Ten days before Christmas, Patricia Curry placed two online orders for last-minute gifts. A GPS device for her mother arrived from Best Buy (BBY) with days to spare. With time running out, Curry was still waiting on Dec. 22 for the CD she ordered for her husband from eBay (EBAY). "Sometimes on eBay you just don't know what you're getting," says Curry, a resident of Frazer, Pa. Her assessment speaks to the order-fulfillment problems bedeviling eBay in the heart of the holiday selling season. As auction sales of secondhand goods have dwindled and large liquidators of new products have moved in, the e-commerce pioneer finds itself competing more closely with Amazon.com (AMZN) and Wal-Mart (WMT). It also means eBay doesn't have as tight a control of its supply chain as rivals. "Amazon has seen a lot of growth because of its practices that put the consumer first," says Colin Sebastian, an analyst at Lazard Capital Markets. "It's difficult for eBay, which is not a retailer, to compete." EBay's expansion into selling new products has brought in more customers who expect cheap, fast delivery; flexible return policies; and attentive customer support. Those have been tough demands for the company to achieve, and could be affecting the site's popularity. In November, eBay's online visitors dropped by 8%, to 51.2 million, compared with a year earlier, according to Nielsen NetView. During the same period, Amazon's visitors rose 6% to 60.9 million. Now, working with its patchwork of sellers, San Jose-based eBay says it's speeding delivery times and improving service. In the past year, the e-commerce company has created new incentives for its sellers to improve fulfillment, offering financial discounts and better placement in search results on the site to merchants who get the best ratings from customers. Reliability GoalIn September, eBay added shipment tracking codes for merchants to use on the site. That gives sellers a way to prove they shipped a package on time in cases where a delivery service like FedEx (FDX) or UPS (UPS) is late. "This is part of the whole picture of [eBay] getting more involved and more controlled like Amazon," says Dan Mordente, an eBay seller since 1996. It's also part of Chief Executive John Donahoe's plan to increase the perception among shoppers that eBay is a reliable destination. "I've got investors who are really pushing us to market [the new incentives] aggressively this fourth quarter," Donahoe said during a September interview. Instead, Donahoe plans to hold off on a marketing campaign about customer service until 2010. Hanging in the balance is whether eBay can shed its yard-sale image and compete toe-to-toe with some of retail's biggest players. Online holiday sales have heated up as snow fell across the Eastern U.S. this week, as many consumers who were stuck at home shopped online instead. Internet sales grew 13% during the weekend of Dec. 19 vs. a year earlier, according to data released Dec. 22 by ComScore (SCOR). EBay has made progress. Vice-President for Buyer & Seller Experience Dinesh Lathi says its sellers take an average of four days to ship items, and 85% of orders ship within three days. That's an improvement over a year ago, though Lathi won't say by how much. "We are working with sellers to make sure they are better-positioned to meet buyers' expectations," Lathi says. Beyond the Swap MeetEBay has come a long way since its origins as one of the first companies selling goods over the Internet in the mid-1990s. "It was a swap meet," says merchant Mordente. Back then, he hawked artifacts from his mother's New Jersey basement. Now the 32-year-old runs an online shoe business through eBay and other Web sites that he expects will book $10 million in sales this year. On a frigid December afternoon in Brooklyn, about a week before Christmas, one of Mordente's three warehouses is buzzing. Shoe boxes are stacked more than 10 feet high in 30-foot rows. Workers periodically pull boxes and pack them for shipment. Five women sit in front of computers taking phone calls from customers. The company, called International Railroad Supply, is shipping 1,200 orders per day during the holiday season, up from about 500 a day the rest of the year. Though the company's cut-off date for guaranteed shipment by Christmas Eve has passed, Mordente says he'll try to get all orders placed by Dec. 20 under Christmas trees on time. Since International Railroad Supply is rated 4.8 stars out of 5 by customers, eBay grants it a 15% discount on the fees it pays for listings and transactions. Contrast that practice with e-commerce giant Amazon's more systematic approach to order fulfillment. Amazon sells 31% of its products through third-party merchants, but manages them very differently. Rather than rely on customers' ratings to gauge sellers' performance, Amazon uses hard measures such as delivery times and return rates. "EBay is survey-driven; Amazon uses a set of data," says Scot Wingo, CEO of online retail consultant ChannelAdvisor. Amazon can remove sellers from its site that perform poorly on delivery times and customer service. Courting RetailersLately, eBay has been working overtime to lure some of the Internet's most reliable small retailers to its site. Colorado-based eBags, a company that's sold luggage and handbags online since 1999, set up shop on eBay in November. The companies linked up after months of negotiations, says eBags co-founder and Senior Vice-President Peter Cobb. "They wanted to balance some of their individual sellers with big retailers," he says. EBay offered favorable pricing, placement, and control over the look of eBags' virtual storefront, says Cobb. EBay is also pushing sellers to offer free shipping. The company has nothing as comprehensive as Amazon's Prime program, which offers customers two-day shipping in return for a monthly fee. Yet Lazard analyst Sebastian says he's seen an increase during the past year in the number of eBay items bearing free shipping offers. While eBay can improve the reliability of its sellers, many say the company faces an uphill climb. "They started as an auction site, but they are now seen by most people as a retailer," says Larry Freed, CEO of market researcher ForeSee Results. As eBay grows up, it's being held to increasingly tough standards.
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