Retailers are learning that a good returns policy is good for business
By Paul Demery
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.
Indeed, some retailers apologize for their strict returns policies, explaining that the nature of the business simply doesn’t allow them to process many returns, much less pay shipping costs. “We wish we could accept all returns without any questions or limitations, but that is just not possible,” Overstock.com Inc. says. Overstock, which sells excess products from other retailers, notes that other sellers of deep-discount products often follow an “all sales final” approach, but that it will accept returns up to 30 days of its original ship date. Customers pay their own return shipping and Overstock charges a $4.95 handling fee for each returned item except computers and electronics, for which it charges a restocking fee of 15% of the purchase price.
Sales boost
Like Zappos, other retailers that offer free return shipping say it helps sales. At consumer electronics retailer Crutchfield.com, free shipping on returns helps to contain costs as well as increase sales, Dave Dierolf, vice president of information technology, says. By working with United Parcel Services’ pre-printed label program for processing returns, Crutchfield pays a flat fee for shipping. As a result, Crutchfield now can pay shipping on all returned items and still incur fewer expenses than when it paid for only some returns.
In addition to the lower fee per package, Crutchfield benefits from less time spent by customer service reps in handling calls related to returns, and in less time processing returns, Dierolf adds. Because a return label is now generated with each order, workers can scan a returned item’s barcode to identify the order number. “This greatly diminishes the need to search for the order information associated with the return,” Dierolf says. This enables the returns processing employee to confirm more quickly that Crutchfield received back what was originally ordered, expediting the processing of refunds or exchanges, he adds.
Dierolf says the long-standing free-returns policy has helped to increase sales, although the company hasn’t measured the effect recently. “The cost-savings is an added benefit, since in the past we sometimes refunded to customers the return shipping charges anyway,” he says. Crutchfield ships each order with a pre-paid UPS shipping label for returns. It requires customers seeking to return an item to contact Crutchfield for a return authorization number, which they write on the pre-paid shipping label.
Four of the 35 surveyed retailers offer a free pick-up service for online sales — HPShopping, Home Depot, Office Depot Inc. and Staples Inc. HPShopping requires a customer to repack equipment in its original packaging and call a customer service representative to receive a return authorization number and arrange for a carrier service. The customer then writes the authorization number on the package along with the words, “NetReturn Express Tag Pickup.” HP requires customers to first speak with a customer service rep to see if there is a way to work out technical problems with the purchased equipment to avoid a return.
Restocking fees
Home Depot’s online return policy tells customers to complete the UPS return form that appears on the bottom of their receipt, attach it to their package and drop it off at any UPS facility—at no charge. But the retailer adds that a customer not near a UPS facility can call Home Depot on a toll-free telephone number and have the retailer arrange for UPS to pick up the package, again at no charge to the customer.
Although it doesn’t offer a pick-up service, WalMart.com includes a pre-paid U.S. Postal Service return label with every shipment.
Five of the 35 surveyed retailers include a restocking fee in their returns policy. Apple, Best Buy Co. Inc. and Target Corp. apply it to open computer and electronics boxes, Overstock applies it to everything. Several retailers make a point of noting that they don’t charge a restocking fee. Best Buy says the restocking fee discourages customers from ordering an expensive gadget for a one-time use—like a video recorder for a wedding—and then returning it.
More common among the surveyed retailers is the ability they grant customers to return products to a physical store—offered by 16 of the 35.
For the most part, retailers in the survey provide clear instructions on how
to return products. Fourteen explain where to find a return shipping label,
which is usually contained in the original package and which some retailers
also make available online. Most of the surveyed retailers, 21, allow 30 days
to return a product. Four allow 90 days; Zappos alone allows 60, and young adult
apparel retailer Hot Topic Inc. allows 45. LandsEnd.com and LLBean.com set no
limit as part of their lifetime product guarantees.
Retailers’ return periods begin, however, at different times, with some beginning at the time of purchase and others at the original ship date or the date the customer receives the product.
Fewer than half of the 35 surveyed retailers, or 14, instruct customers to get a return authorization before sending a return. Separate surveys conducted by The e-Tailing Group show a decline in the number of e-retailers requiring return authorizations—to 16% last year from 24% in 2001. Primarily computers and consumer electronics retailers require return authorization numbers, although some non-electronics sellers, such as AllPosters.com and Home Shopping Network, require such numbers. Retailers say return authorization numbers help restock returned items more accurately. Circuit City, for one, says it has received no negative feedback from customers concerning the additional step.
Searching for returns
Most retailers surveyed by Internet Retailer also make it easy to find information on their return policies. Although no others highlight this as much as does Zappos, all but one presented return policy details within three clicks of the home page.
While many retailers place a link on their home page specifically for return policy information, several require shoppers to click on a customer service or help link. The site with the most difficult-to-find return policy is AT&T Wireless Services’ ATTWS.com. From its home page, a shopper must click a link in a top horizontal bar for Online Customer Service, then choose Frequently Asked Questions, then from a long list of links, Online Ordering; the shopper can then scroll down to an FAQ about making changes to or canceling an order, which suggests she e-mail Customer Care (no e-mail address is provided) but also provides a toll-free telephone number for Online Orders. Nowhere are there instructions for returning a phone.
Another option on ATTWS.com is to search from the home page for “Return Policy.” But that produces a list of more than 300 results. The top one is a PDF file about Blackberry handheld devices. If the shopper scrolls to page 9 on the PDF, she’ll find a returns policy for Blackberries with an indication that the policy applies to all ATTWS products.
One retailer that does a particularly good job of meeting customer expectations regarding returns, Calvin says, is HotTopic.com, a site that sells apparel and accessories to teens. Hot Topic permits returns up to 45 days from the date of purchase, and it pays shipping on returned merchandise.
Just as important, Calvin says, is that Hot Topic does a comprehensive job of spelling out its policy from a single, noticeable link from its home page. Many young shoppers will hesitate to make a purchase before knowing if and how they can return apparel that doesn’t fit, Calvin says, so Hot Topic explains what can and cannot be returned within each of its product categories.
Keep it simple
In some cases, retailers run the risk of making their return policies too complicated, Calvin adds. While Wal-Mart offers free shipping on returns as well as in-store returns of items bought online, its fine print notes that it won’t accept in-store returns of computer hardware or other large items ordered online. And Target.Direct, one of the top 10 in number of visits and the umbrella web site for Target Corp.’s Target, Marshall Field’s and Mervyn’s, lists several differences in its returns policies for each brand. Products ordered online from Target.com can be returned to a Target store, but products ordered online from Marshall Field’s cannot be returned to a Marshall Field’s store. There is no store returns policy stated for online orders of Mervyn’s products.
The Target.Direct site, which is operated by Amazon, also includes a clarification that Amazon products purchased after linking from Target.Direct can only be returned to Amazon.
Retailers like ToysRUs.com, Target.com and MarshallFields.com, however, can confuse customers with multiple returns polices for products purchased through Amazon.com, Calvin says, citing the results of studies she and other analysts have done. “Consumers don’t have a clue that if they buy from one of these retailers through Amazon.com they can’t return products to a store,” she says.
Shoppers of major retail brands often don’t check out returns policies before purchasing because of their familiarity and trust associated with particular brands, Calvin adds. But this runs the risk that shoppers will be disappointed when it comes time to return a product and they realize that they can return it only to Amazon’s warehouse, which may offer a shorter window to make returns. For example, Amazon offers a 30-day policy instead of the 90 days offered directly by Target when shoppers purchase from Target.com instead of through Amazon.com.
Reverse logistics visibility
In addition to affecting customer relationships, a returns system can make a big difference in retailers’ ability to quickly get returned products back onto the market, experts say. With new systems that provide visibility into the returns process, also known as reverse logistics, retailers can be in a better position to redirect a return to a particular warehouse or store or to fulfill a new online order.
“The typical approach is to send a return back to a warehouse picking area, but if you have visibility and automation built into your returns process, you could send the return directly to shipping for the next order,” says Dave Gealy, logistics system consultant for Forte Industries, a provider of reverse logistics software.
“The returns process in the direct business is very complicated,” adds Ray Greer, CEO of Newgistics Inc. “You have to integrate the physical movement of packages with information related to that package, because you really can’t solve the problem of returns without having both.”
Newgistics has partnered with R.R. Donnelley and USF Processing to produce a SmartLabel program, under which a barcoded, pre-addressed shipping label arrives with an order. To make a return, a shopper attaches the label to the original package and drops it at any U.S. Postal Service location. Within two days, Newgistics will receive the package at one of its distribution centers, where it will scan the SmartLabel and e-mail an alert to the retailer about what’s on the way back. Spiegel Group Inc., J. Crew Group Inc., Neiman Marcus Group Inc. and Aerogroup International Inc.’s Aerosole brand are all using the SmartLabel product.
“The returns process begins at the point where a product is picked, packed and shipped, not at the point where the consumer sends it back,” Greer says.
At Home Shopping Network Inc.’s HSN.com, a return processing software system from Optum Inc. automates many of the decisions faced by warehouse workers in the receiving of returned items. Instead of having an hourly dock worker decide how to process a returned item, the Optum system is set up with a retailer’s pre-set parameters on how to handle different types of products, depending on their value and condition, says John Davies, vice president and co-founder of Optum.
Just like bricks and mortar
When an HSN dock worker checks in a returned item, he keys in its basic product information and return authorization number to an application that sits on the corporate intranet. The application, accessible with a browser on a desktop or handheld computer, flashes instructions on where the product should be forwarded, such as to a distribution center or to a liquidator.
FedEx Corp. is promising to make it as easy to return consumer products to web retailers and catalogers as it is to return goods to physical stores, Bram Johnson, corporate vice president, says. Its new web-based Consolidated Returns service, which FedEx launched this summer, is designed to help direct merchants better manage their returns process and get real-time returns information to support order management and marketing efforts, he adds.
“This makes it much like bringing a return back to a brick-and-mortar retailer,” Johnson says. “A consumer can just take the product, which doesn’t have to be packed, and a return authorization number to a FedEx facility.”
Direct merchants pay a monthly subscription fee to use the Consolidated Returns system, which FedEx maintains on a web server. Retailers issue a return authorization number; shoppers give that number to FedEx when returning a product. The FedEx clerk then keys that number into the Consolidated Returns system on the web, providing real-time visibility to the retailer.
Some retailers will integrate the Consolidated Returns system into their back-end order management and returns management systems, which will enable them to automatically update customer accounts and delivery records. Retailers can also arrange to have automated e-mail alerts to let them know when returns are being processed.
Not all retailers will have to invest in the latest technology, however, to
meet their customers’ needs in returns. But it’s crucial to figure out what’s
expected in a particular market, analysts say. “As long as they’re meeting customers’
expectations,” Calvin says, “retailers can be successful with different types
of returns policies.”
paul@verticalwebmedia.com
Click here for the Guide to Returns Management Systems
