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E-Tailers Aiming for Many Happy Returns

Sales: With customer loyalty at stake, companies are investing in systems to help make the post-holiday process less painful.

November 23, 2000|GREG JOHNSON | TIMES STAFF WRITER

Last holiday season, online retailers were struggling to ship orders on time. Now they're scrambling to avoid another potentially costly pitfall--product returns that can sap profits and alienate customers.

When the return season begins in earnest Dec. 26, unprepared online retailers risk being buried under a wave of unwanted Palms, ill-fitting sweaters and toys that didn't play well with kids. Forrester Research estimates that online shoppers kicked back $600 million in goods last holiday season.

"This holiday season is going to be very telling for some retailers," said Mark Hilinski, vice president of Irvine-based Return Exchange, a 2-year-old company that hopes to turn a profit by helping online retailers manage returns. "Accepting returns back has never been a profitable proposition."

Yet returns are big business. Washington-based Cass Logistics estimates that U.S. businesses spent $921 billion in 1999--or nearly 10% of the gross national product--to ship goods. Of that total, businesses spent $37 billion to handle returned goods, said Ronald S. Tibben-Lembke, a logistics professor at the University of Nevada at Reno.

For the Record
Los Angeles Times Saturday November 25, 2000 Home Edition Business Part C Page 2 Financial Desk 1 inches; 27 words Type of Material: Correction
FedEx--A story in Thursday's Business section incorrectly characterized the launch of FedEx Corp.'s return system for online retailers. FedEx's NetReturn program has operated since 1997.

"The size, scope and impact of reverse logistics vary by industry," Tibben-Lembke said. "But it is clear that the overall amount of reverse logistics in the economy is large and growing."

One indicator that online companies are starting to pay attention to product returns is the rush of online entities with "return" in their names--Return.com, ReturnExchange.com, ReturnCentral.com and Ireturnit.com, to name a few. Real-world distribution powerhouses, including the U.S. Postal Service, Federal Express and Genco Distribution System, also are unveiling return systems designed for online retailers.

Joint ventures abound. Mail Boxes Etc. is aligned with Return.com, and trucking firm USFreightways Corp. has teamed with R.R. Donnelly Logistics Services, one of the nation's largest commercial mailers. Electron Economy, a Cupertino, Calif.-based company that helps online companies manage their businesses, has teamed with Genco Distribution System, a Pittsburgh-based company that processes $6 billion in returns annually for Sears, Roebuck & Co. and other big retailers.

Some online retailers, including Amazon.com and Buy.com, are investing in sophisticated systems that strive to make returns as painless as online purchases.

Bad Return Systems Eat Into Profits

The best systems are designed to let consumers complete a return without ever having to talk to the online retailer. Using their personal computers, consumers can initiate a return, print out a return mailing label and track the return's progress online. The system also should alert consumers that their accounts have been credited once the process is complete.

But experts say cash-strapped companies that are struggling to build brand awareness and sell goods often lack the funds needed to create such return systems.

Poorly designed return systems chew up potential profits. A rule of thumb in the bricks-and-mortar world is that "every 5% decrease in the cost of handling returns is equal to a 30% increase in sales," said Genco Senior Vice President Pete Rector.

Estimates vary on how many online shipments are being returned. Boston Consulting Group reports that the 6% online return rate during the 1999 holiday season compares favorably with the bricks-and-mortar world. Boston-based AMR Research suggests that about 10% to 15% of Internet shipments are sent back.

Return rates vary depending upon the category. Books and CDs, for example, typically enjoy a relatively low return rate because customers generally know exactly what they want. But, in certain apparel and shoe categories, real-world return rates often soar to as high as 40%.

Online return rates are expected to swell as retail activity grows, more types of products are sold online and retailers greet the growing army of Internet newbies.

What's more, some online retailers may have been lulled into a false sense of security because "early online adopters were willing to put up with glitches," said James Vogtle, e-commerce research director for Boston Consulting Group. "But for any retail system to work in the mass market, it has to be foolproof, bulletproof."

Market research now being conducted confirms that online shoppers are demanding better service. "Last year, shoppers were worried about product availability: 'Do you really have that item in stock and will you get it here on time?' " said Chris Newton, senior analyst with AMR Research. "Now they're checking return policies before they start shopping online. People want to know all the details up front, before they hit the 'buy' button."

There's growing evidence that "dot-coms" with bricks-and-mortar locations will enjoy a leg up over pure online ventures. "It's simpler, in many cases, to return the goods to a physical storefront," Vogtle said.

Online Shoppers Are More Demanding

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