Supplier catalog to their site? That makes it really convenient to display all the products properly and market them properly. Because the last thing a dealer wants to do is go out there and take pictures of the items and put it on the Web site and create it on their own when it’s a push-button (service) from PSN.

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Barcz: The easiest way to get all the information online is to have all the information readily available, whether that’s pictures or videos or useful content, fitment information. That’s what the manufacturers can do to help.

QUESTION: Dealers with active online operations: Are you maintaining separate inventories for online sales vs. what’s in the store?

Nehme: No, we definitely don’t. It complicates things from a DMS-standpoint and also just from a stocking-standpoint. You want to stock less and sell it faster. Obviously whoever the buyer is, whether it’s online or at the counter, you just want it to go out the door. So, no, we keep it together.

Barcz: We’re in the same boat. We don’t make that distinction. We will track the sales separately. We track total demand. But I don’t think we have the ability to have carrying costs for two separate demand scenarios. By putting it all together, we can manage our inventory costs a little more closely.

QUESTION: What are your numbers on loss for fraudulent orders and how do you protect yourself?

Barcz: I don’t have any great numbers for fraud. Fraud does happen. We have some custom logic built into our system that handles fraud orders. Certain trends you’ll see online that fraud orders are typically air-shipped or are certain dollar amounts. So we pay attention if the dollar amount is over a certain amount and it’s air-shipped. If it looks a little goofy, we’ll put it on hold. Also some back-end systems out there in the e-commerce world can handle some fraud-checking rules that will put some of these on hold, for a manager review, if things look a little fishy.

Nehme: We manually will check it if it does looks odd, and normally they jump out at you. If somebody is on a spending spree, you can kind of tell. We’ll also verify if the address of where the items are being delivered to will match the billing address of the credit card. If those don’t match, then we’ll ask the customer to supply more information. There are even times when we’ve had the credit card company on the phone where they will confirm with the customer on their end to make sure the customer is making the purchase and it’s not a fraudulent purchase.

Cervenka: You have to have processes in just about everything we do in the store. For the majority of our dealers that are doing an average number of e-commerce orders, you probably want a set of eyes on each and every order or somebody accountable for checking that. Obviously there are certain triggers that will indicate we have a potential issue here. Just like everything else, common sense comes into play.

QUESTION: What is your return rate and how do you handle them?

Barcz: Given that we have phone sales as well, we have a dedicated return department. So we do online shipping return labels that people can print off and send back to us or they can talk to a phone rep and get that information and get back to us. There was a period of time where people assumed e-commerce would have higher return rates, and ours are sometimes better than what we do over the phone. So I think it’s the customer that’s doing more research, they’re finding what they need and then buying it. We’re actually having lower return rates online.

Nehme: Return rates aren’t really a problem. We’re very clear there are certain products that we will not return, like an electrical OEM component that a customer will buy to diagnose their bike to figure out why it’s not running. You will occasionally have issues where a customer bought a wrong-sized helmet or wrong-sized gloves, which we’ll be willing to exchange with them as long as we can tell it hasn’t been worn and it’s in its original packaging. It gets to be an expense when you have returns so you try to make sure the order is processed properly. The other issue sometimes is you have damage during shipping or the box might get torn open. Those are the returns that we see and I don’t think any of them are an issue where it’s very common.

QUESTION: How can a dealer compete with some of the largest online e-commerce providers?

Cervenka: Lots of factors. We have to understand what our goals are and what our capabilities are. Know thyself. We have seen a lot of people that have tried to compete on a national scale at ridiculous margins and they aren’t here (any longer). So what did that accomplish? Some of the most successful dealers we work with you would never suspect the numbers they’re doing. There are a lot of things that come into play. There is not one thing that you can point to and say that’s the formula for success. Rather it’s ongoing training, ongoing presence. You can look at some Web sites, how they’re organized and say, “Gosh, this works over here. Why is that? Because of that dealer’s market.” Are we merchandising closeouts and overstocks? There’s a huge opportunity there especially when we get into the margins. We have more opportunities today to buy closeouts. Search engine marketing. Dedication. It’s a long process, but it’s a worthwhile process. We all have to ask ourselves, “What kind of commitment are we making here, and what do we expect to get out of it?’ On a weekly basis I’ll deal with dealers that look at their marketplace and say, ‘I want to do what these dealers are doing and I want to do it overnight.’ We will be upfront and honest with them and explain to them that, ‘Just by casting a larger fishing net doesn’t necessarily mean you’re going to catch more fish.’ Rely on your providers and business partners and they can get a lot of help.

Nehme: I think some dealers worry about the big fish, going out and competing against the big (online) dealers. The biggest problem isn’t competing against the big e-commerce companies, it’s competing against the little guys. One thing I see often is when a customer is price shopping us, they come to us and say, “Heh I can get this same item for this price. Why are you charging so much more?” And we research it. It’s not your dealer down the street that’s discounting these items. It’s the guy who’s working out of his garage at home or a little warehouse somewhere and he’s getting dealer pricing or distributor pricing from the same aftermarket companies as the big guys who have all the overhead and all the expenses of having a dealership. It’s an unfair market at times and you deal with that and you can’t try to compete against those guys because it’s just not fair. You can’t survive on making 10 or 15 percent margin on your parts. And there are guys out there that are doing that. I think the biggest issue is some of our suppliers will go out and just set up anybody and put them at the same price level as the guy who has all the overhead, all the staffing and all the things necessary to run the business the right way. You can’t look at that as a deterrent (to getting into e-commerce), you just have to do it and do it right and you’ll be there for the long haul where these guys (the discounters) probably won’t. PSB

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