MANY (unhappy) RETURNS Mar 1, 2001 12:00 PM
, Dana Dubbs
JobZone
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Ever think trying to return something to an online retailer is
just not worth the trouble? You're not alone. In a recent survey by
PricewaterhouseCoopers, four out of ten shoppers wanted to return a
product they had bought on the Web, but didn't do so because they
perceived it to be too much of a hassle.
With more people shopping online and spending more than ever
before, no longer can returns take a back seat to marketing and
fulfillment. Providing excellent customer service now means
offering an easy and convenient shopping experience end to end.
Breaking the bank
Last year was another record-breaker for online sales. Research
firm BizRate.com estimates total retail online sales of $33.9
billion, more than double the $16.2 billion of 1999, with estimated
online holiday season sales accounting for about $6.9 billion of
that total, a 60% increase from 1999. According to Boston
Consulting Group and Harris Interactive, an estimated 49 million
consumers did their holiday shopping online in 2000, a 23% leap
from the year before, and spent an average 38% more on gifts than
during the 1999 holiday season. Jupiter Communications projects
total U.S. consumer purchases online of more than $78 billion by
2003 and $199 billion in 2005.
Despite this explosion in Internet retailing, sales would likely
be higher if return processes were easier and more convenient for
consumers. A Jupiter Communications survey found that 37% of online
buyers and 54% of online browsers were deterred from buying online
because of return and exchange processes that were too difficult.
Simply put, consumers view returns as riskier and more
trouble-prone in the online world, and they fear getting stuck with
products they don't want.
Their concerns are too often well-founded. Not only must the
dot-com implosion have many shoppers wondering whether an e-store
they're thinking of buying from today will still be in business
tomorrow, but the traditional returns process is typically tedious,
confusing, and fraught with frustration. When a consumer can order
a portable CD player or groceries on the Internet and have them
delivered within one hour, returning a product using the
traditional method can seem agonizingly slow, even downright
archaic.
In the traditional model, a customer must call a toll-free
number to request authorization for the return, wait about a week
to receive the authorized shipping label that the customer service
rep on the phone had to print out and mail, wrap the item, go down
to the post office and wait in line or pay a premium to send it
through a private carrier, deal with the uncertainty of not knowing
when the package has arrived at the retailer or wherever it was
supposed to go, and then wait as long as two billing cycles for
credit to appear on her credit card statement.
Dot-coms are amazingly unresponsive to customer needs when it
comes to returns processing. In a study of 60 Web sites conducted
last year by e-commerce solutions provider Electron Economy, 80% of
respondents required customers to pay for return shipping. Although
purchases were charged almost instantly, most sites took one to two
weeks to credit returns, and 15% of the e-merchants surveyed did
not credit customers' accounts at all.
This kind of treatment will no longer fly for many Internet
shoppers. In a 1999 survey by BizRate.com, 89% of online buyers
said they were influenced by return policies when choosing an
e-tailer.
Supply and demand
As more people gain experience shopping on the Net, consumer
expectations for convenience and speed are rising. Research
conducted for Stamps.com by NPD Group and Delta Consulting Group
found that consumers expect return and exchange policies to be
highly visible on e-tail sites; reimbursement for return shipping
when fulfillment errors occur; real-time, online access to return
merchandise authorization (RMA) numbers and return shipping labels;
and both e-mail and toll-free phone support as backup when trying
to obtain RMAs and return labels online. Consumers also said they
wanted immediate replacement of incorrect, damaged, or defective
merchandise, and to receive e-mail notification that their return
was received, replacement item shipped, and account credited.
“Great customer service is an important factor for
customer retention, but people are also becoming a lot more savvy
about purchasing over the Web,” says Steve Holmes, a
spokesperson for United Parcel Service. “A clear and easy
returns policy and system is one of the first things consumers look
for.”
Although many online purchasers would prefer the convenience of
returning items by mail — 62% of consumers told BizRate.com
they'd prefer to return products by mail instead of traveling back
to a brick-and-mortar store — they would still rather trek to
the store than go through the returns process as it is typically
carried out today.
Coping strategies
The belief among consumers that returns are riskier in the
online world drove Buy.com to simplify its returns process.
Previously, all returns were handled in the conventional way. Since
June, the Internet superstore has been piloting UPS' Web-based
returns service. Instead of calling a toll-free number and going
through the usual rigmarole, customers can go to Buy.com's Web
site, log onto the returns area (which is linked to UPS), go
through a self-service process that lets them obtain an RMA number,
generate and print a pre-addressed return label, and get complete
shipping instructions, a list of local drop-off locations, and
maps.
Buy.com handles all returns internally at its own warehouse, and
with this service the merchant now has immediate knowledge of who's
returning what, why, from where, and when to expect it. The online
superstore and its customers can track packages back in, and
Buy.com can plan for their disposition.
“We needed to come up with a process that made it easier
to return product to Buy.com than to a brick-and-mortar
retailer,” says Tom Wright, Buy.com's vice president of
operations. “That's what we believe we have here.”
Since implementing the UPS service, Buy.com has had 60% fewer calls
coming into its call center, taken much of the waiting and
uncertainty out of the consumer's return experience, and been able
to issue credit faster. Overall, notes Wright, the service has
helped increase customer satisfaction with Buy.com while helping
improve inventory management and reduce returns costs.
The UPS service is intended for retailers with firm business
rules and procedures in place, and who do sufficient volume in
returns for automating that process to make sense. Return labels
are prepared according to a retailer's policies and procedures. So
if a consumer indicates that the product is defective, the package
can be routed wherever the retailer sends defective products,
whether that happens to be the retailer's own warehouse, a
manufacturer, or elsewhere. The system can be set up so that when
an item is received at the loading dock, transaction and
transportation charges are billed to the retailer, customer credit
is issued, and e-mail notification of status is sent to the
consumer.
Simple math
The average online seller needs three purchases from a customer
to break even on the cost of acquiring that customer, according to
Shop.org.
“E-tailers pay a lot of money in acquisition costs to get
a customer to buy, and it doesn't make a lot of sense for them to
lose that customer over one bad experience trying to return a
product,” says Pete Rector, senior vice president of Genco
Distribution System in Pittsburgh. “When you buy something,
your credit card is charged within six nanoseconds of the time you
hit the order button. But when you return something, do you know
when your card is going to get credited? Does somebody say,
‘We've received your return, we've credited your account for
$64.85, sorry you had the problem’? In most cases, that
doesn't happen. Returns are often a forgotten part of customer
service.”
A 100% satisfaction-guaranteed-or-your-money-back return policy
has been in place at Lillian Vernon since the specialty catalog
company, based in Virginia Beach, VA, launched its business in
1951. Lillian Vernon takes back anything, including personalized
items, at any time, for any reason. Sierra Trading Post, located in
Cheyenne, WY, has the same policy, and has taken back everything
from climbing shoes chewed by a dog to a backpack that smelled of
campfire. It is exactly this type of return policy that consumers
told BizRate.com was the most important factor in an optimal online
return process.
From the merchant's point of view, returns are not only
burdensome to handle but expensive. A University of Nevada report
estimates reverse logistics costs amount to about a half percent of
total U.S. GDP, or $862 billion in 1997. Some industry experts say
that the cost of processing an item that comes back can run as high
as $30.
Returns will cost catalog and Web retailers an estimated $3.2
billion in 2001, notes Matt Bernstein, senior vice president of
R.R. Donnelley Logistics. “The consumer-direct market, that
is, Web and catalog purchases, is growing at about 15% a
year,” he says. “If the return rate stays constant,
returns will grow 15% a year as well. That's a pretty robust growth
rate.”
Established multi-channel retailers like Lillian Vernon, Sierra
Trading Post, and Providence, RI-based Ross-Simons tend to have
formal, time-tested processes in place to manage returns. By
contrast, their younger, pure-play dot-com counterparts, which have
focused more on marketing and fulfillment, do not.
“So many companies in the e-tailing world have
concentrated on moving goods directly to a consumer's residence
that they don't consider what happens when a customer wants or has
to return a product,” says Rector.
“Most of these companies don't feel returns is something
they're particularly good at,” adds Bernstein. “They
don't know how much they spend on it. They get returns back one at
a time with no advance visibility. Typically, their fulfillment
centers are oriented toward moving product out the door in a
forward direction, and they're getting all this stuff coming back
in a reverse logistics process that they're not terribly
comfortable with.”
External service providers say these retailers would rather
focus on their core competencies of marketing and fulfillment,
while outsourcing the reverse logistics process to companies like
Genco and USF Processors, located in Dallas.
“Like their brick-and-mortar counterparts did ten years
ago, e-tailers view returns as a gravity issue,” says Rector.
“It's going to happen, so deal with it. Put it into your
pricing, cover it with margins. If stuff comes back, put it in a
corner of the warehouse. If it gets to be a large pile, shovel it
into a trailer and sell the whole trailer for $20,000. Smart
e-tailers are now starting to see that there is a disciplined
approach to managing this, and that is called reverse logistics
management. As the word ‘profit’ starts to creep into
their vocabulary, as they're squeezed for margins, as their world
becomes more and more competitive on price and shipping and all the
other things that they compete on, they're looking for a positive
profit impact.”
Assisted living
Genco and USF Processors help retailers recover some of the
value in returned goods through disposition of those products back
to suppliers, Web auctions, repair and refurbishment businesses,
donations to charity, and other merchandise liquidation
channels.
Genco also offers a Product Assist service to retailers that
helps manage and reduce product returns. “If a consumer want
to return an item, Product Assist will take them through the reason
for return,” says Rector. “It will also try to prevent
a return by pointing out simple things people often think are
defects but really just require adjustments.” In addition to
offering suggestions for troubleshooting, the system allows
consumers to download an instruction manual or schedule a
repair.
Building quality into the product is a key reason Lillian Vernon
believes its return rate runs a low 3.2% to 3.5%. The retailer
makes sure that what it ships out is well made and lives up to the
promises in the catalog copy and photograph.
To minimize returns because of sizing and color problems, the
two biggest reasons for returns at Sierra Trading Post, the company
hired a size and fit specialist for shoes and puts a lot of effort
into accurately representing product colors in its catalogs,
including describing the various shades within a single color
range. Sierra Trading Post also regularly pulls together a group of
employees to try on different shoes and then works their feedback
about the footwear into the catalog copy, along with
recommendations. “We'll say this shoe's a little narrow or
runs a little shorter, so you should size up a half or whole
size,” says Robin Jahnke, director of fulfillment and
facilities.
“As much as possible, we try to have products in the
customer service rep room so if you call in and ask, ‘What
kind of zippers does that have?’ the CSR can put you on hold,
walk over, pick that thing up, bring it back to her desk, and tell
you exactly about that product,” adds Jahnke.
Every company has its own way of handling returns. Some
retailers, like Buy.com and SmarterKids.com, do not have sufficient
return volume for outsourcing to make financial sense. At
Ross-Simons, precious metals is such a big chunk of the business
that the jewelry company prefers to handle everything in-house for
security reasons.
Valet service
Lillian Vernon has always handled its entire fulfillment and
returns process internally. But just in time for post-holiday
returns, the company planned to start testing ReturnValet, a
returns management service offered by Newgistics — an Austin,
TX-based company — in partnership with R.R. Donnelley
Logistics and USF Processors. Instead of having to mail returns to
Lillian Vernon's warehouse, customers in the Dallas/Fort Worth area
can go to any of 100 local return facilities, give unwrapped
merchandise to a clerk, get a receipt, and leave. The clerk
processes the transaction online and credit is issued in as little
as 24 hours. It's face-to-face and fast.
“People are fairly comfortable with how they return
products to a Sears, K-Mart, or Target,” says Bernstein.
“The ReturnValet service mirrors that, but for catalog and
Web purchases.”
Lillian Vernon spokesman David Hochberg notes that “there
is so much competition out there” in the retail arena that
consumers feel more empowered to make decisions because of all the
choices available to them. “That puts pressure on all
retailers to offer the best service, the best products and, when
there's a return, the quickest and most satisfying return
experience.”
Ross-Simons' return policy is to “take care of the
customer,” says CEO Bob Simone. “The way we're going to
win the battle of getting more share of the pie is to kill
ourselves for our customer. And that's what we do.”
Dana Dubbs is a freelance writer based in San Francisco. She can
be reached by e-mail at ddubbs@pacbell.net and by phone at (760)
432-9444.
REASONS FOR RETURNS
Coming Home
Product didn't meet customer's needs
Customer didn't understand how to use the product properly
Merchandise was defective
Customer abused liberal return policy
Sources: Dr. Dale S. Rogers and Dr. Ronald S. Tibben-Lembke,
Reverse Logistics Executive Council
WIN CUSTOMER LOYALTY
Three Little Policies
100% money-back guarantee
No restocking fee
Ability to return by mail
Source: BizRate.com, 1999
STATISTICS
Spending Spree
In 2000, 41% of Internet shoppers spent $100-$499, 17% spent
$500-$999, 16% spent more than $1,000. — Scarborough
Research
An estimated 28.4 million U.S. households shopped online in
2000, up from 17.4 million in 1999. — Forrester
Research
By the end of 1999, 57% of Internet users in North America
shopped online, and 51% purchased goods or services online. —
Boston Consulting Group
Residential deliveries are expected to top 2.1 billion annually
by 2003. — Forrester Research
Multi-channel retailers comprise two-thirds of the U.S. online
market, although pure-plays are experiencing an average 25% higher
growth. — Boston Consulting Group
Returns as a percentage of revenue decreased from 7.6% in the
first quarter of 2000 to 5.7% in the second quarter and 5.4% in the
third. This is in line with a full-year average of 5.6% in 1999.
— Shop.org and Boston Consulting Group
