Returns Engagement

May 01, 2005 9:30 PM  By

Catalogers know that a customer making a return isn’t happy with the product. But if you can quickly and efficiently process the return, you may be able to put the proverbial smile back on the customer’s face and encourage him to order from you once again.

Efficient returns also play a key role in effective inventory management. The ability to balance forecast return rates with inventory levels is a good way of preventing overstocks and backorders — another way to keep customers coming back for more.

Richmond, VA-based Children’s Wear Digest (CWD) takes a liberal approach to returns, allowing customers to send back merchandise for any reason for up to a year from the date of purchase, says president Jim Klaus. The children’s apparel merchant, which outsources its fulfillment to Martinsville, VA-based NewRoads, processes around 2,200-2,500 returned items a week during its off-season and about 4,000 a week during the seasonal rush; its return rate is currently around 12%.

While CWD continually strives to reduce returns, it also tries to make the returns process as painless as possible for its customers. The company’s contract with NewRoads gives the provider three days to ship out any replacement merchandise or to give the customer credit for the return. All outgoing packages include a return shipping label; customers can also request prepaid labels for return shipping if the product needs to be sent back due to a company mistake.

Recording reasons for returns

All CWD packing slips include instructions on the reverse side on returning the merchandise. The slips also include 10 check boxes regarding why the item was not satisfactory, such as improper sizing, questionable quality, or dissatisfaction with the style. CWD tabulates weekly which are the most returned items and why, says Klaus. “We provide our vendors with that information, so that if a product that is carried year in and year out keeps coming back too small, the vendor can make adjustments to the [sizing] spec next season,” says Klaus.

In this year’s spring catalog, for instance, one of the company’s best-sellers is the $26 Rash Guard Shirt. But customers have been consistently returning the shirt, which protects the child’s skin from the sun and other irritants, due to sizing that was too small. Klaus says that the company plans to meet with the vendor to discuss adjusting the sizing. In the meantime, “we’ve alerted customers to the issue,” he says, with a notice on the Website and in the catalog advising, “Order one or two sizes larger, it will still fit tightly as designed.” But CWD would rather have the item fit the way the customer expects it to, Klaus adds.

Warren, PA-based apparel and home goods merchant Blair Corp. has the more than 150 workers in its Erie, PA, returns center fill out electronic, or “soft,” forms on incoming merchandise to alert marketing to problems such as misrepresentation of color in the catalog, says Randy Scalise, the cataloger’s vice president, fulfillment. “Our inspectors have a joint venture with marketing and returns, so they are able to capture the data the marketing side will need to make color, size, or material-related decisions,” he says.

Blair, which has a 15% return rate, improved its returns program about 18 months ago, says Scalise. The company provided instructions to customers and forms to fill out about why they were returning. But focus group research revealed the need for changes. “Returns ranked high in each and every focus group as one of the deterrents to buying through the mail, so we were looking for a program to counter that,” says Scalise. The company enlisted the services of Austin, TX-based returns management provider Newgistics, which tracks returned merchandise before it makes it back to the distribution center.

All Blair returns are delivered to one of Newgistics’ five processing centers. Once the packages arrive there, an e-mail is sent to Blair, giving its returns center advance notice on the size of the returned packages, the number of pallets coming in, and when the goods can be expected to arrive back to the Erie distribution center.

The cataloger has been able to simplify from the customer’s perspective by using the vendor’s SmartLabel, a prepaid label with the Newgistics address printed on it and a barcode that includes the name and contact information of the customer making the return. After Newgistics accesses that information and sends it back to Blair, the company sends the customer an e-mail or postcard notifying him that his return has been received, and when to expect the exchanged goods or credit.

Pricing for the service is based on the volume and weight of the returned packages Newgistics processes. Newgistics vice president of marketing Jonathan Dampier says the service processes an average of 300,000 returned packages per catalog client at an average charge of $5 a package. Catalogers in turn typically charge customers who elect to use SmartLabel a flat rate of $5.75 or so, which is deducted from the customer’s refund. “Our clients typically see in the first 90 days [of offering SmartLabel] a 70% usage rate.” Dampier says. What’s more, these customers return goods an average of seven days sooner than customers who don’t use SmartLabel.

Back to the shelves

As packages come in to Blair’s returns center, says Scalise, information on the state of the merchandise is immediately entered into the company’s inventory management system following a quality inspection. The goal is to get the usable items, especially apparel, returned to shelves as quickly as possible.

Blair also gets a jump-start on integrating returns back into its inventory by calculating expected returns into its inventory projections. “We just use historical data on the percentage of returns and apply it to forecasted sales,” says Scalise. If the return rate for curtains is, say, 12%, and Blair ships out 500,000 units of curtains in one week, it knows that within a few weeks it can expect to get back about 60,000 returned curtains.

CWD adjusts its inventory projections weekly after reviewing NewRoads’ real-time returns report via a dedicated phone line that connects the CWD computer system with the portion of NewRoads’ system that provides information on the company’s account, says Klaus. Like Blair, CWD takes expected returns based on past selling seasons into consideration when ordering merchandise. But CWD goes so far as to break down the expected return rates for categories within categories of merchandise. For example, says Klaus, while the women’s shoes it sells have an expected returns rate of around 20%, the number drops to about 10% for flip-flops.

Software solutions

For companies with multiple distribution centers or stores, properly managed returns can make up for inventory shortfalls at individual locations, says Dave Hommrich, senior director of reverse logistics management for Atlanta-based supply chain logistics software company Manhattan Associates. Returns software programs, such as his company’s Reverse Logistics Management, can facilitate the redistribution of returned merchandise. The software — which handles all phases of the returns process, from the initial processing of the return request to sending credit back to the customer’s account or creating a pick ticket for the exchange — can also be integrated into the cataloger’s inventory management system to route returned merchandise to the warehouse or store that most needs it.

“You need to have visibility into the returns process, and apply [software programming] rules based on categories of product and the time of year,” Hommrich says. For instance, he says, your operations software should be able to route a swimsuit or a pair of shorts being returned at the end of August to a store or distribution center in the South for resale, rather than leaving it to languish in a northern climate.

Prices for Manhattan Associates’ returns software start at $250,000. “In general,” Hommrich says, “the value of a solution like ours scales with volume. A company with several million returns typically has a need for a fairly complex solution, while companies with a few thousand returns can get by with a lower-cost solution,” such as using a generalized warehouse management software such as Mail Order Manager, to process returns.

Since about 70% of returned goods get circulated back into stock, Hommrich says, managing returns efficiently is essential. You have to handle returned merchandise “as a supplier and not just a returns center,” he says.