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would have been paid to middlemen in the traditional distribution channel.
Direct sales can also provide the manufacturer with valuable end-user customer
information, including buying patterns, feature and function preferences and
customer support requirements. This information can be used by the manufacturer
to design better products, tailor production schedules to meet projected demand
and improve overall customer satisfaction. Another opportunity is to use
e-commerce to facilitate business-to-business transactions and improve operating
efficiencies. Business-to-business e-commerce has the potential to significantly
reduce time consuming paperwork and manual procedures, which can eliminate
errors and reduce investments in working capital.
For the traditional retailer, e-commerce offers the opportunity to attract
new customers and introduce new merchandise while avoiding substantial
investment in physical retail locations. At the same time, consumer preferences
and customer data can be compiled and analyzed to spot trends and demographic
shifts.
The development of e-commerce is also giving rise to the "virtual company",
a business model which focuses its energies entirely on creative design and
sales and marketing by contracting out all other necessary business functions to
outsiders. The benefits of e-commerce are leading to rapid growth in the number
of Internet commerce sites as well as the rapid development and deployment of
new technologies.
To succeed on-line, companies need an array of capabilities to support
their on-line business. Designing an attractive Web page is only the beginning.
In order to retain and satisfy their on-line customers, businesses must be able
to:
- accept and process customer orders 24 hours a day, seven days a week;
- develop an operating and technology infrastructure that can be expanded
as volumes increase;
- administer, on a secure basis, credit card payments and collections;
- calculate applicable sales tax for numerous taxing authorities and
various product types;
- quickly and courteously respond to customer inquiries by e-mail, phone or
fax;
- pick, pack and ship customer orders promptly and accurately; and
- process product returns and customer refunds.
Traditional manufacturers and retailers entering the e-commerce arena must
be able to satisfy the expanding needs of on-line customers, which differ from
their traditional commerce customers. The efficiency and quality of the on-line
shopping experience from accessing product information, ordering and paying for
the product to receiving the product and, if necessary, returning the product,
are critical elements in successfully implementing e-commerce initiatives.
These challenges are particularly difficult for the traditional
manufacturer whose distribution infrastructure is designed for large pallet
sized orders to regional retailer distribution centers, and is not generally
equipped to handle high-volume package distribution to individual customers.
Similarly, retailers must ensure that their electronic shopping customer is not
disappointed by experiencing product distribution problems and delays. Virtual
companies, as well, are dependent upon an efficient order processing and
distribution system to deliver their products to customers.
Refer to Note 9 of the Combined Financial Statements for revenues and
long-lived assets of PFSweb by geographic area.
OUTSOURCING TREND
In response to growing competitive pressures and technological innovations,
we believe many companies, both large and small, are focusing their critical
resources on the core competencies of their business and utilizing third parties
to perform non-core business functions. For example, many large companies are
turning to third parties to rationalize their cost structure and to deploy
under-
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