August 28, 2003, 12:00 AM

Eye on returns

Retailers are learning that a good returns policy is good for business. An Internet Retailer survey compares returns policies at 35 prominent e-retailers.

In the competitive online shoe business, Tony Hsieh figures the best way to step ahead of the crowd is to address head-on shoppers’ biggest worry about buying shoes on the web-returning footwear that doesn’t fit.

The home page of his web site, Zappos.com, is packed with brand names and categories. Yet the most conspicuous and repeated message isn’t related to merchandising, but to a shipping policy: “Free Shipping & Free Return Shipping!” reads the bright yellow note across the top of the page. Just in case that’s overlooked, the message is repeated in a box in the top right corner, noting a 60-day return policy and a direct link to the policy’s details of free shipping and returns on all orders. “We get e-mails every day from customers telling us, ‘If it weren’t for your free shipping and free returns, I wouldn’t have tried you in the first place,’” says Hsieh, the company’s CEO.

Zappos, which also operates two retail stores and a warehouse outlet store, does 99% of its business online. Stocking more than 200,000 pairs of footwear from 150 brands, it has experienced sharp growth, as annual sales reached $1.6 million in 2000, followed by $8.6 million in 2001 and $32 million in 2002. It expects to double sales this year, to about $65 million. “We’re profitable, and definitely attribute that to focusing on our customers’ needs,” Hsieh says.

No longer an afterthought

As Zappos.com has learned, returns, once an afterthought to online retailers, are an important part of the online shopping experience. And while liberal returns policies like Zappos’ can be expensive, they also can be an important driver of online sales. A survey by Jupiter Research Inc. last year showed that 17% of consumers who shop online have purchased in stores instead of on the web because the online returns process can be too difficult. Further, 36% of online shoppers said they would be influenced to shop more online with free returns.

Such generous policies as Zappos’ are rare-only Hewlett-Packard Co.’s HPShopping.com and Wal-Mart Stores Inc.’s WalMart.com among the 10 most visited retailing web sites offer free returns shipping-but there are other ways to use returns policies to generate customer goodwill. At the very least, consultants say, streamline the process and make policies clear. “To be successful, retailers need to match customers’ expectations, but that doesn’t mean every retailer has to have a generous returns policy,” says Duif Calvin, a San Francisco-based retail consultant. “The most important thing is about managing relationships.”

Hsieh adds that Zappos also charges no restocking fee. It processes nearly all of its returns as well as order shipments through United Parcel Service of America Inc. To return a purchase, customers print out a packing label from Zappos.com, attach it to the original package, then drop it in any UPS box or shipping facility. Customers have 60 days from the date of purchase to return merchandise. “Customer experience is the only thing that matters for long-term success, and that includes free shipping and free returns,” Hsieh says.

Such a generous returns policy is still unusual in online retailing, according to a survey of 35 web merchants conducted this summer by Internet Retailer. Most e-retailers require customers to pay the cost of shipping a returned product except when the merchant shipped the wrong product or a defective one.

Danger zone

Of the 35 e-retailers, five of the top 25 and three of the remaining 10 retailers offer free returns shipping. “The focus of e-retailers hasn’t been on the ease of returns,” says Lauren Freedman, president of The e-Tailing Group Inc., a Chicago-based research and consulting firm. In its own study of 100 e-retailers’ returns policies last year, The e-Tailing Group found that only 17% provided even a prepaid return label, much less paid for the returns themselves. “But people who are angry and want to return something don’t want to be punished with having to pay for return shipping,” Freedman says. “It’s a danger zone for retailers.”

The Internet Retailer survey covered the top 25 e-retailers of consumer products by number of unique monthly visitors as compiled by research firm comScore Networks Inc., plus another 10 web merchants representing a range of categories. In addition to HPShopping.com and WalMart.com, they include major mass merchants like Amazon.com Inc. and K mart Corp.’s Kmart.com, computer sellers Dell Computer Corp. and Apple Computer Inc., wireless products purveyors AT&T Wireless Services and Cingular.com, home improvement retailers The Home Depot Inc. and Lowe’s Cos. Inc., apparel merchants L.L. Bean Inc. and Lands’ End, and niche players like AllPosters.com Inc., Toys R Us Inc. and Zappos.

Customer comfort

Despite the limited number of e-retailers offering free returns, there are indications that some web merchants are taking the returns process more seriously as a tool to improve both customer relationships and the overall returns logistics process. While this can make for happier customers, it can also help to get returned items quickly to the destination that can best serve a retailer’s needs-such as the store or warehouse that already shows demand for them.

“Customers have commented that the comfort of being able to exchange a product in a store enhanced their online buying experience,” says Andre Brysha, vice president of e-commerce for Ritz Interactive Inc., operator of camera and boating retail web sites and one of the retailers included in the survey. Since it began selling on the web in 1999, Ritz has had an arrangement with Ritz Camera Centers Inc., a separate company from Ritz Interactive, to accept in-store exchanges-but not returns-of items bought online. “Returns are part of our focus on customer service, because we want to make sure customers get the right product,” Brysha says.

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