Final Transcript

May. 16. 2007 / 11:00AM ET, PFSW — Q1 2007 PFSweb, Inc. Earnings Conference Call

This quarter we’ve spent substantial time evaluating our avenues and cost to acquire new customers. We’ve begun now to accumulate enough reliable data to have a clearer picture of the life value of these new customers and with this information we believe we can begin to make more intelligent decisions regarding the financial investment we are willing to make to acquire new customers to fuel growth and then also balance that with our profit goals.

Armed with this information, we are making significant adjustments in our marketing strategies that include a much reduced reliance on the shopping comparison engines or the BOTs; an increase in our investments in alliance marketing on sites like woot.com; and the reintroduction of direct-mail or catalog marketing initiatives to invigorate return business from existing eCOST.com customers. I’ll have more information on the results of these new strategies next quarter and we will update you then.

As we announced in the last conference call, we opened a new 6200 square foot multilingual customer call center in Manila in the Philippines. This facility offers eCOST a dedicated staff of highly trained customer service representatives that are supplementing our existing call center operations here in the U.S. Additionally, the Manila facility will also house personnel to support the Service Fee businesses as well. We believe these things together will help us to further reduce operating costs in each of the segments of our business.

As I discussed, the facility went live in April 2007 and we believe this is a very important component to both eCOST as well as PFSweb’s future in terms of meeting our goals to improve the efficiency of our cost infrastructure.

Also last week if you haven’t been on the eCOST web store recently, you will see several significant enhancements to our web store. These enhancements are part of an ongoing redevelopment of the web store and the shopping cart engine that are designed to make our web store more customer centric, and allow us to drive for higher order values both in revenue and in margin.

This most recent group of enhancements include features that first, improve the load time from the web browser to facilitate increased traffic flows and better response time for consumers. Secondly, we enhanced the navigation allowing customers a better one click access to a PDF file for mail-in rebate forms. This was one of our larger customer service comments that we get back was the difficulty in being able to file rebates. So we’ve made it much clearer to be able to associate the rebate form with the product.

Third, we increased the accuracy of new product search modules so that we can better search for specific products and then also and this is relatively important, but behind the scenes, we enhanced the web catalog database capabilities so that they can handle a much greater number of offered products. This is a really important technical capability as we look to dramatically increase the number of total products that we offer.

As I discussed last quarter, our relationship with our merchandise content provider, Etilize, is a very important element in the Web feature enhancements. Etilize, as well as other content providers that we’ll add in the future, provide us with the latest merchandising content, associated products, accessories, upsell/cross-sell capabilities on an automated and real-time basis. This capability allows us to quickly scale many new VW SKU offerings with minimal manual intervention.

As I discussed in the past, we’re continually working to increase the number of virtual warehouse agreements. The reason for this is that first of all, they don’t require a large sum of capital for inventory investment. Secondly, they reduce our risk in terms of inventory obsolescence. And third, as the name proposes, they do not include the usual expense of a warehousing facility that allows us then to basically put these products up on our website, expand our product offering and do so at a relatively low risk profile.

These agreements also offer us to — allow us to offer a lot of new product categories that we’re not in today and we can test them by displaying them on the site and see which ones are going to be accepted by the demographics of our customers.

As of March 31, we had nine virtual warehouse agreements. We are targeting to add about three to four new virtual warehouse agreements per quarter going forward. Our Web catalog offering of fully merchandised SKUs now stands at about 90,000 products. This is about three times the size it was during the summer of last year and again I

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