MANY (unhappy) RETURNS

Mar 01, 2001 10:30 PM  By

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