Online Retailers Get Smart on Returns

Jan. 13, 2005 — -- How long did you stand in line to return an unwanted holiday gift or exchange a defective present?

Going back to a store to return merchandise can be a chore. But consider how much more difficult it is if you shop online or through mail-order catalogs. It could be days or weeks before an online retailer receives a returned item and issues a credit or refund to the consumer.

Such hassles are weighing heavily on the minds of consumers as they look toward the 'Net for their shopping fix.

According to a recent poll conducted by the Harris Interactive group, 85 percent of direct shoppers -- those who shop online and by mail order -- said they would not shop again with a particular retailer if they found the return process was not convenient.

"The return experience is the red-headed stepchild of the direct retail industry," says Jonathan Dampier, vice president of marketing for Newgistics, a "returns management" company in Austin, Texas. "Consumers want it done in an easy fashion, and that's where retailers are falling down."

Merchants are trying to address consumer concerns in several ways. An increasing number of direct retailers are footing the cost of return shipping, for example. But Newgistics wants to make sending merchandise back a real no-brainer.

Bringing on a Better Bar Code

The company has developed a system it calls Intelligent Returns Management to streamline the return process. At the heart of the system is software that produces special bar codes that Newgistics calls SmartLabels.

How it works seems fairly simple. After the software is installed on a retailer's computer network, it produces a SmartLabel for every order that the retailer ships out. Encoded on the label is information about the customer and what items are in the order being shipped. The SmartLabels can be included with each outgoing package or made available online at the retailer's Web site.

When customers need to return an item, they repack the item and place the SmartLabel on the outside. Bar code scanners at the U.S. Postal Service read the SmartLabel as the returning package enters the mail system and pass the encoded information back to Newgistics' computers.

As the package makes its way to the nearest one of five Newgistic processing centers, the company alerts the appropriate retailer that a particular order is being shipped back. Since the retailer's computers know what's in the order, it can instruct Newgistics on how to handle the return.

A return of a popular electronic gadget, for example, might be returned to the retailer's inventory. But if it's a particular piece of clothing, such as a swimsuit or underwear, those items would be directed to the nearest salvage center since by U.S. law they cannot be sold as new to another customer.

Shaving Time and Money

For retailers who use the system, such automated handling of returned merchandise also means much quicker processing times. Alloy, a direct merchant of children's and teenagers' apparel in New York City, claims it now takes a week or less for an item to be returned to its inventory. And that leads to greater operating cost savings.

"The big thing about the direct retail business is you have inventory in float all the time," says Robert Bernard, chief executive officer of Alloy. "There's $20 million worth of merchandise in the mail at any one time being returned to me. If I can get that back in my inventory a week faster, the amount of cash needed to do business drops because not much inventory is tied up."

And by processing returns at a faster rate, Alloy claims it has seen a drop in the number of customer calls asking when they'll see a credit on their accounts.

"Customers are happier because they replace items with what they want faster," says Bernard. "The return issue is resolved quickly and the number of customer service calls drops. Everyone wins."

So far, Newgistics' Dampier says the SmartLabel setup is being used by several well-known retail brand names, including Neiman Marcus and Bergdorf-Goodman. With such partners, the company expects that over 70 million SmartLabels will be generated this year.