Returns: It’s an Operations and a Customer Issue


Analyze this: In deciding whether to shop direct or retail, 81% of consumers state that “ease of returns” as an important to their decision, according to a survey by Harris Interactive for Newgistics. The numbers are even more telling after a return is made- Harris Interactive found that 95% of customers are likely to shop with an online merchant again if the return process is convenient. What that says to marketers is that even if a customer returns a purchase, the experience can still be a positive one in terms of instilling loyalty.

It’s important for direct marketers to recognize that operations issues such as merchandise returns are, in fact, marketing issues. Smart, customer-oriented marketers like L.L. Bean and Lands’ End already know this and have always tried to make it as easy as possible on the customer if a return has to be made. Lifetime guarantees stating that a customer may return a product at any time, for any reason, go a long way toward making people feel secure about shopping by catalog or on the Web. Of course, at the end of any merchandise return, you, as the merchant, are still left with a piece of product sitting on your receiving dock, so the returns process must also be dealt with as an operational issue. In this article, we’ll take a look at both the front end and back end of the returns process—and what you need to do to ensure a streamlined flow of the product from the customer back into the distribution center.

Depending on how much you want to invest in printing and processing labels, there are a variety of means available for getting returns from the customer back to you. Let’s look at the options:

Pre-printed return labels, where the customer pays the postage, are the basic standard of the direct order industry. The merchant includes the proper instructions and pre-addressed labels to make the returns as easy as possible — even though the customer still must take the package to the post office or expedited carrier and pay for postage. This option costs you the least but puts the greatest burden on the customer. A variation of this method, where the merchant pays the postage, is the most costly option for the merchant and is usually used only by upscale retailers. Marketers such as Brooks Brothers elect to provide the service not only as a convenience to the customer but also as a benefit of shopping its catalog or Web site.

Smart Labels, offered by Newgistics Inc., enables deduction of the return postage fee from the customer’s return merchandise credit; catalog customers simply detach the pre-addressed, bar-coded SmartLabel from their order summary, affix it to their package, and drop it off anywhere in the U.S. Postal Service (USPS) mail stream. SmartLabel’s bar code links the package to the customer’s invoice and provides package visibility to retailers early in the returns process.

Cross-channel returns options enable shoppers who have purchased from one channel to make a return through another. For example, Sears stores now accept Lands’ End catalog returns, and Gap Inc. allows store returns  of online purchases. Retailers with catalog operations presence and a reputation for excellent  customer service, such as Neiman Marcus, Talbots and Cabela’s, typically take back catalog returns at stores. (We will say that store managers may not be too pleased with that policy if the catalog and stores have different assortments.)

Smart Comebacks
Whether a returned item was the wrong size or was defective, you need a set of procedures for handling the product once it arrives back at your warehouse. This is called a reverse logistics strategy, and it accounts for what happens to all returned items from the time a customer decides she doesn’t want a pair of jeans because they are missing a button to the time the pair of jeans is repaired and put back on the shelf for sale. Here are ten steps to implement an efficient reverse logistics strategy:

  1. Create clear, understandable returns forms that are easy for both customers and your staff to use. Post the policies clearly in the FAQs on your Web site.
  2. Design your workstations with efficiency in mind (including allowing room for removal of returned boxes and other trash). Consider the desired flow of product and provide sufficient operating space.
  3. Provide adequate work and staging areas for returns.
  4. Institute a simple three-part transaction: Process the credit refunds or exchanges; update the customer file; and determine the product disposition.
  5. Train your staff on handling returns. Provide a training manual and sufficient time for employees to become comfortable with the process.
  6. Make your company’s written policies and procedures for returns accessible to all personnel at all times.
  7. Use bar codes to identify product so that it can be returned to inventory or otherwise disposed of quickly and efficiently. Less keying means fewer errors.
  8. Define return-to-stock procedures and be sure they are carried out in eight-hour to 24-hour cycles. Make sure enough space is allocated for storage of product to be returned to stock.
  9. Cross-dock returns whenever possible. If the returned item is on backorder, you can ship it to the waiting customer rather than restocking it.
    Designate experienced personnel to make decisions on routing of returned merchandise; assign less experienced (and less costly) personnel to repetitive keying and packaging functions.

Processing returns carries high costs that affect several areas within your organization. Here’s an example of the high price you might incur for processing one return of a $50 item: $8 to $13 for initial order processing and fulfillment, not including the shipping and handling costs, and another $8 to $10 for marketing, IT, merchandising and general/administrative costs. Plus, if your company’s error prompted the return and you have to pay the shipping, add another $4 or more. Back-end costs tack on an additional $3 to $4. If you have to re-ship a new product and bear that cost as well, throw in another $4. And if the transaction is not an exchange, the entire profit margin of $27.50 (at 55% gross margin) is lost along with the processing costs cited above.

Good returns handling practices are important for another reason in addition to the straight cost factor. The high price tag of mishandling returns also carries the danger of a potential loss of customer loyalty. If your return costs are just too high to handle, you may want to consider outsourcing all or parts of the process.

Returns are an unavoidable part of direct marketing. They can cost a bundle in the short term, and if you manage them poorly, they’ll cost even more in customer trust and loyalty over the long run. But by taking control of the process and streamlining it, you can minimize losses and satisfy your customers.

F. Curtis Barry & Company is a fulfillment consulting firm for catalog, e-commerce, and retail businesses. We offer clients expertise in business process and order management systems, inventory management systems, warehouse management systems; warehousing and distribution; call center services; inventory management and forecasting solutions; and strategic, financial, and operational planning for all business channels.