September 1, 2005, 12:00 AM

Online retailers learn to live with that persistent problem of returns

Retailers learn to live with a necessary evil

Just the same as dealing with unsatisfied customers and counting inventory, handling returns is part of the daily business of web retailing. Based on the latest results of an Internet Retailer survey, web merchants are getting better at expediting returns and making it easier for customers to send back merchandise for a refund or exchange. For instance, nearly 75% of all retail companies with bricks and mortar locations taking part in the survey believe that letting customers return items and conduct an exchange at a store near them is a critical component of a well-rounded returns program.

But the survey also shows that processing returns can be expensive and involves multiple parts of a typical retailer`s organization. When the cost of return postage, a customer service contact and the time a warehouse employee spends unpacking a parcel and returning the merchandise to stock, the average web retailer spends between $6 and $10 for each return.

Speedy returns

On the whole, the 286 respondents taking part in Internet Retailer`s latest industry survey report that returns as a percent of the products they sell online is relatively low. The survey was e-mailed in early August to all subscribers of IRNewsLink, the magazine`s e-mail newsletter, and responses were collected and analyzed using web survey technology by Web Surveyor, which has partnered with Internet Retailer in a series of monthly surveys of the e-retailing industry. The results show that customers are clearly becoming more comfortable and adept at shopping online, which is reducing the number of returns to retailers. Half of survey respondents--50.7%--indicate that less than 2% of the products they sell online are returned, compared to 29.8% with a return rate of 3% to 5% and 9.2% with a merchandise return rate between 6% and 10%.

The survey also reveals that returns come back relatively fast. Of chain retailers, catalog companies, consumer brand manufacturers, web-only merchants and others taking part in the survey, 52% say returns take on average two to four weeks from the time merchandise is shipped until the time the package is received back at the warehouse or distribution center. That compares with 37% seeing a return package in an average of less than two weeks and 10.3% of web retailers who say the process takes an average of one month to eight weeks.

Processing returns is handled by most retailers as a part of their customer service program. For instance, 78.4% of web merchants taking part in the survey have self-service tools on their e-commerce sites that allow customers to check the status of a return or refund. The programs, which are often integrated with the tracking databases of their shipping companies, are also becoming more popular with Internet shoppers. The survey reveals that of the retail companies offering a returns tracking program, 33% to 43% of customers use the service.

Reducing calls

With more customers using it, the self-service tool is reducing the number of calls to customer service centers. When retailers were asked if an online return checking feature reduced calls to the customer service center about returns and refund status, 8.5% reported that call volume was reduced by more than 50%, 15.3% said it was reduced by 30% to 50%, 15.3% said from 10% to 30%, and 33.9% less than 10%. An additional 27% said a self-service returns tracking tool had no measurable effect on corresponding call center volume.

Expediting a return promptly and efficiently will help retailers keep their customers satisfied and generate a greater opportunity for repeat business. Good customer service is the reason 89.3% of the retailers surveyed include prepaid return labels with each online order, while 71.5% allow web shoppers to return purchases made online to a store.

But even with better automation and customer service procedures, processing returns is expensive and remains an ongoing cost center for web retailers of all sizes. A typical return starts with a customer making a call or sending an e-mail to a customer service center where the service representative must call up the shopper`s information, authorize the return, refund or exchange or explain the retailer`s free shipping with prepaid return label program. In fact, 52% require customers to obtain authorization from the retailer before returning an item.

Typical cost of $6 to $10

Once the merchandise has been returned to the retailer by a shipping company or through regular mail, a warehouse employee has to unload the package, open the parcel, check for damages and then return the merchandise to stock or earmark it for discount and liquidation. Because processing a return does include multiple parts of a retailer`s organization, the majority of web retailers say the expense is significant. 43.7% of the survey respondents said a typical return costs them $6 to $10 to process, while others reported significantly higher costs. 20.4% of those companies surveyed say it costs between $11 and $15 to process a return while 12% report that their typical expense is $16 and higher. Only 23.7% of companies report that they can process a return for under $5.

Interestingly, catalogers, who should have an advantage over chains in that they have processed remote-shopping returns longer than chains have, don`t have significantly lower returns costs. Among chain retailers, 34.6% report their average expense for a single return is $6 to $10, while 30.8% say the typical cost is $11 to $15. Among catalogers, the per-return cost for 34.3% of companies is $6 to $10, with 31.4% reporting $11 to $15. Of web-only merchants, 45.4% say it costs $6 to $10 to process a return.

For many retailers, especially web merchants in the apparel and consumer electronics space, dealing with returned merchandise means they can`t just put the item immediately back into inventory. Because clothing, accessories and consumer electronics are seasonal or current inventory is reserved for new products and models, they deal with returned merchandise by discounting the merchandise or liquidating it altogether. Some web retailers still prefer to use their own online private label auction, catalog or their regular, factory and discount stores to take care of returned merchandise.

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