Should E-tailers Adopt Dell's Build-to-Order Model?

The success that Dell Computer (Nasdaq: DELL) has had with its build-to-order (BTO) sales philosophy raises the question of whether that model could apply more widely to e-commerce.

According to analysts, while some retailers might succeed using BTO with certain high-margin, high-volume items, the approach is unlikely to gain widespread prominence across retail product categories.

"I don't see a lot of companies deciding to go with this model," Yankee Group analyst Lisa Melsted told the E-Commerce Times. "Companies that do should choose the products wisely."

However, if a product is popular and repeatedly bought by customers, BTO might have a role to play in some e-tail niches, said analysts.

Personal Pants

Multichannel clothing retailer Lands' End (NYSE: LE) saw an opportunity for BTO with its popular chinos pants, and launched Lands' End Custom on its Web site in October.

With technology partner Archetype Solutions, Lands' End allows customers to order custom-made chinos, based on personal size and style parameters.

Eyeing long-term goals of reduced warehousing and returns processing costs, the company is banking on satisfied customers making multiple purchases over time.

"Potentially, making each product one at a time could greatly reduce returns, overstocks and the costs associated with warehousing finished goods," Lands' End Internet project manager Ron James told the E-Commerce Times, "although it's really too early to tell what the specific time and cost savings could be."

Custom Costs

Few online and multichannel retailers are taking this kind of risk with BTO. Indeed, implementation costs could range from US$250,000 to $500,000, according to Gartner Group research director Geri Spieler.

For its part, Lands' End has invested in hardware, software, single-layer laser cutting equipment, and a modular production setup to manufacture custom pants, said James. Two months into the program, the only return on these investments has been some positive customer feedback.

"The [majority] of people still do not invest this much time or energy into customization," Spieler told the E-Commerce Times. "The return-on-investment is not there yet. It's a business decision to be ahead of the curve."

Your Own Swoosh

Sporting goods giant Nike (NYSE: NKE) might be the only retailer to disagree with Spieler. The company has been successfully running an online BTO system for sneakers since 1999.

The Nike iD program began with two shoe models and a total of 84 possible color combinations, and now offers 15 models and thousands of combinations.

"It's a strong relationship-builder between Nike and the customer, and the customer and the product," said Nike iD general manager Mark Allen.

Here again, the product concerned is very popular and is repeatedly bought by customers, making it a good candidate for BTO.

Booking on Demand

By this measure, the publishing industry might be another niche for BTO, suggested Melsted.

"If publishers have electronic copies of manuscripts, rather than doing large print runs and reprints, [they could] print on demand," said Melsted. "This could resurrect books that have gone out of print."

Barnes and Noble (NYSE: BKS) has been experimenting with this concept, Melsted said.

Special Delivery

Even when sold through the rapid and efficient online channel, analysts said that BTO products require more time, money and often patience from customers, further limiting retailer adoption of BTO.

Lands' End's custom chinos cost $54 a pair, compared to $35-$40 for regular chinos, and custom order delivery takes about two to three weeks longer. Similarly, Nike iD customers pay premium price and must wait two to three weeks for delivery.

The Internet is by no means the only channel through which retailers can sell BTO items. But it does offer speed and convenience on the front end of the process, according to James of Lands' End.

"Our online channel makes it easier and more accurate for customers to see and review their input," said James. "More importantly, it's a more private process than being measured or giving out your size information over the phone."