December 2, 2003, 12:00 AM

SPONSORED WHITE PAPER: Wrestling returns to Win

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Taking back what customers don’t want certainly isn’t a new experience for interactive merchants and catalogers. Customers shopping on the Internet make selections based on product images and descriptions. Online retailers balance providing enough information against providing too much information, and so, despite enlarged images and carefully worded copy, shoppers still don’t know exactly what they’ve bought until the package arrives. Some high-end apparel merchants routinely take back more than 40% of certain items they sell. And electronics retailers experience a return rate on certain personal computers and hand-held devices of 15-20%.

Ensuring a Quality Customer Experience

Unlike the early days of online retailing, though, merchants today realize not only that customers will return purchases but also that a smooth returns procedure equates to enhanced customer service. As a result, many online retailers have created liberal returns policies. Ritz Interactive Inc., an Irvine, Calif.-based online retailer of digital cameras and fishing and boating equipment, for instance, allows customers to return merchandise for any reason within 30 days, 10 for digital cameras.

Ritz makes its returns policy apparent on its Web sites, posting return and exchange policies on help pages of its 19 shopping sites; stresses the no-strings-attached nature of the policy; and views easy returns as a competitive advantage. “Retailers in our Internet space offer similar products so we can have a competitive difference by enhancing the customer service experience with an easy-to-understand and easy-to-execute return policy,” says Fred Lerner, Ritz CEO. “The beautiful pictures customers see on their monitors while ordering may not fit their expectations when they finally have the item in their possession, so we make it clear that we will take our merchandise back even if the customer has no reason other than they just didn’t want it.”

Returns are expensive to begin with. And liberal returns policies can make them more expensive, starting with the direct costs of processing returns and disposing of the merchandise all the way through lost opportunity costs if trendy merchandise is languishing in the reverse logistics chain and degradation of the customer relationship if the returns process does not go well.

One way of reducing costs is to prevent returned items from entering the reverse logistics flow at all. “If you are in retail, you are going to deal with returns, but it’s expensive and labor-intensive to have a worker open the box, find out what’s in there and return the inspected item to the shelf or mark it for liquidation,” says Ron Kelly, senior director of site merchandising for online pharmacy, health and beauty retailer Drugstore.com Inc. “It’s a competitive advantage if we can do things to reduce or eliminate some returns.”

Drugstore.com, which ships more than 700,000 products each month and processes about 7,000 returns, tells customers not to return items if it`s 30 days past the original date of delivery or the package has been opened.

Streamline the Flow

But no matter how much retailers are willing to issue refunds without getting a product back, there will still be returns and retailers must search for ways to expedite those. One of the first steps a retailer can take is to streamline the flow by allowing only authorized returns back into the organization. By requiring a customer to obtain a return authorization code, a merchant can control the flow and minimize the risk of unauthorized returns. Return authorization can also save a sale because customer service representatives can suggest an exchange or product upgrade.

Usually, a retailer does not know what’s coming back, when it’s coming back, who’s returning it, and what resolution the customer wants. That creates inefficiencies in the entire process-from staffing warehouses for returns processing to creating delays in issuing refunds or replacing the merchandise. “Returns impact many parts of the organization, and if there are steps we can take to increase efficiency we will,” Kelly says.

One way that retailers can expedite the process is by consolidating returns before they reach the warehouse. Consolidation can take several forms. One is to include with each order a pre-printed label with bar-coded product information. Customers send their packages to a consolidation service that acts as a processing agent for the retailer, opening the package, alerting the retailer to the return, then consolidating packages until there is a sufficient number to send back to the retailer or to the appropriate disposition destination.

Another approach to consolidation, such as FedEx Consolidated Return ServiceSM, allows customers to return merchandise just as they do to a store by leveraging their retail network. In addition, merchants and consumers can track the progress of their package as it makes its way through the shipping channel back to the merchant’s distribution center.

Here’s how the program works: The customer brings in a return item and returned merchandise authorization number to a FedEx drop-off point. The customer gives the item along with the RMA to the clerk, who enters the RMA into the FedEx Web-based return system. The clerk checks to make sure the RMA presented by the customer matches the same authorization information provided by the retailer. The clerk completes the return transaction, generating a printed shipping label and customer receipt with tracking information. Next the return is wrapped in a plastic polybag and placed into a consolidated box along with other items to be returned to retailers. Larger or more time-sensitive return items such as a personal computer monitor are handled according to a similar process, but shipped directly to a location designated by the retailer by FedEx Ground.

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