Happy Returns

How to deal with rejected Web purchases

Selling over the web is tough enough, and then comes the hard part: getting shoppers to keep the merchandise they have bought. The fact is, an unusually high number of e-shoppers return their purchases. Why? Sometimes, products don't look like their nonvirtual selves on a Web page, so online shoppers hedge their bets by deliberately overbuying. Sometimes, orders don't arrive in time, especially around the holidays. The result: Returns on Web sales run as high as 40%--compared to an average 8% for catalogs and even less for traditional stores.

Returns are a pain for any retailer. They suck up employee time and warehouse space and generate no profits. While this avalanche of rejected merchandise from Web sales can strain a big company with an internal logistics unit, it can bury a small one. That's why Janice Parker, president of Sincerely Yours, a Lewisville (Tex.) home-decor business, gave up handling the returns herself. After less than a year online, Parker turned the job over to Newgistics Inc., an Austin (Tex.) company that specializes in "reverse logistics."

Now, from the moment a Sincerely Yours customer decides to send back an item of merchandise, Newgistics takes over the matter, leaving Parker's 22-person staff to focus on outbound sales and shipments. "The customer is happy. We're happy," says Parker, who reports about 8% of her sales come back. "It's a great solution."

In fact, it's a solution that is already being used by so many small businesses that software companies and consultants are flocking into the reverse-logistics business. Basically, these companies operate in one of three ways. Full-service outfits such as Newgistics handle every aspect of the process, typically for $1 to $1.50 per return. If you don't want to outsource the whole thing, niche firms can take over pieces of it, such as transportation or liquidation. Or you can do what big companies do: Get someone to help you design and manage a returns program in-house. All three have merit.

CATALOG MISTAKES. The full-service option is gaining, even among companies that once tried to handle returns in-house. Take eZiba.com, a North Adams (Mass.) vendor of decor and gift items that signed up with ClientLogic in Nashville. Every package eZiba.com ships includes return labels addressed to a ClientLogic warehouse in Delaware. When a return arrives, ClientLogic decides whether the item is suitable for resale or should be liquidated. It also looks for patterns headquarters should know about. Earlier this year, a certain vase kept showing up. It turned out that the artwork on the Web site depicted its size and color incorrectly, so disappointed consumers sent them back. eZiba made the fix.

For all their convenience, a full-service company may not be your best choice. Before signing up, audit your returns process carefully. If you're small, you may need help only in certain areas, says Kevin Noonan, an analyst at Yankee Group. ReturnBuy Inc. in Ashburn, Va., focuses on finding profitable ways to dispose of merchandise that can't be resold by the original vendor. The company prides itself on using online auctions. CEO Lawrence Snapp calls it "intelligent merchandising"--studying the habits of auction site shoppers and putting that knowledge to work. "Anyone can sell something on eBay. But it's our core competency," says Snapp. "We look at over 50 variables to determine how and when to do it." Digital cameras, for instance, sell best at the lunch hour, when affluent shoppers use high-speed connections in the office.

SHOULD YOU OUTSOURCE? Some companies, such as Red Envelope Inc., a San Francisco-based online retailer of specialty gifts wouldn't think of not doing the job themselves. Its returns often come from gift recipients rather than buyers. "We wouldn't want to risk that contact with a potential new customer to a third party," says CEO Martin McClanan. So Red Envelope, with 80 full-time employees and about $30 million in revenues, staffs a central warehouse in Wilmington, Ohio, with 20 to 30 people. McClanan concedes it's expensive, but he only wants people committed to the "Red Envelope way" dealing with these potential customers. Outsiders, he thinks, shouldn't be offering discounts or making other special arrangements.

How do you know if you need help with returns? Experts say it doesn't turn on the size of your company but rather the volume of your shipping. A company doing 50 orders a week shouldn't bother paying someone else for help with logistics, reverse or otherwise. If you're up to more than 1,000 orders a week, outsourcing offers potential rewards, says Darren Bien, an analyst for Jupiter Media Metrix, an Internet consulting firm in New York. Whatever you choose to do, handling returns efficiently doesn't just make your customers happy, he says. It can cut your losses on what's inevitably a fact of e-tailing life. "It's a way to improve your profitability," says Bien. That's something few e-commerce companies will want to send back.

By Ellen Neuborne

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