Processing of returns needs to be more thanan after-thought for online retailers
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.”
Online auctions, for instance, have grown in importance as retailers have
discovered that they can recover 50-75% of the retail price of a product by
selling at auction instead of selling to a liquidator, where they might recover
10-25%. NewRoads has created partnerships with other providers that allow it
to sell items at online auction. Selling at auction comes at a higher price—$4-6
per item—than liquidation’s $2-3, but is worth it , Himes says. “It doesn’t
work for items selling for under $20 or so, but once you hit $30 or $40, the
reclamation process becomes important.”
Outsourcers also inspect and test merchandise and return to the retailer for
re-sale when appropriate.
Newgistics introduced SmartLabel about a year ago. So far, it has been well
received by retailers, Newgistics reports. Retailers include a SmartLabel with
a business reply indicia and a barcode that represents the customer and the
order. Customers returning an item affix the label to the package, then drop
it in a mailbox or give it to a mail carrier. The retailer deducts the cost
of the return postage—with or without a mark-up at the retailer’s discretion—from
the returned merchandise credit. Aerosoles, for instances, charges $6.95 for
one item, $8.95 for two, $10.95 for three and $12.95 for four.
Customers can, of course, still place their own label on a package and mail
it themselves. Yet, 70% of customers who have the SmartLabel option use it,
Newgistics says, a rate reflected at Aerosoles, Garriss says. “We make it really
easy,” Kern says. In addition to better customer service and quicker disposition
of the product, the SmartLabel offers other benefits, says Jonathan Dampier,
Newgistics vice president of marketing. For one thing, it reduces what Newgistics
has dubbed “trunk time,” the lag time between when a customer receives an order
and gets around to taking it to the Post Office or a UPS or FedEx facility.
With the SmartLabel, retailers are receiving returned merchandise an average
of 19 days after the customer receives the package vs. 26 days without SmartLabel.
More e-mail communications
Another benefit is that the SmartLabel system can generate an e-mail to the
customer that the returned product has been received. “It allows retailers to
use returns as another touchpoint in its overall marketing communications process,”
Dampier says.
NewRoads stresses that its returns process fits into the overall services
that NewRoads provides, which includes warehousing, fulfillment and customer
service. “Returns can’t be just a niche that a company serves,” Himes says.
“It’s too important to the overall level of customer satisfaction.” Thus NewRoads
has integrated the returns process into its other warehouse operations and is
starting on an automation plan. It recently beefed up the returns portion of
its Chattanooga, Tenn., warehouse, where it has dedicated some of its docks
to returns and automated the movement and sorting of packages in the warehouse.
The upgrade of the Chattanooga facility will be completed by the end of this
quarter, Himes says, and NewRoads will be looking at automating its other warehouses.
“Retailers handling returns only for themselves have a hard time investing in
automation,” Himes says. “We have the volume, so it becomes a productivity issue
for us to invest in automation.”
No matter the approach, however, returns continue to be an important part
of the online shopping experience and probably will be so for some time. “We
are looking for ways to enhance the shopping experience, through bricks and
mortar, catalogs and the Internet,” says Garriss of Aerosoles. “Having a hassle-free
return is important to that.”
