January 4, 2006, 12:00 AM

Completing the Circle

How to turn returns into a friend of customer service, sourcing and merchandising.

Its roots as a family clothing business planted nearly a century ago, Children’s Wear Digest Inc. has gone through several changes since Julius W. Klaus kicked things off in 1911, when he co-founded a wholesaling business that sold brands like Buster Brown and Fieldcrest. The Children’s Wear Digest name launched in the 1980s as a Klaus-family-owned retail catalog, and today the company is best known by its web site name, CWDKids.

Apparel styles and brands have changed many times over the years, but one thing that has remained constant is the challenge of delivering through a direct channel apparel that properly fits young customers so they and their parents are happy and CWDKids avoids the chore of processing returns.

A main concern

“Fit is the most important thing, but it’s hard to convey properly through the web or catalog,” says president James Klaus, representing the family’s fourth-generation in the clothing business, noting that CWDKids does about $30 million in sales, 40% of it on the web.

It’s not that CWDKids hasn’t tried. “Returns have always been a main concern, and we’ve tried to nip returns in the bud before shipping to a customer,” Klaus says. “Before sending products to our warehouse, we get vendors to send a size run of each product to our corporate office. We have forms like mannequins for each product size, so we can try on each product and note any discrepancy in sizing. If the size is totally off, we won’t accept them.”

Still, returns have remained a challenge, pushing CWDKids to seek an even more proactive approach toward improving overall customer service.

Now, thanks to web-enabled technology from NewRoads Inc. that integrates its returns system with other applications, including order management and fulfillment, CWDKids is getting more proactive in preventing returns in the first place. By using aggregated information compiled in near real time on why customers return items-because, for instance, boys’ swimsuits are running smaller than expected-CWDKids has taken steps to modify product descriptions to inform shoppers of what to expect, and worked with suppliers to remedy products for the long run.

“Customers don’t want to have to return things, so they appreciate the information,” Klaus says. In some cases, CWDKids has cut by as much as 50% the amount of returns for a particular product category, he adds.

Multiple operations

In addition to cutting back on returns-saving on shipping and liquidation costs as well as making for happier customers-retailers like CWDKids are learning to turn the returns process from an annoyance into a tool for improving multiple operations. As they gather aggregated information on all returns, including customers’ reasons for the returns and related data such as customer demographics and seasonal trends, merchants are realizing some of the key promises of the Internet age from an unlikely source-the often overlooked returns process, experts say.

“Retailers have been getting better at tracking and integrating data from different customer touch points, but the next phase will be what they do with it,” says Patti Freeman Evans, retail industry analyst with Jupiter Research. She notes that retailers are learning to use aggregated customer data on returns in the way that comparison shopping sites use aggregated customer reviews of products. “As retailers get information on returned products in critical mass, it means something,” she says. “That’s the next phase in returns management.”

The trend could go a long way toward alleviating a big obstacle to online shopping, Freeman Evans adds. A recent Jupiter Research report found that 39% of Internet users cited expectations of a complicated returns process as a reason they don’t shop online.

Gathering basic information on returns is not new. Retailers have long tried to get feedback on why customers send things back, and they’ve compiled data on what products experience the highest return rates. But gathering that information has been slow and the data incomplete, as retailers have relied on information entered from return labels into software systems designed to produce batched reports. Moreover, the information typically wasn’t aggregated so that a retailer could view, for instance, how often and why a particular SKU was being returned during a particular selling season, or available in real-time data available to all selling channels.

Feedback to suppliers

“Retailers have always had information on specific returns, and then worked with vendors to change products,” says Hank Reeves, CEO of NewRoads. But by using web services technology that integrates the returns process with multiple applications, retailers can step up their level of dealing with both vendors and customers to better leverage information on returns, he adds.

At CWDKids, where seasonal sales are crucial to its overall selling strategy, the retailer relies on reports of returned merchandise to better plan seasonal merchandise. “We look at things year to year,” Klaus says. “At the end of spring season, we’ll print out a returns report to show why items were returned, then we may change product specs with a vendor for the following year. If a size 6 isn’t fitting as a size 6, our vendors find out quickly that their specs are off. They appreciate the feedback.”

Another key difference in web-based returns management systems, adds David Himes, senior vice president of NewRoads, is that they can be tailored to a retailer’s particular needs for information and customer and vendor interactions. Customer information on returns can be entered directly by customers onto a retailer’s web site, where it’s immediately entered into integrated software applications, or initially entered onto paper returns forms or phoned into a contact center for re-entry into an integrated software system.

A retailer might choose to focus on using returns data to improve the quality of supplies coming from vendors; or it might develop more sophisticated customer relationship management programs; or it might forge a better multi-channel shopping experience by making online order records visible through store POS terminals. “Now returns information can be integrated throughout a retailer’s applications, so a customer gets an instant credit notice of a returned item, for instance, or can return an item purchased online to a store,” Reeves says.

Faster credit

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