Carter's E-Commerce Sales Up 50 Percent

Business is booming at children's wear stalwart Carter's, which reported 16 percent third-quarter growth in its retail and wholesale channels and stunning growth in e-commerce, with sales up 50 percent and earnings up 100 percent.

CEO Michael Casey told analysts that the company's Q3 website relaunch helped fuel the e-commerce success and especially enhanced the browsing and shopping experience for mobile device users. Carter's upgraded e-commerce order management system processes orders more efficiently and improves customer service, Casey said. The web business is expected to generate $200 million in sales by year end.

The company's foray into international operations has been critical in overall growth, with operations in Canada driving the bottom line. Indeed, Carter's achieved a milestone in Canada by opening its 100th retail store. The company also will convert 33 Canadian Bonnie Togs retail locations to Carter's and OshKosh B'Gosh stores next year.

What's more, international consumers accounted for roughly 45 percent of e-commerce sales, Casey pointed out. "Based on this experience, we see an opportunity to build e-commerce capabilities in international markets and plan to launch an e-commerce business in Canada by the end of 2014," he added.

As the online business has quickly expanded, Carter's has taken greater control over e-commerce. "The most significant components supporting the e-commerce business that were outsourced have now been insourced, and that includes the fulfillment function," Casey said. "We have taken direct control of some of the other relationships. While [the website platform] is still a third party, we're managing it directly, which we think brings some efficiencies and some cost savings."

Casey attributed much of the recent e-commerce success to the opening of a new distribution center that began multichannel operations in September. This facility helped to drive a 50 percent increase in e-commerce sales so far this year, reducing web fulfillment costs by $8 million, or 24 percent.

To support its growth and expansion, Carter's is upgrading core systems including its enterprise order management, product development and supply chain systems.

Speaking of supply chain, the company's plan to shift toward a direct sourcing model is running ahead of schedule. According to Casey, Carter's will directly source more than 30 percent of its total units in 2014, with the goal of 50 percent by 2017. "We saw some slippage in on-time deliveries from both direct and agent-sourced factories," Casey said, explaining the move to direct sourcing. "To improve on-time deliveries, we have strengthened our capacity planning disciplines and have better systems to monitor production performance."

Carter's hosted an Asian supplier summit to identify solutions to improve performance and shipping times. And despite the generally negative industry view of the region's increasing labor costs, the company doesn't see that as a bad thing. "We actually think [rising labor costs are] good because it'll provide a more stable workforce and more people will come back after Chinese New Year and you won't see as much turnover — and there'll be more consistency in execution," Casey said. "But it does put some pressure on product cost."

Nurturing the bigger-kids' OshKosh label to increase brand awareness, Carter's is experimenting with side-by-side Carter's and OshKosh stores, with about 12 open and 12 more launching by the end of the year. "Typically, the response that you hear when the consumer comes into the Carter's store is, "‘We didn't know OshKosh even had stores,'" said Casey, adding that most of the few preexisting OshKosh stores were located in outlet malls. "The whole objective is to bring the brand closer to the consumer in a beautiful format. Carter's has natural traffic to its stores and enables us to offer them an assortment for the older child.

"And now we're making that product offering more convenient for the consumer."
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