December 26, 2000, 9:55 AM

Pile Up

(Page 2 of 3)

A quarterly survey of 50 top retail Web sites by the E-tailing Group, a Chicago-based consulting firm, turned up similar findings. Only 10% of the merchants provided returns information on the shipping label, something most catalogers do. And most required customers to pay return shipping charges themselves.

Bright spots, black marks

But other Internet merchants have adopted friendlier policies, according to Extraprise. “Companies able to look beyond the transaction, and focus on service and building long-term relationships, are likely to thrive in the next phase of e-commerce,” says Hybels. Nordstrom earned high marks for waiving the costs of return shipping if customers bought the item using its credit card, as did L.L. Bean. J. Crew won praise for its policy that customers who ship returns from their home must pay a processing charge, while those who bring returns to one of its stores incur no such costs, giving shoppers another reason to visit the stores and perhaps buy something else.

Others in the survey were singled out for less than customer-friendly returns policies. Sears and Wal-Mart were criticized for requiring their Web site customers to call a local store to determine whether it carries a particular product before it can be returned there. And Best Buy was chided for applying different return policies for goods purchased through different channels. Goods purchased online, for instance, can’t be returned to a Best Buy store.

Return policies are the most visible part of reverse logistics to the consumer. But once returned goods have left the consumer’s doorstep, they’ve only just begun a long journey. Say a consumer has decided to return a toaster purchased online. First, she must get authorization to return the toaster-ideally from the Web site and without having to contact a call center. Then the toaster must be handed off to a shipper. Back at the retailer’s processing point, staffers evaluate the toaster and sort it into one of several channels of disposition. That may mean sending it back to the supplier, depending on its agreement with the retailer. It may mean restocking the item, if it’s in perfect condition, or sending it on to secondary markets if the in-store option isn’t available.

State of denial?

Not surprisingly, return logistics tend to be stickier for online retailers than for catalogers or physical stores. In their relatively short lives, many Web merchants have concentrated so much on outward-bound fulfillment and acquiring customers that few have spent equal time on the reverse flow or on keeping their customers. “Retailers in denial over their returns problem need to wake up,” McCullough says. “One out of every 10 products sold will be returned.”

Industry sources say longtime brick-and-mortar retailers have learned that doing a good job on the backend means that returns don’t have to siphon off profits. Rogers offers a dramatic example from a physical retailer he won’t identify, other than to say it’s one of the country’s top five. The company’s decision to put more effort into reverse logistics in the mid-1990s produced near-immediate results. “The first year they really started managing their asset recovery, it accounted for 25% of their bottom line profit,” he says. “So this can be a profit drain or a profit center, depending on how it’s handled.”

In another example, Genco has been processing holiday returns for a top e-retailer since January. The merchant recently added several new product lines and planned to discard any returned merchandise. But Genco went to work on more attractive options. Though results won’t be final until this summer, Genco aims to recoup up to 110% of the value of on any returns negotiated with the supplier. In a twist, the extra 10% comes from handling fees assessed to none other than the supplier.

Even when suppliers won’t take back merchandise, retailers still can recover 20 to 80% of the value, depending on the condition of the goods and how they’re resold, says Don Ziegler, director of e-commerce business development at Genco. In fact, when goods can’t be returned to the supplier or to inventory, there’s a growing secondary market, ranging from outlet stores that stock their shelves with returns, to dollar stores and aggregators that buy returns in bulk to sell here or abroad.

Some secondary market solutions are new and Web-enabled, and a few old-timers are getting renewed attention. Most take a detour around the landfill. Rogers and others say a surprising number of merchants don’t evaluate returns for restocking or resale by others. They simply toss otherwise salvageable goods, fearing the costs of handling returns. Yet if properly handled, returns processing can be a better solution than sending goods to landfills at prices of $1,500 to $3,000 per dumpster.

“There are lots of outlets for recovered goods, and there didn’t used to be,” says Rogers. “For online retailers, it’s probably worth dealing with companies that know this area. There are third-parties who for a commission will broker the goods for you in the secondary market.”

Task masters

Other retailers are learning to bundle their logistics. To handle returns from the customer’s door to the final destination, retailers often use several vendors to sort, refurbish, reshelf and mark goods for liquidation.

A model like Return Exchange’s, currently in beta testing with about 10 customers, makes return logistics simpler for online retailers by combing multiple functions. The company even developed software to authorize customer returns online, by building a database for returns history to reward good customers with prompt authorization or delay credit for suspicious returns. The complexity of the task is leading to specialization.

Many fulfillment contractors will handle returns as part of the logistics continuum, but some consultants contend that a single distribution center can’t adequately support goods flowing in both directions. Some firms are developing dedicated facilities that separate the two. Genco, which already has fulfillment warehouse and distributions centers throughout the country, expects to complete its two returns-only e-commerce centers this year, with as many as six other regional centers to follow.

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