Virtual Satisfaction: The Internet boom lifts revenues 20 percent.

Behind the virtual shopping malls and electronic coupon systems, there are still bricks-and-mortar buildings brimming with merchandise, brochures, prizes, and other items waiting to be mailed the instant you click a button on your computer. Well, maybe not instantly, but you get the picture.

Fulfillment houses are enjoying the boon the e-commerce age has brought. Web sites are enlisting the help of fulfillment houses to handle online orders for merchandise, sweepstakes entries, and rebates, helping to boost fulfillment revenues a hefty 20 percent to $4.1 billion in 1999, according to promo estimates based on industry sources.

Total spending estimates are lower than in previous industry reports because promo has allocated approximately 19 percent of prior-year fulfillment revenues to sweepstakes, games, and contest spending, a new category in 2000.

But the Web is far from the only factor driving growth in the fulfillment industry. Sweepstakes, loyalty programs, and even the continuous stream of spending on rebate programs are also contributing to the segment’s financial health.

“Companies need to get buttoned up and ready,” says Mark Shevitz, ceo of SJI Companies in St. Louis, MO. “The Internet won’t replace traditional retailing, but it has a strong life and opportunity.”

Shevitz says the advent of e-commerce has touched off a shift in SJI Fulfillment’s business mix. Two years ago, coupons represented 25 percent to 30 percent of its business, but has now dropped to between four percent and five percent as e-commerce and loyalty programs take the lead. Fulfilling online orders for merchandise has shot up to between 20 percent and 25 percent of SJI’s business, while loyalty and club programs now represent 30 percent of the business.

Overall, 35 percent to 40 percent of SJI’s efforts have an Internet component. Besieged by clients requesting online fulfillment, SJI moved into a new 181,000 square-foot facility last month. The company fulfills about 20,000 weekly orders.

Aside from handling orders for merchandise and marketing materials, fulfillment houses are managing online sweepstakes for dot-coms attempting to drive traffic to their sites. Fulfillment houses have also added an online entry option to traditional mail-in sweepstakes. The Internet has allowed Promotion Activators of Buffalo Grove, IL, to expand its fulfillment internationally, says president Maxwell Anderson. Promotion Activators’ revenues from sweeps with a Web component have doubled over the past year and now represent about 20 percent to 25 percent of overall sweepstakes revenues.

Dot-coms are also offering rebates to encourage online purchases. Continental Promotion Group, Scottsdale, AZ, handles rebates for Chipshot.com, PlanetRx.com and ebates.com. “We see a tremendous opportunity on the e-commerce side of rebate programs,” says vp-sales and marketing Mike Leonard. About 10 percent of Continental’s 400-plus clients offer online rebates.

The Internet also enables fulfillment houses to compile databases with names of customers who enter sweepstakes or request samples, Anderson notes. Clients can also better track the progress of promotions on the Web, adds David Minkoff, executive vp of Riverton, NJ-based Marketing Masters.

AND THE WINNER IS…

While the Web’s impact is foremost on everyone’s mind, fulfillment houses are also touting a surge in sweepstakes campaigns. “Our sweepstakes business has caught us off-guard,” Shevitz admits.

Marketing Masters is another company experiencing a large increase in sweepstakes fulfillment, according to Minkoff. The company recently handled an effort for Seneca cranberry juice and one for a Jolly Rancher tie-in with the Hard Rock Cafe. In an April contest sponsored by Skippy peanut butter, contestants competed for a chance to win a day with Major League Baseball star Derek Jeter.

Promotion Fulfillment Center, Clinton, IA, handled twice as many sweepstakes in 1999 as in 1998, says general manager Roy Spencer. Skill contests are making a comeback, says Anderson.

But for all the technological advances, the old rebate continues to bring in revenues, says Minkoff. “Rebates are tried and true.” Spencer notes that hardware, software, oil, and sporting goods companies are running more rebate programs than in the past.

The majority of the growth in Continental’s rebate business came from the hardware/software category, Leonard says, adding that the company also saw a double-digit increases in the home electronics market from such clients as Panasonic and Sony.

Major retail chains are now hiring fulfillment houses to consolidate and manage rebates for all of the products they stock. Instead of mailing individual rebates to product manufacturers, Sam’s Club customers can mail all their rebates together to Promotion Fulfillment Center, Spencer says. Continental Promotion Group has a similar agreement with Costco, Leonard notes, adding that consolidating rebates allows retailers to better track results.

– The fulfillment business posted a 20 percent increase in revenues to $4.1 billion.

– E-commerce, sweepstakes, rebates, and loyalty programs contributed heavily to the gains.

– Retail chains are consolidating rebate offers into one program.

– Fulfillment houses are increasingly handling online orders for merchandising and marketing programs.