September 30, 2004, 12:00 AM

The Well-Traveled Package

Orders can take many paths to there and back. Retailers need to make the lemon of returns into lemonade.

Historically, retail has swept the returns process under the carpet-few in retail organizations have been eager to own up to returns, much less own the process of returns disposition. Like it or not, however, returns are a fact of life in retail, particularly for direct merchants where consumers can`t touch or try on products before they buy. But some forward-thinking retailers have recognized returns as a strategic opportunity and returns policies as a way to gain competitive edge. At the same time, they`re realizing cost savings–even extra profits–from well-executed returns processes.

There`s a growing recognition the customer experience doesn`t end when an order ships. "The customer experience is king in direct retail," says Jonathan Dampier, vice president of marketing for returns services provider Newgistics Inc. He cites "enormous effort, innovation and ingenuity online retailers put into getting consumers to buy the product. But then it`s as if the customer experience is complete at that point," he says. "For maybe seven out of 10 customers, it is. For the other three, it`s just beginning."

Getting proactive

According to estimates of The Gartner Group, anywhere from 5% to 40% of the goods ordered from direct merchants is returned. On the low end are gifts (hard goods) where the rate of return is estimated at 5-9%, and home decor with an estimated return rate of 5-10%. Shoes and casual apparel fall in the middle range with return rates estimated at 25% and 20%, respectively, while returns on fitted apparel may be anywhere from 20% to 40%.

With numbers like that, smart retailers are becoming proactive about embracing returns rather than consigning them to the status of a backroom function. Take At about 15%, the returns rate at is lower than the category average and comparable to the return rate at a brick-and-mortar store where customers can try on the merchandise before taking it home. And it`s less than originally figured it would be. Keeping the return rate at that low level has been, in part, the result of a number of strategic decisions the brand has made about its returns policy.

For example, bumped its original 30-day window for returns up to an unusually generous 60 days, although the majority of customers who actually make returns continue to do so within two weeks. And it now features that policy more prominently on its site. "We realized it was a great selling point for people to know that, before they have even started shopping," says vice president of marketing Mondy Beller. Though hasn`t tied specific metrics such as customer retention or repurchase to its extended returns window, Beller says its psychological effect on customers-and sales-has been positive.

"Shoes are a little bit riskier to buy online because you want to try them on. We needed to minimize that risk and give customers peace of mind. We want to really give that customer the confidence to buy that shoe," Beller explains.

A developing standard also gives free return shipping, fast becoming an industry standard in online sales of footwear. ships outbound using United Parcel Service because its corporate parent, Brown Shoe Co. Inc., which also owns Famous Footwear and Naturalizer stores and several additional shoe brands, gets discounted rates on its high volume. But`s method of return is the U.S. Postal Service.

"That is so much more convenient for the customers. It`s almost like having the shoe store come to you," Beller says. Customers get a prepaid postage return label with their order. Those with a safe location outside their home can set the package out for the mail carrier to pick up. Others can drop it at the Post Office.

Featuring the returns policy more prominently has paid additional dividends in the form of fewer inquires at the call center about what to do if the shoes don`t fit. That`s significant because tracks all returns by sales source, and the largest return percentage are orders that are placed by phone at the call center. "My guess is that the customer using the call center might be a little more risk averse; a little less used to shopping online," says Beller. "Or perhaps they are trying a new brand they haven`t worn before."

Profitable returns

While handles its own returns and leverages efficiencies of scale through parent Brown Shoe Co., other e-retailers have seen gains by outsourcing the whole process. Newgistics now has about 40 brands among its clients. Dampier says that e-retailers using its SmartLabel service have realized a number of benefits including increased customer retention, decreased call center costs and as much as $1 or more in profits on each retuned package handled by Newgistics.

SmartLabel, a preaddressed bar-coded label that`s delivered along with the online customer`s order, allows shoppers who want to return an item to affix the label to the front of the original package, seal the package and drop it in the mail. While it affords customers the convenience of dropping the return package in the U.S. mail, the SmartLabel system offers something extra: control of the returns process and visibility into it.

The barcode solution

SmartLabel captures individual order data at the point of order. The customer-specific data are coded into the barcode that appears on the SmartLabel return label that is shipped with each outbound package. The barcode also indicates which of the USPS`s 21 bulk mail centers should receive the package, if it`s returned, based on the location of the customer and of the retailer.

Newgistics collects the bar-coded packages daily at bulk mail centers and sends them through one of its five regional "SmartReturns" centers, where it sorts and palletizes them and schedules their delivery to retailers. Throughout, it feeds information to retailers on package status so they can schedule warehouse personnel more efficiently based on their knowledge of what`s scheduled to arrive. Some retailers even have that information plugged into their call centers so agents can keep customers informed on package status.

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