December 2, 2003, 12:00 AM

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Several months ago ValueVision Media’s ShopNBC realized it needed to overhaul its merchandise returns program. Senior management wanted to improve employee productivity at its customer service center as well. To accomplish these objectives, the company implemented a new returns program which entailed e-mailing returned merchandise authorization numbers (RMAs) to customers. Customers take the RMA number along with the item to be returned to a drop-off location in their area. A label is printed at the drop-off location based on the RMA information, eliminating the need to send a return label with every shipment. This innovative process reduced the time and cost of issuing paper labels for processing returns.

ShopNBC applied this new approach to a subset of returns-only items that needed to be repaired, replaced, or resized because of a packing or shipping error-and realized a savings of about $50,000 a year by removing the label printing and distribution from customer service. Even better, it heard from satisfied customers that they liked the ease of the returns process. Starting early next year, ShopNBC will make expedited processing of all returned merchandise a key component of Red Carpet Care, an 8-month-old, corporate-wide customer service, satisfaction, and retention initiative.

With access to new shipping information that pinpoints precisely when merchandise in need of repair or exchange will be delivered back to the warehouse, customer service representatives are able to better anticipate customers’ returns questions and issue shoppers faster credits and refunds. “Our customers who shop with us on TV and the Web can’t see and feel the merchandise like they can in a store,” says Howard Fox, ShopNBC’s senior vice president of operations and customer service. “An easier return process helps differentiate us from the competition and keeps our shoppers satisfied and coming back for more.”

Returns: A Costly Channel

Taking charge of the returns process became a priority because ShopNBC, like most Web merchants, found it was spending too much time opening return packages, then deciding if the item should be restocked, marked for liquidation, or sent to another department for repair. Now that the TV and Internet retailer has a new system, ShopNBC expects a multiple return on its investment, including cutting three to five days off its return process and eventually realizing a cost savings of $200,000 annually.

ShopNBC is not alone in trying to untie the returns knot that can snarl operations. “Processing returns is a huge business and very costly in some retailing segments, such as electronics, where the selling season is very short and a personal computer can lose 40% of its value very quickly if it’s just sitting around,” says Joseph Blackburn, James A. Speyer professor of operations management at the Owen Graduate School of Management at Vanderbilt University. “CEOs are paying a lot more attention to returns costs, especially now that retailers are in the holiday shopping and January return season.”

Today, retailers and catalogers are sophisticated at managing programs and using technology that ensures shelves-whether in stores or in warehouses-are abundantly stocked and that orders are delivered in a timely and cost effective manner. But many are less sophisticated in the reverse process, where they can achieve greater cost efficiencies and sales by streamlining returns. “Processing inbound packages can be two to three times more expensive than shipping out the original merchandise,” says Patti Freeman Evans, retailing analyst with Jupiter Research. “If a company has an ineffective returns program, it can have drastic implications on financials. Taking steps to deal more effectively with those costs will have a positive ripple effect.”

Some high-volume electronics manufacturers and retailers, for example, spend as much as $200 million per year processing the return of personal computers, printers and other large items, says Blackburn. Expenses in processing the return of just one electronics item, for instance, include the return shipping fee, customer service calls, credit card processing, storage, inspecting, ensuring the product is still operational, and sorting and processing packages, Blackburn says.

Additional costs occur if the retailer has to forward an item to a manufacturer, wholesaler or other channel partner for repair. Timing is also critical; putting returned merchandise back into inventory for resale can take as long as 60 days. That’s money lost. Consumer electronics products sitting on a shelf lose about 1% of their value each week. Some fashion apparel can lose up to 50% of its value during peak selling seasons, Blackburn says. “The numbers can add up,” he notes. “A lot of potential business is lost by not paying closer attention to expediting the returns process.”

Don’t Risk the Brand

But returns represent a greater loss to Web and catalog retailers than simply lost sales and processing costs of returned items. For one thing, an inefficient and shifting returns process can hurt a retailer’s market presence in many respects, beginning with the front-line troops-the customer service department-who must deal with shoppers. “An ineffective returns program can put the customer service group in a very difficult position if there are inconsistencies,” Evans of Jupiter says. “It can also undermine brand trust and perception because consumers don’t have a good experience when they need to return a product.”

There also are other operational effects. “Logistics will have a hard time handling the returns if they don’t have a cohesive strategy and operational flow and even IT would be impacted if they have to keep changing systems in order to accommodate a changing policy and operation,” Evans says.

Apart from the operational considerations are bigger-picture concerns, such as a Jupiter Research consumer poll that found that 17% of online shoppers had purchased an item in a store versus on the Web only because they expected the returns process for items bought online to be problematic.

Nonetheless, 44 million U.S. households regularly use the Internet to shop, reports Forrester Research Inc.-57% greater than the 28 million just five years ago-and it’s clear that consumers see the Web as a retail channel that is as important as bricks-and-mortar stores and catalogs. And it’s equally clear that they expect the same kind of service-even when it comes to returns.

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