SPONSORED SUPPLEMENT: Streamlining the e-Returns Process

Guide to E-Commerce Technology

It’s no news any more that returns can represent a big headache to online retailers. Buyers return 20% of all online purchases, and the percentages are particularly high in apparel, where they can reach 35%, according to research from Gartner Inc. “People have become much more comfortable shopping online and returning online,” says Geri Spieler, research director of Gartner G2 Retail Services Group.

The typical return can cost a retailer up to $36, wiping out the profit on a number of sales. But at the same time as retailers are concerned about the cost of a return, they also recognize that returns are one of those things that make a customer more confident about shopping at a site and that confer legitimacy on a site. “A lot of people won’t shop with you if they can’t find your return policy,” Spieler says.

And so the next best thing is to make returns as efficient as possible and to prevent returns from turning the shopping experience into a negative. But that’s been a hard nut to crack. For starters, Spieler says, retailers should try to minimize returns with frequently asked questions pages, troubleshooting tips on electronics web sites, warranty information and even live chat. “You’ll never eliminate returns,” Spieler says. “If you think that if you make it hard to return items, and people won’t return something they don’t like, you’re wrong. They’ll return it. Or they won’t buy from you in the first place.”

Bringer of goodwill

Long before the Internet, leading catalogers such as Lands’ End and L.L. Bean set the standard for returns, realizing that a no-hassle, easy-return policy resulted in goodwill far beyond the cost of processing returns. Yet, it took some time for the many retailers who rushed to the Internet in the late 1990s to learn that lesson. And in fact, many did not realize the value of a liberal returns policy until Amazon.com loosened its return criteria and stopped hiding information on its site about how to return a purchase.

As a result, many retailers today are looking for the returns process that will be efficient for them and a positive experience for the customer. “Returns are the final frontier in integrating and optimizing the supply chain,” says Janet Mitchell, senior vice president of marketing for Newgistics Inc.

Along with R.R. Donnelley and USF Processing, Newgistics has rolled out a returns product that it calls the SmartLabel. SmartLabel is a returns process that includes facilitating the return for the customer, informing the customer once the return has been received, then alerting the retailer that the product is coming back to the retailer’s warehouse and consolidating returns to create quantities that the retailer can deal with efficiently. First users of SmartLabel are The Spiegel Group Inc.’s Eddie Bauer, Newport News and Spiegel catalog operations, J. Crew Group Inc. and Princess House Inc.

Initial results for SmartLabel show that consumers recognize the value of an easy returns process, Mitchell reports. One of Newgistics’ retailer clients conducted a postcard survey of customers who had returned products using the SmartLabel. 83% of respondents said they were very satisfied with the convenience of SmartLabel, 96% said they were very satisfied with the ease of completing the return and 93% said they were very satisfied with the amount of time it took to complete the return. “Part of the value of the SmartLabel is to build consumers’ confidence in that web site,” Mitchell says.

Untapped outsourcing market

Like many services related to web-based retailing, the market for outsourced returns management is largely untapped, Spieler says.Spieler reports that 63% of the top specialty chains and department stores process their own returns.

Retailers who use the SmartLabel program include return labels with the customer’s order. The label contains not only the address for returns but also information in a bar code about the products. The customer returning a product affixes the label to the package and drops it in a U.S. Postal Service mailbox. The packages are delivered to one of seven regional bulk mail centers, where R.R. Donnelley picks up the packages as part of its regular runs to the mail centers and delivers them to a sorting facility where workers scan the label. Based on the scan data, Newgistics reports to the retailer that the item is coming back and at the same time generates an e-mail to the customer informing the customer that the return has arrived and has been processed.

The customer contact is a key step in squeezing costs out of the returns process. One-fourth of customers who return products call the retailer to make sure that the item arrived safely and 11% call more than once. “People want to be assured,” Mitchell says. “Sometimes when they drop something into the blue box it’s a black hole. They want to know that the package has been received and the credit is in process.”

Once enough of a certain type of product has come back, Newgistics creates customized pallets so the products can be returned in bulk rather than trickle in. It then schedules a return to the retailer.

Because the retailer knows the packages that are coming back, it can have its warehouse staffed appropriately at the right times to handle the returns, Mitchell says. The SmartLabel further makes the sorting more efficient once the packages are back in the warehouse as the bar code directs the packages down the right conveyors and to the right bins for re-stocking.

Mitchell says Newgistics plans to develop the SmartLabel process further by offering item disposal for products that the retailer does not want back and by offering forward fulfillment for returned items that the retailer resells. The latter service would be appropriate with products for which the retailer receives a lot of returns and still offers on the web site or in the catalog. Rather than return the item to the retailer, Newgistics would simply store it in its own facility and fulfill new orders at the retailer’s direction.

New revenue source

The retailer pays the cost of the return, then charges the customer for the return postage. Retailers are free to set fees to customers at whatever level they wish. One SmartLabel customer charges $5.95 for all returns; another charges by weight with a range of $6 to $8.50; the third charges $4.95 for one item and $7.50 for two items, Mitchell reports. Thus the SmartLabel is another source of revenue for the retailer. In the postcard survey of consumers who had used the SmartLabel return, 87% said they were satisfied with the value of the SmartLabel, Mitchell says. “Consumers value convenience more than anything and they’re very willing to pay for it,” she says.

Key part of a strategy

Converting the returns process to electronic processing can result in significant savings, Gartner reports. Electronic processing of a custom label with a bar code costs under $2 vs. nearly $12 for manually processing a package with a plain label, Gartner says. Automated acknowledgement of receipt of package and verification that the refund is in process cost less than $1 vs. about $6 for a manual process, it says. As vendors offer electronic processing of returns, retailers who don’t use such services will be at a competitive disadvantage with reduced profit margins and the possibility of losing online customers who are attracted by the convenience of returns at retailers who do offer such a service, Gartner says.

Mitchell says a number of Newgistics’ clients want to use the SmartLabel as a customer acquisition tool, noting that surveys show that 44% of consumers don’t purchase remotely for fear of having to make a return.

The value of the SmartLabel, thus is not just in driving out costs or creating a revenue stream, Mitchell says, but also in the positive shopping experience it creates. “Merchants understand that their policies and services are important differentiators,” she says. “Returns are an integral part of that strategy.”