better customer service overall. Weve implemented freight programs that have reduced
customer confusion and allowed us to reduce our overall freight costs. And all these are amongst
many, many other improvements and enhancements that I dont really have time to get into here
today. And theres much more to come.
In the near future, eCOST.com customers will begin to continually notice further enhancements in
the engineering and the appearance of the site that will simplify and improve their overall
shopping experience and provide them with an increasing range of products to select from.
Its important for our investors to recognize that weve spent the past few quarters addressing
required operational and technology enhancements that we believe are necessary were necessary to
be in place for the eCOST business to be on a solid foundation and in an environment that our team
of professionals have experience in operating. We believe that the benefit of this transition will
ultimately result in improving our ability to drive higher customer satisfaction levels, improved
growth, and profitability. As with many integration projects you hear about and further compounded
by other operational issues that eCOST faced prior to our merger, our customer service levels and
when I speak of this, as an example Im talking about maybe the length of time it takes us to
answer a phone call or to respond to an e-mail, amongst other things these things have been well
below an acceptable standard for us over the past year. We believe this performance had a negative
impact on revenue levels. Additionally, as we implemented PFSwebs customer profitability and
analysis techniques, it became evident that there were segments of the eCOST that needed to be
revamped or in some cases simply eliminated in order to improve the overall financial results.
Weve also directed a lot analytical time towards the evaluation of our advertising spend in order
to better understand the true costs to acquire our customer and will evaluate the lifetime value of
that customer down the road. Also, as we previously discussed on our last quarter call, in June
and July we uncovered a breakdown in our portion of system controls that resulted in an abnormally
high level of credit card fraud activity on our site. We corrected this problem within days of it
being identified and believe that this correction also addressed issues that were causing high
levels of credit charge backs even before the conversion. This activity did not involve any breach
of customer privacy and was limited to credit card fraud detection errors in our system.
Now, when you put these things together, collectively these actions have resulted in a reduction in
visitors to our Web store and ultimately lower overall revenue levels for eCOST. In turn, though,
and most importantly, given the circumstances that this business faced, these actions have allowed
us to reduce operating costs, improve gross margins. And when you remove specific integration and
fraud costs, as I described up above here just a minute ago, its allowed us to make significant
reductions in the overall operating losses of the eCOST business.
Weve made the tough decisions to revamp the business and now we have high anticipation as we look
to the future. With these hurdles behind us, eCOST is now fully on board PFSwebs world-class
backend systems platform and has the capability to monitor inventory and orders more actively,
effectively and on a real-time basis. Obviously this is a key feature for any online retailer.
And or for any retailer. And even more important for an e-commerce business where customers
cannot see available inventory on the shelves.
During the quarter we completed eCOSTs warehouse move to an existing facility within PFSwebs
nearly two million square foot distribution complex, campus, if you will, in the Memphis,
Tennessee, area. This will provide eCOST access to PFSwebs advanced warehouse technologies, our
bar coding and shop floor automation, and radio frequency technology, and our other host of quality
control features. We also began in September to invest in and expand an operation in Manila, in the
Philippines. We plan to further expand this operation after the first of the year with an opening
with the opening of a 40-plus (seat) call center that we will use primarily for eCOST initially,
but for other PFSweb services clients in the future. This location provides us many benefits in
terms of cost efficiency, expansion capability, and a wealth of high-quality resources that we can
quickly deploy to help us with our strategic efforts in both eCOST and PFSweb overall. We believe
that all these things will help eCOST to further reduce costs as a percentage of revenue, improve
accuracy and speed of fulfillment, and result in improved customer service capabilities on a
continuum basis from here.
Also, this past quarter we put together or signed four new virtual warehouse agreements and we
continue to expect to add about two to four new partners per quarter for the foreseeable future on
the eCOST side. As previously discussed, we believe theres great benefit in increasing the number
of virtual warehouse partners for eCOST using