December 31, 2003, 12:00 AM

SPONSORED SUPPLEMENT: Taking the worry out of merchandise returns

If there was ever any doubt that consumers value convenient return policies, a study in November from Harris Interactive dispels it. 90% of consumers surveyed said a convenient return policy and process are important to their purchase decision and a full 95% said they are very likely or somewhat likely to shop with an online merchant again if the return process is convenient.

A few yeas ago, merchants feared that an easy return policy would encourage customers to return merchandise. Now many are finding that such policies induce consumers to buy more. “Long-term, an easy returns system increases customer loyalty,” says Robert Garriss, vice president of direct marketing of Aerosoles shoes, which adopted the SmartLabel returns program from Newgistics Inc. last May. “People don’t want to take a chance with something fit-related like shoes. But with the SmartLabel, they are likely to give it a shot.”

A survey from AMR Research Inc. underscores the importance of returns, ranking it the chief concern of consumers who don’t shop online and No. 2 for online shoppers, after purchase delivery and ahead of security/privacy. The Harris survey, which was sponsored by Newgistics, showed that 35% of consumers shop online and 39% from a catalog, moving the importance of return policies even higher. And Aerosoles is not the only retailer learning the importance of returns. “Returns management is becoming less of an after-thought with retailers who are discovering the greater need for competency in that area,” says David Himes, senior vice president of NewRoads Inc., which provides a full spectrum of services to online merchants, including returns processing.

The ripple effect

If a retailer adopts a liberal return policy, it quickly finds that an efficient process is not just a customer service issue; it’s an operational issue as well. Product coming back to a retailer presents challenges along the entire chain of an operation, from the warehouse through the order management system, to the call center and finance operations. “The minutiae you have to get into when you’re dealing with returns is astronomically high,” Himes says.

In addition, retailers have to address issues related to merchandise disposition-deciding whether to place the item back into inventory as is, refurbish for resale, liquidate through online auctions or other means, or junk. “Asset recovery is an important part of the whole process,” says Doug Kern, Newgistics’ vice president of product management.

Thus have many retailers turned to outsourcers, such as Newgistics and NewRoads, to fulfill their returns needs as they begin to understand the impact of returns on distribution staffing, order processing and disposition. “We’ve been exposed to more of these issue before so we can help clients learn more quickly than they could on their own.” Himes says.

One of the first problems a retailer must deal with when processing returns is simply receiving and sorting the packages. Some outsourced returns providers aggregate packages coming back so retailers get them in a single shipment at a time that is convenient to them. For one thing, aggregating packages helps with warehouse staffing. “It smoothes out the peaks and valleys,” Kern says. “They can know whether to assign more or less people to a distribution center.” For another, having aggregated returns at certain times makes the outbound process more efficient. “They may have a fixed number of dock doors, and especially during holiday shopping, they may want to maximize products going out, so they’ll set aside a day for returns,” Kern says.

Identifying hidden problems

Consolidating returns with a specialist also helps retailers identify other problem areas. Himes recounts the case of a software developer who was experiencing a high level of returns. Because NewRoads was handling all returns and its workers were experts in processing returns, they were able to apply analysis to returns that the retailer either didn’t have the time or staff to do or wouldn’t have thought of doing. In this case, the developer was selling a software program that came in three parts-a disk with the actual software, a manual on its use and a piece of hardware that was required to operate the software.

Sales of the software were strong-but so were returns. Concerned about the level of returns, the developer asked NewRoads to analyze the problem. Upon closer inspection, it found many packages coming back with a component missing. Customers would buy the software, keep one component, then return the other two, then buy it again and keep another component and so on. NewRoads took to weighing the packages as they came back to make sure they contained all three elements. “Things like that become important because they affect workflow,” Himes says.

Another aspect of returns that outsourcers can make more efficient for retailers is the customer interaction. Newgistics’ SmartLabel program, for instance, captures product return information early in the process. Each label contains a barcode of the order. When Newgistics receives the package in its processing center, it scans each one and the order information goes immediately into the retailers’ order management system. Thus when a customer calls with the inevitable “Did you get my return?” question, the retailer has an immediate answer. Further, getting the return information into the order management system faster gets the credit process started sooner, forestalling some calls altogether.

Returns calls represent 5-10% of the calls at a typical retailer’s call center, Kern says. Retailers who use SmartLabel have experienced a 35% reduction in returns-related calls, he says, and those they do receive are shorter. “It’s a direct savings when the cost of an average incoming call is $4 a minute,” Kern says.

Radical changes in disposition

Once the item is back from the customer, outsourcers also help with product disposition, again, applying expertise that a retailer might not possess. “Disposition of merchandise has undergone the most drastic changes in the past couple of years,” Himes says. “It’s much more granular than it used to be.”

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