It was amid such frenzy that signs of Furniture.com's troubles began to emerge.

The company lacked an adequate order-tracking system, according to former executives. It had no accurate way to find out whether a purchased sofa was sitting in the manufacturer's warehouse or in the back of some 18-wheeler en route to a home--making it impossible to tell customers when their goods might be delivered with any certainty.

A far more severe problem lay in Furniture.com's distribution operations, sources say. In its quest to drive customers to its site, Furniture.com offered free delivery: Lamps, rugs or other smaller items could be shipped through UPS, but larger pieces had to be moved by truck at exorbitant expense.

"There were many cases when we would get an order for a $200 end table and then spend $300 to ship it," one former Furniture.com engineer said. "We never could figure it out. When we started, we didn't anticipate how difficult the shipping was going to be."

Publicly, the company has said that delivery costs have equaled a third of sales, but former executives said the figure was closer to 50 percent.

"Some of the economics didn't work," said Michael Barach, the chief executive of MotherNature.com, who resigned from Furniture.com's board of directors last week. "The reality is when you were offering free shipping you were losing 20 percent on every dollar. But if you think about it, we got goods into their homes at a great bargain."

The angry customer
While those problems persisted, more business was pouring in all the time as Furniture.com became a classic victim of its own marketing success. The company was setting sales records every month, and by August 1999 traffic figures from Web research firm PC Data showed that Furniture.com was running away with the online home-furnishings market.

That's when the company began to face a far more formidable force than any venture capitalist or competitor could present: the angry customer.

"The faster we ran, the farther we fell behind," said a former executive familiar with the company's back-office operations. "Customer calls that were mostly positive months before became negative. They yelled, 'Where's my stuff, where's my product?'"

One of the ways management dealt with growing complaints was to hire more customer service representatives. But that proved no panacea.

Not surprisingly, the most irate customers were those who had put a deposit down for merchandise they hadn't received. Interest would accumulate on their credit cards while Furniture.com often missed the six- to eight-week window it promised for delivery, sometimes by a long shot, according to a customer service representative who left the company last fall.

"One customer I remember had to wait eight months," the former employee said.

"People had to call back four and five times with these issues, and all you could say was, 'I'll give you money back' or 'Would you like to cancel?'" she added. "That's not customer service. There was no tracking, so when they would ask, 'Where is my merchandise?' you couldn't tell them. After speaking to these people you started to sympathize. You knew they were being mistreated, but you were helpless."

Workers became skilled at putting customers off, sources said. Besides offering store credit, they resorted to blaming the delays on manufacturers or on computer glitches. A Furniture.com engineer said he saw company statistics that estimated the number of unsatisfied customers at about 30 percent.

Billing operations were so disorganized that the company even lost track of which customers owed it money. Some shoppers called to ask when they would be billed for items they had received months earlier. Executives assembled a team to review back orders and discovered that Furniture.com had dispatched $1 million worth of goods without billing anyone.

Trail of complaints
In the last six weeks alone, Furniture.com has been the subject of 44 complaints to the Massachusetts Better Business Bureau, which agency spokeswoman Barbara Sinnott called an unprecedented number. Most customers, she said, are demanding to know where their orders are.

Bitter shoppers have posted dozens of complaints at Web forums. On the message boards at Gomez Advisors, an Internet research group, Furniture.com has attracted by far the most complaints of any furniture store, analyst Jeff Quinn said.

Brooks acknowledges that the company has seen a "high volume of customer calls," but he said complaints have accounted for a small percentage compared with the number of orders received.

"What we have done is supplement staff with an outside call center," Brooks said. "They have dramatically improved the situation."

Furniture.com is far from alone in encountering the difficulties of bringing the furniture business online. Living.com, HomePoint and GoodHome.com are just some of the e-tailers that have joined the market and are facing formidable problems. Living.com, which has less than half of Furniture.com's traffic, laid off 50 workers in May, about 13 percent of its staff.

"Furniture in general is a 'high touch' and 'high feel' product that is challenging to sell," Quinn said. "An online retailer has that much greater challenge building out a delivery infrastructure...It's a very tough business either way."

None has had a tougher time than market leader Furniture.com. Last month, the company laid off 80 employees, cutting its staff by almost half as it avoided closure through a late cash injection. The company's valuation has plummeted to $20 million, 90 percent less than its estimated worth, according to Fortune magazine.

End of the beginning for digital economy

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