Drop and shop

You think you hate returns? Rest assured your customers despise them almost as much as you do.

Half of all consumers agree that it’s “a hassle to return items that I purchase online,” according to a recent Forrester survey. And over a fourth avoid Web shopping for that reason.

But you better be able to handle those that send merchandise back — otherwise, you’ll lose the customer along with the sale.

The solution? Make the process as painless as possible.

For starters, you should describe your returns policy and make it easy to find online, says Wendy Dawson, retail and e-commerce analyst with courier FedEx. This can save you money by reducing the number of calls to your customer service department, she notes. And it will build confidence in your brand.

Another way is to include preprinted return labels and envelopes with orders so purchasers can easily repackage the items they’re unhappy with.

Dawson also recommends absorbing the cost of shipping returns back to the distribution center, as shoe merchant Zappos.com and several competitors have done. But some observers think that’s going too far.

“We haven’t seen a positive impact on sales offering free shipping back,” says Edward P. Foy, Jr., CEO of e-commerce service provider eFashionSolutions.

But there’s one more way, and it may be the most important one of all for multichannel merchants: Let consumers choose where to return products, just as they decide where to buy.

“Consumers need to be able to buy anywhere and return anywhere,” says Jason Jacobs, CEO with retail management software provider COREsense.

This can lead to opportunity, adds Sucharita Mulpuru, senior analyst with Forrester. “Encourage people to go to the store, because they’ll often buy more.”

Take the case of Signet Group, a jewelry and gifts marketer that does business as H. Samuels and Ernest Jones. Signet advises customers that returns made at the store will be credited as soon as the item and transaction are reviewed. In contrast, those sent to the distribution center won’t be processed until the goods have arrived.

Why encourage store drop-offs?

“When you have the customer in front of you, you can sell to them,” says Barrie Showers, head of IT with the company.

He’s right. By persuading people to buy something else, Signet saves the sale on more than half its returns.

And when all else fails, the return is tabulated against Web sales. “We don’t want customers coming in and the stores not working with them,” Showers explains. What’s more, associates get credit for any additional purchase the customer makes while in the store. How does it work?

Let’s say the consumer walks in an item. All the associate has to do is key in the order number in the store’s point-of-sale system. The status of the transaction comes right up.

If the return is valid and the product authentic, the salesperson credits the customer’s credit card or issues a store voucher if the person doesn’t have his or her card. The item is then put aside for shipment to the distribution center.

Meanwhile, the inventory management system is updated to show that the item is being held at the store. And it also reflects when the item moves to the DC.

What do you need from a system? The bottom line is that it is able to transmit information across channels.

Returns are typically handled through a firm’s general merchandising system, says Richard Gaetano, vice president/general manager with Island Pacific Merchandising Systems. Information is fed into that from the POS, catalog and e-commerce channels, providing useful information for future purchasing and marketing decisions.

Also crucial is the ability to attribute returns to the right channel. And only by accurately tracking returns can management tell how each channel is performing, says Gaetano.

Historically, most stores were “technology islands,” says Brian Dean, vice president of product strategy and marketing with software provider Escalate Retail. “They couldn’t count on connectivity to headquarters.”

But those days are over, and retailers now need systems that are open and can connect with each other, says Andrew Lawrence, product manager of customer management software for Tomax.

That means sales associates should be able to quickly find the purchase record, check that the item can be returned, and credit the customer’s account.

The faster this happens, the less time is taken from other tasks, Lawrence notes. And, the less data entry is required to process the return, the smaller the chance of error. But integrating systems so that they can access data from all channels can get expensive — by some estimates more than $100,000 for a smaller retailer.


Your system needs to be able to capture why the item was returned, Gaetano says. The POS or order management system should track the return code and transfer it to the enterprise resource planning system and business intelligence software. If you know why goods are returned, you may be able to do something about it.

FashionSolutions found that an apparel merchant was experiencing a 33% return rate for goods purchased through its Web site (the average for clients is 13%). The firm’s system revealed that more than 90% of the goods came from a specific factory. Once those items were excluded from the equation, returns dropped to a normal level. Production was halted at the factory until the problems could be resolved.

Software should be easy for both store and warehouse employees to use, and it should outline the steps for processing a return. “Make the system drive behavior,” Jacobs says. The system should make it impossible for associates to process a return unless they have all relevant data, such as the reason.

The system should also incorporate the retailer’s return policies. It should state, for example, whether items should remain at the store or be forwarded to the DC.

Many factors go into determining this. Some firms may decide that only products over a certain price point go to the DC — it doesn’t pay to transport less expensive items. Or, the decision could be based on store space. “Every retailer has its own policies based on the availability of backroom storage, the cost of transportation back to the distribution center, and the sophistication of their systems,” Dean says.

What happens when a customer returns an item that is sold only through your catalog or online? Experts say you should accept it because most people don’t understand that the channels may offer different products.

Efficiency is important regardless of how the item is returned. eFashionSolutions’ process is almost entirely automated, says Foy. Customers sending goods back put a receipt containing a barcode with the invoice number on the outside of the box. The receipt has the barcode that contains a unique invoice number with shipment details.

Employees scan the barcode and check that the products in the box match the transaction data. Assuming they do, the merchant sends the customer an e-mail letting them know that their account will be credited.

Workers then inspect the goods to determine if they can be resold at full or a discounted price, or if they need to be donated or just thrown out. They update the inventory system accordingly. All this typically takes place within 24 hours of the time the item is received in the warehouse.

Won’t people be more likely to return things if it’s too easy? Not according to FedEx’s Dawson. “Customers are busy,” she says. “Returns have to be easy.”

Chanhassen, MN-based Karen M. Kroll has written for American Way and Inc., among other publications.

Who gets it?

Ty’s Toy Box, a seller of licensed merchandise online, uses drop shippers to move some products directly from the manufacturer to consumers. This enables it to avoid the costs of a warehouse infrastructure.

The firm drop-ships items that are relatively easy for consumers to find, such as DVDs and CDs. And it warehouses items that aren’t as readily available — like specialty backpacks, says CEO Ty Simpson.

But that prompts a question: who should get the return? The drop shipper, or Ty’s? It’s less expensive to have customers send the item to the drop shipper, as Ty’s avoids the cost of handling the product internally.

But from a customer service — and quality control — standpoint, “you need visibility,” Simpson notes. “If there are quality issues with what we are selling our customers we want to know it ASAP.”

Once a supplier relationship is established and Simpson is confident of the quality of their products, he’ll consider having returns go directly to the supplier.

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