November 2000

With Zendor.com, home shopping specialist NBrown set the e-logistics agenda in the catalogue industry. Peter Rowlands talks to Keith Basnett, the man who made it all happen

"For a conventional retailer, the journey to distance shopping is a long one. It can take more than a year to get an operation up and running, and it's complicated."

Such forthrightness is typical of the style of Keith Basnett, who set up Zendor.com, the third-party fulfilment business launched last year by Manchester-based catalogue retailer N Brown. His energy and enthusiasm are palpable, but he makes it clear that Zendor is not in the business of offering easy fixes. Rather, he says, it's offering comprehensive e-fulfilment solutions to companies that understand what they're taking on, and are willing to go the distance.

In the same spirit, Basnett makes no apology for the fact that Zendor itself has taken a relatively cautious and measured path into the third-party fulfilment market. "We aroused a lot of excitement in the City when we launched last year," he says, "but these things don't translate themselves instantly into new business."

In any case, he feels the company really only got off the ground when GE Capital took a 25 per cent stake this February; and on that basis, for a new start-up it's not doing badly. It already has two live clients ­ catalogue retailer New Look Direct and fashion retailer River Island ­ and Basnett says he has had around two hundred business enquiries so far. Perhaps more telling, he considers a hundred of these to have been "serious". Four of them are now going live, and about twelve others are said to be firm prospects for the longer term. Within eighteen months, he says there could be as many as fifty clients.

Two key factors seem to have combined to produce this solid progress from traditional to emerging markets. With Zendor, N Brown was the first to market among the major catalogue retailers in terms of grasping the e-commerce logistics nettle. Yet while adding new capabilities to its portfolio, it also took pains to exploit traditional competencies such as call-centre management. It avoided the temptation to lunge headlong into unfamiliar territory.

Clearly the policy is working. Not only has Zendor already won a series of individual new clients; a further potential source of new business also exists in the form of an agreement with Energis Interactive Services (an interactive sales joint venture between Energis and Graham Technology). As this project is rolled out, Zendor has positioned itself as a prime choice for providing fulfilment services to participating retailers.

So what exactly is Zendor.com, and how does it fit into the existing N Brown infrastructure? It is in essence a free-standing unit within the organisation, buying in resources from the larger group (or beyond it) to offer a comprehensive range of third-party fulfilment services. It has its own permanent staff of 34, augmented by an extended team of up to 90 who "peel off" from other departments (in Keith Basnett's words) when they are required.

The resources it can buy include call centre and customer relations management, credit checking, transaction processing, stock management, pick, pack and despatch, delivery and returns management.

Also considered a key element in the proposition is Eunite, a "convergence technology" business founded early last year, in which N Brown took a 60 per cent stake this summer. Its offices are five minutes away from N Brown's listed 1930s headquarters building near Manchester's Piccadilly station, and it has added another 70-odd staff to the headcount.

Since the arrival of Eunite in the fold, Zendor has been able to add a range of front-end services to its offering, including Web site design and hosting, and the integration of converging technologies such as Web, WAP and interactive TV.

A further significant element is brought to the mix by GE Capital. Far from being a sleeping partner, GE has already brought its credit and transaction processing services to bear on Zendor business, and Basnett says its Leeds office is making "a fantastic contribution" to the business.

Yet another string to Zendor's bow is an agreement signed early in its evolution with American-based business service specialist AHL of Atlanta, Georgia. While this has not come into active play yet, the long-term objective is to allow the two organisations to offer each other reciprocal fulfilment services. In a market where complications in cross-border fulfilment are notorious, this could give both of them a powerful marketing edge.

Basnett himself is Zendor's managing director, and also retains his previous role as group sales and services director for N Brown as a whole. Customer relations management is his forte; before joining NBrown in 1997 he was customer services director with Freemans, for whom he set up a new 500-seat call centre. He has also worked in customer services with Green Flag and Hutchinson Telecom. Basnett's background gives a good clue to his broad view of the fulfilment business. He uses the term "e-logistics" readily and easily to describe it, but says e-logistics should be taken to refer to "the whole piece", not just the obvious picking and delivery functions. He adds: "Distance shopping is a process, not a product."

It is not surprising, then, that he finds N Brown such a natural home for the range of services offered by Zendor. He feels the group's long-standing catalogue retailing expertise makes it ideally-equipped for the multi-channel retailing era. "In many ways the channel to home shopping is irrelevant," he says. "The fulfilment and CRM issues are the same. "Whether it's over the Internet or by direct mail," he adds, "the whole thrust of anyone in distance shopping should be to ask: 'How do I delight and keep my customers?'"

Basnett feels the one-stop shop approach should have great appeal to customers. "Companies in this business are realising they can't do the fulfilment job themselves, and are more prepared than they were a year or two ago to contract it out." He accepts that not all of them will want all items in the menu on day one, but says Zendor is happy to start by offering selected services and expand as more are required.

However, he says it has taken time for the emerging e-commerce market to reach this view of outsourcing, and feels there are still voices arguing against it. He is particularly sceptical about consultants who have emerged as self-appointed e-commerce experts. He says it will often be against their interests to support a one-stop solution "because there's no fee in it for them."

He is equally sceptical about logistics companies that have reinvented themselves as e-fulfilment specialists. "If they only offer delivery services, there's a risk that they will commoditise the market." He feels some of the parcels companies are particularly guilty here. "What customers ought to be looking for is added value."

One good thing to come out of the e-fulfilment revolution, Basnett says, is that it has focused attention on logistics. "It's done more to raise the profile of the logistics function in the past year than in the previous nine years, and made people aware of just how difficult it is."

 

What companies are considered ideal Zendor prospects? Basnett says 70 per cent of enquiries so far have come from among the ranks of established retailers. A further 15 per cent have come from manufacturers looking for "disintermediation" (basically cutting out the middle man), leaving just 15 per cent from genuinely new start-ups in the e-tail field. However, with the acquisition of Eunite, Zendor seems to be expecting more interest from start-ups looking for a full package of front-end Web development resources as well as fulfilment.

Considering the recent slump in the market valuation of dotcoms, will established retailers feel a continued impetus to expand into new channels to market? Keith Basnett has no doubts on this score. "They stand to increase the range and depth of their offering," he says. "For instance, they can offer a much wider selection of products over the Web than they can in any individual store."

He admits that distance shopping of all kinds accounts for just 5 per cent of retail sales at the moment. "It may not seem much, but in three years' time I think that proportion will be 10 per cent," he says, "and that means its total value will be £9 billion."

So far, Zendor's customers have tended to slot comfortably into N Brown's existing call centre operation. There are, however, subtle differences between these new operations and established services for the catalogue business. They have a floor to themselves, and as Basnett points out, "you can feel the special buzz in the atmosphere."

For pure Web-focused customers, Zendor has already put the technology in place to handle order-processing automatically. But Basnett feels that even for customers of this type, the call centre is a real strength. "Around 25 per cent of Web purchasers demand some kind of human interaction," he points out. "We're geared up for that."

The company has some advanced systems in place to run the call centre operation, including the latest predictive dialling technology. Overall, N Brown has 220 people in its IT department, including 70 developers and 20 on Internet research. However, Basnett says he considers that effective customer relationship management relies not on a technological solution, but on what he terms "relationship management".

For the warehousing aspects of its operations, Zendor has avoided NBrown's big automated warehouse at Shaw, near Oldham, and instead has been acquiring and converting additional capacity in the region. The New Look operation, for instance, is based at a 6,800 sq m warehouse at Rochdale, which handles both hanging and non-hanging lines. "In an automated operation, the picking location is the key," Basnett says, "whereas e-fulfilment operations are better suited to piece-picking."

Final delivery of items sold through conventional catalogue channels is handled by N Brown's team of 1,000 local couriers. Parcelforce delivers to them in batches, and they handle local sorting and home delivery on a person-to-person basis. However, Basnett recognises that the world of Internet retailing can demand different solutions including direct mail ­ another reason why the Zendor pick-and-pack operations are being handled separately.

N Brown's transport and warehousing operations were transferred earlier this year into a new unit called Fulfilment Logistics ­ an internal business selling resources to the rest of the group. The in-house transport fleet is quite modest, consisting mainly of vehicles doing internal shuttles between premises, but Basnett says transport operations will continue to be reviewed to reflect the changing needs of the business.

N Brown can make the enviable claim of being one of the few consistently profitable players in the direct shopping market. Its operating profit for the year ending last February was £51 million on a turnover of £354.7 million. Retained profit was £23.9 million.

These figures show it to be modest in size compared with giants such as GUS, but substantial in absolute terms ­ as reflected by its range of 17 catalogues, of which the best-established is JD Williams. Other well-known brands include Ambrose Wilson, Oxendales, Heather Valley, Compliments and Premier Man. It has several catalogues for younger buyers including Simply Be, and some for older ones, including Sartor and Whitfords.

The launch of Zendor in late 1999 is just one example of an active expansion programme taking the group into newer markets. Another is the emergence of Tagmanet, a Web-based business offering a range of services for Web retailers. Tagmanet aims to put users in touch with a wide range of third-party fulfilment specialists (not just N Brown operations), as well providing a form of brokerage service. Its identity is being kept separate as far as possible from that of N Brown itself.

N Brown has also made what it terms "strategic investment" in two external technology companies, Teleview Direct and Synectics Solutions. These offer a range of services and software tools to organisations working with large corporate databases.

Like most catalogue giants, N Brown is able to quote some impressive figures for its operations. For instance, it handles 17 million telephone calls a year, produces 8.5 billion printed pages, picks 27 million items in its warehouses, makes 30,000 courier deliveries a day, and handles 8 million returns. It has a staff of around 4,000, plus 1,000 couriers.

Against trends elsewhere in the industry, the couriers are directly-employed staff members, not freelances ­ an approach which is felt to result in a tighter and better-controlled service.