February 28, 2002, 12:00 AM

How low can you go: Returns processors find a new way to unload less-than-perfect returns

(Page 2 of 3)

Button, button

It’s to soon to tell, says Rector, as the Delivery Dog site was only a week old as Internet Retailer went to press, and it remains to be seen how much sub-segmentation the returned goods market will bear. While the theory is that cherry-picking returned goods slated for salvage will capture more on the dollar for retailers, even Rector says he’s not sure of that yet. In a salvage economy where 1,000 items might sell at 20% of cost, picking out 50 that sell at 70% of cost and another 100 that sell for 60% leaves 850 very picked-over items. That’s roughly akin to mining the ore out of a claim and leaving the rubble. “Will we still get the same 20% for those items? Until we do it, we don’t really know, but we’ll find out,” Rector says.

Similarly, eValueville CEO Andrew Waites is betting there’s a consumer market that will pay more for a Tommy Hilfiger shirt that’s missing a few buttons than a liquidator buying by the truckload would, but he doesn’t yet know for sure either. “If someone wants that shirt, we can sew a button on and show it as Quality A, but that’s not what we’re about,” he says. “We’re about driving volumes of merchandise, so we’d rather tell the customer it’s missing a button and to bid accordingly. At the end of the day if that business model makes sense, then there’s plenty of merchandise available. We’re going to see if the customer will accept buying merchandise that’s less than perfect.”

Pointing out the flaws

Whether the one-step-above salvage model works for Returns for Less on eValueville depends in part on how effectively it can communicate damage on the merchandise to consumers. And that’s more problematic for apparel than for other goods such as consumer electronics. If a computer has a specific feature that doesn’t work, for example, that’s easy enough to relay to the consumer online. But apparel involves more subjective judgments. “With apparel, we need a system that picks up and communicates to the consumer what is wrong,” Waites says.

The company has been building the technology infrastructure to do that. And it’s tested a prototype on the regular women’s section of eValueville.com. There, part of the product description includes a quality rating of A through E, representing merchandise that ranges from goods in top condition down to those that are described as being in poor condition and in need of extensive repair or cleaning. Shoppers can click on the quality rating to link to a chart that details what each rating means. The quality rating system at Returns for Less will build on that system.

Return Buy already knows the economics of online direct-to-consumer salvage work, at least, when the distressed merchandise offering is part of a total solution for retailers that also bundles in the online disposition of goods that can be presented as new or like new. The company launched online more than two years ago. Segmenting out and marketing returned and surplus merchandise by condition and quality, including distressed goods under Real Crazy Mo brand, has always been part of the strategy.

“We have a five-star ratings system and we analyze product on five categories,” says senior vice president of marketing Steve Kirchner. “If an item has a five- or four-star rating on functionality, it goes online under one of the other two brands. If it has three stars or less on functionality, it goes to Real Crazy Mo.”

Marketing power

While Kirchner won’t disclose how much more retailers are recovering on their goods by selling online though Real Crazy Mo, he does say the brand has been a successful tool for the company. “Our clients are pleased with the pricing we get on Real Crazy Mo,” Kirchner says. The company recaptures more on the dollar for retailers and manufacturers by cutting steps out of the path to the end consumer who ultimately pays, he says. “We’re directly selling to the consumer,” he says. “If they sell goods to a liquidator, the liquidator won’t necessarily sell to a consumer.” In addition, goods on Real Crazy Mo get the kind of marketing and merchandising support it takes to bring in better prices, a treatment not afforded to distressed goods by liquidators who deal in bulk. For example, its listing templates offer detailed product information and quality rankings to increase shoppers’ confidence about what they are buying and set expectations properly.

“That adds value to the merchandise, so we’re able to get a higher price for it,” Kirchner says. The company also has developed proprietary software, used by all three of its brands, that factors in variables such as depreciation, market competition, and supply and demand curves to forecast the maximum price it believes an item could fetch based on its quality. “If it can’t sell there, the merchandise goes off in a truckload to a bulk liquidator-but that doesn’t happen very often,” he says.

Though selling “as is” returned goods online directly to higher-paying end consumers versus bulk liquidators makes sense in theory, in practice it may be different. Analysts like David Schatsky of Jupiter have collected few stories of retailers who’ve won big using this strategy. That’s partly because retailers tend to be tight-lipped on the subject of returns, period. “It’s one of those topics that suggests operations are going less well than they might be,” he says.

The rest of the reason could be that until now, the uptake on this solution among retailers has been moderate. Though Genco has been handling returns for years, its Delivery Dog is a brand-new effort. ReturnBuy’s client roster spans only about 20 retailers and manufacturers, and eValuville’s, five.

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