Managing online returns

how do you send your goods back to an Internet company if they don’t fit or won’t work? That’s the question that has exercised almost every home shopper at one time or another; and if it troubles them, it troubles the e-tailers just as much. Pioneers soon realised they risked losing face, and business, if they didn’t get their returns policy right. Far from all of them have grasped this nettle adequately so far; but at least most of them seem now to have recognised the need to do so.
Yet the reality is that returns have always been a feature of retailing — conventional just as much as new-era. Newcomers to the subject may hold up their hands in horror when told that catalogue retailers typically have to contend with a returns rate of 30 per cent or more; yet out in the high street, some product categories don’t lag far behind.The recorded music business routinely expects a return rate of io to 15 per cent, while in the book trade the rate is more like 20 per cent, and for newspapers the typical rate can be up to 40 per cent.
One difference, of course, is that these bulk retail returns are often anticipated by a sale-or-return contract between supplier and seller. Online returns, by contrast, tend to be random, and have to be charged and then credited again. Still, what the Internet has done is point up the fact that returns are not always approached by suppliers with the respect or discipline that they deserve, whether the goods are sold by direct channels or through bricks and mortar stores.
"I don’t think anybody today has fully costed returns.”That’s the uncompromising assessment of Norman Bearcroft, UK head of the new operation called ReTurn, which has been set up jointly by American-based ReTurn Logistics and Britain’s Consignia.
Carol Smith, head of merchandising at fulfilment house Zendor, offers an ironic analysis that sums up both the magnitude of the issue and the dangers of neglecting it. “Returns can be viewed as a ‘supplier’,” she says, “and it is without doubt one of the most costly.”
neir assessment is ecnoed Dy Peter Lusty, chier excutive of systems house Strategix. “Most companies are focused on products going out of the business and not coming back in,” he says. “Some don’t factor returns into their supply chain strategy at all.Today’s reverse supply chains are often not automated, and are charactensed by poorly managed assets that sit in warehouses where losses are accepted or absorbed.”

Headaches
At a seminar on returns last month hosted by Consignia, Micheline Jebb, customer services director for publisher Macmillan, speculated that for many businesses, problems with returns probably accounted for a minority of complaints, but for the majority of the headaches that went with them.”If you had a seamless process you would really eradicate a lot of the aggravation you have with customers,” she felt.
There was general recognition at the seminar that among high street retailers, Marks & Spencer had been a standard-bearer for disciplined returns management, since it costed returns into its margin calculation. Hence its celebrated willingness to accept any of its goods back at any store, providing they were not damaged. But John Bumstead of consultancy Accenture suggested that this company was the exception rather than the rule.
Norman Bearcroft put his finger on one of the problems inherent in returns management. When he went into a typical warehouse, he said, the people there often told him something along the lines of:
“We’ve got 30 people here working on returns today, but that’s not their proper job.They only come here when their picking line is being mended.”
Such companies, he said, usually maintained that they could manage returns “around the margins.”This was plainly nonsense, he believed. “It’s a huge problem. I don’t think anybody has a formula that says, go and cost this.”
So what is the solution? Clearly the big catalogue selling groups have evolved quite mature policies for dealing with returns, and are arguably the bestequipped for them. Reality, for instance, has three automated warehouses dedicated purely to
returns handling, and employs many hundreds of staff in them. No marginal costing here. And it needs them; it handles something above 26 million returns a year for parent GUS. N Brown, a smaller group, handles well over 8 million.
Automation can certainly help. Indeed, consultancy Gartner has suggested in past research that it could cut returns costs by 72 per cent. Another catalogue group, Otto, recently claimed to have revolutionised its returns handling by installing an automated system from Linpac at its 120,000 sq m Peterborough warehousing complex, which handles some 40,000 returns a day (e.Iogistics Magazine, February). It allows stock to be put away dynamically, rather than in unique static locations.
Yet automation on this scale is rare in the wider world of returns, where the volumes may simply not justify it. And in any case, returned product may not be in good enough condition to be put back into stock. A significant proportion of returned items never see the light of day again, or not from the original supplier. There are good reasons for this — or understandable reasons, anyway. Checking and repackaging product may cost far more than its
saleable value. The goods may include end-of-line items that no longer fit into a coherent product portfolio.There may be subtle (or not so subtle) damage, and rectification is seldom cost-effective unless the original value is quite high.
Consequently a great deal of time, effort and money in the reverse logistics chain goes into managing and monitoring the movement of something which ultimately will be scrapped. Suppliers are well aware of the manifest absurdity of this, but are trapped by the logic surrounding it. If they don’t monitor returned stock carefully, they argue that it may be stolen or slip into the “grey” market, and could undermine their hard-won brand values and
steal sales from their new product. So they believe they must control its disposal rigorously.
That’s why ReTurn and Consignia think they’ve hit on a winning formula with their new returns management service. In effect, they bring economies of scale to the returns process by centralising it, and sharing the costs among multiple users. Yet they still aim to offer each user a fully bespoke service. “We wouldn’t pool product from different sources, even if the stock-keeping units were identical, unless there were agreement from everyone concerned,” Norman Bearcroft emphasises.
They also offer trusted accounting procedures, which they maintain can relieve users of some of the intensive accounting they have to apply when they manage returns within their own organisations.
Outsourcing returns is very much a new concept in Britain, but over in the United States it has become big business. According to one estimate, ioo million packages are returned to retailers every year, and the cost runs to something like $150 billion. And remarkably, more than 8o per cent of this work is now believed to be outsourced. Among specialists in the field, ReTurn Logistics is a pioneer, having been launched in the 1980s, but it competes increasingly with other conventional logistics companies offering returns management as part of their service.
Latterly, the Internet revolution has also spawned various new US contenders such as Return Buy, which claims to have been the first company to create a “returned merchandise marketplace” on the Internet. It also manages the physical handling and movement of the returned product.

Parallels
Over in the UK, there are some parallels in the India Foxtrot service set up jointly by online auction specialist eBay and iForce, the fulfilment and logistics group — although so far this has focused on pooling and auctioning individual “lost and found” items or recovered stolen products, rather than on bulk business returns.
Most of these measures, of course, are directed at managing returns at their existing levels. Arguably a better approach is to minimise the volume of goods that are returned in the first place. Here there are more obvious differences between high street and online experience. High street retailers face the perennial tension between overstocking and running out of product, and often rely on a mix of advanced demand planning systems and intuitive “feel” for their marketplace.
There are more subtle aspects, too. As Macmillan’s Micheline Jebb points out: “To some extent booksellers have to over-order, as large displays of stock mean more sales. It is psychological — piles of stock attract customers’ attention.” Norman Bearcroft of ReTurn Logistics agrees. “In a way it’s a question of marketing strategy.”
Internet retailers sometimes have to return bulk stocks to suppliers too, but they themselves can face enormous pressure from returns initiated by end users. So can these volumes be contained?
Carol Smith of Zendor says sound policies can genuinely reduce returns, and adds that often the best
form of defence is a good Web site with clear product descriptions that leave no room for misunderstanding or disputes when the goods arrive.
However, even these measures can’t stop all returns. She points out that the majority of returns handled by her company are generated by customers who place multiple orders, especially for clothes. “They will act out in their homes what they do in the changing rooms of stores,” she says. Typically Zendor expects one in three clothing items to be returned.
It may be difficult or impossible in these circumstances to prevent returns without undermining the whole retail proposition; and in this case, Carol Smith says the best policy is to be prepared. “Anticipate returns with the use of accurate forecasting systems, plan the costs of them into budgets for staffing needs in the warehouse, and only refurbish product that will be put back into prime stock.”
Although e-tailers may suffer a higher level of returns than retailers, one benefit of dealing directly with end users is that they can more easily discover the reasons for the each return.A verdict of”no demand” from a retailer is a poor predictor for future sales, whereas judicious capture of customer data can be very valuable:
a kind of one-to-one marketing in reverse. In its very useful Best Practice Guide to Reverse
Logistics, systems house LIS cites a comment from John Fontanella of AMR Research that perfectly crystallises the benefit of analysing the reasons for returns. “The returned-goods aisle of a warehouse is a window to mistakes in engineering, sales, manufacturing, and distribution,” he says.
The danger is that such evidence will all too often be ignored, or won’t be collated to build up a bigger picture. As Dave O’Connor, a director at software house Yantra, points out: “Often organisations are struggling with the fact that disparate legacy systems across their internal infrastructure do not easily integrate to reveal the right information.”A familiar story.
The wider social question of whether a high returns rate should be tolerated at all is one that will no doubt run and run. Organisations such as REVLOG (the European Working Group on Reverse Logistics) would prefer to see returns curbed as part of a broader drive to promote a sounder policy on the use of natural resources.
Yet against that, you have to set the the European Commission’s Distance Selling Directive, which includes the stipulation that anyone buying over the Internet or other direct sales channels should be able to change their mind about the purchase for seven working days after the goods are received. In other words, we may want an ecologically sound society, but still demand the right to return goods we don’t want.
In practice, while returned product with a relatively low intrinsic value (CDs, for instance, or paperback books) may be scrapped or pulped, even here the resultant waste will probably be recycled; and one way or another, more saleable items often find their way into the secondhand market.
So the real issue remains one of anticipating, managing and monitoring the processing of returns as cost-effectively as possible. The good news is that there are probably more developments in the wind now to help do this than at any time in recent years.

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