With technology expenses, it has never been more important for retailers to thoroughly evaluate the vendors they work with, said two veteran retail executives on Tuesday at the Internet Retailer Conference & Exhibition.
It’s imperative to get past the sales team and meet the members the technology and consulting teams before signing a contract, said Chris Smith, director of e-commerce at Big 5 Sporting Goods, N0. 478 in the newly released Internet Retailer Top 1000, during the presentation “Optimizing the Ecosystem: Agencies, System Integrators, Services and Point Solution Vendors.”
“What often happens is that a salesperson will say you need to have signed an agreement before you get to meet other members of the team or start and kickoff calls,” Smith said. “But you will not be working with sales people once an agreement is signed, so be sure you get to meet other members of the team.”
Charles Hunsinger, senior vice president and chief information officer at party supply and arts and crafts retailer Oriental Trading Co., No. 87, suggests retailers treat hiring a vendor with as much diligence as they would hiring an employee. After all, vendors often handle the work of several employees.
There are also legal and regulatory implications retailers must consider when selecting vendors to work with. For example, Hunsinger says some jurisdictions mandate that if a retailer’s systems are hosted in a jurisdiction—even if it is via an external vendor—the retailer must charge sales tax in that jurisdiction. “If you are looking to keep that tax nexus safe you should consider this,” Hunsinger said. The physical-presence (nexus) rule is a 26-year-old precedent, established in the Supreme Court case Quill Corp. v. North Dakota, when the court ruled that Quill, a catalog retailer, did not have to collect sales tax in North Dakota because it had no physical presence in the state. The U.S. Supreme Court recently heard the oral argument that could alter that precedent. The case, South Dakota v. Wayfair Inc., et al., will determine if the physical-presence rule will still stand as the determining factor on if a retailer collects sales tax in a state. The court’s decision is expected by the end of June.
Both speakers placed emphasis on scrutinizing every detail of contracts. “It’s all about the contract,” Hunsinger said. “If it isn’t in the contract it’s not part of the deal, no matter what salespeople have told you.”
He encourages retailers demand a contract that outlines precisely how long a vendor has to respond to an issue. “If they aren’t willing to put it in writing, they aren’t willing to do it,” Hunsinger said. “The contract is the prenup with a vendor before the marriage.”
Smith adds clarity in contracts is key. Contracts should contain clear service level agreements, outline required vendor response times and detail monetary penalties for failure to meet the conditions, Smith said. Contracts should be balanced and fair for both parties, Smith said, so merchants should be cautious to not allow clauses to slip through that only benefit the vendor, he said.
Still he said in most cases walking away and starting over with a new vendor is much more costly than trying to work to build a good relationship with a vendor a merchant has already selected.
Hunsinger adds its also wise for merchants be fair to the vendor about what their internal teams can handle. For example, don’t sell employees’ skill sets or technical knowhow as more senior than they actually are, he said. And, don’t tell a vendor the internal teams will be ready to work with a vendor in the next week if they’re bogged down and the real time frame is likely longer.
“It doesn’t do you as a company any good to set aggressive objectives you know you aren’t going to meet,” he said. Smith added that a bad scope of work without realistic timelines and details usually means the retailer will end up going over budget. “A bad scope of work will leave you with a bad budget,” he said.
Management of a project is also a crucial aspect that shouldn’t be overlooked, Hunsinger said. Don’t underestimate the importance of project managers, he said. “If a project is worth doing, it’s worth managing well.”
Proper management and an appropriate scope of work can, for example, build in not only for time for testing but also fixing bugs, which retailers will inevitably find some of, even with a quality vendor, both executives said.
When implementing a new service or program from a vendor, it’s also a good idea to quickly look at analytics to get a feel for if the new program is working.
“Look at the analytics right away while everyone is excited in the first weeks,” Hunsinger said. “Is it performing the way you want? Early on is the time to focus on iterating for success. You can learn a lot from the launch and also see what is going well and spot new opportunities for further improvements,” Hunsinger said.
Also, if the vendor is working out well, merchants should consider being a referral or agreeing to be the subject case studies for the vendor. More business will help that vendor build a better solution over time, Hunsinger said.
Smith adds when seeking a new vendor to consider not just if the retailer has a list of successful projects and client referrals but also if those successful customers had the same needs or are similar to the merchant in structure and size. He also recommends requesting a trial of the vendor’s services or system before purchasing.
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