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Many Happy Returns

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Returns would likely rank near the top of any retailer’s “misery index.” This is especially true today as consumers have become increasingly comfortable with e-commerce.

It’s clear why returns hurt so much: Returned merchandise can reduce already tight profit margins, strain back-office systems and resources, and, if that were not enough, items often come back in less-than-pristine condition. Yet as enlightened retailers know, returns are a necessary component of the sales process and the supply chain.

Sierra Trading Post, which sells brand-name overstock and closeout apparel and merchandise, invests significantly in a returns infrastructure to “turn a negative into a positive,” says director of human resources and customer service Bob Koehler.

Moving products in reverse through the supply chain, from the consumer back to the seller — reverse logistics — is vital to retail operations, and, when executed successfully, can offer both tangible and intangible benefits, according to Koehler.

“A lot of companies don’t even want to talk about their returns,” he says. “They don’t want to address it. It’s a negative for them. We said, ‘Let’s take a negative and see how [to] turn that into a positive.’”

Retailers that maintain robust reverse logistics programs seek to reclaim as much of the returned merchandise’s value as possible by moving the product efficiently back through the supply chain for the most advantageous disposal, be it back on store shelves or discounted at closeout. Koehler says the backdrop of the process is customer service, seeking to ensure the shopper will be satisfied and return to the store or website to buy again.

No questions asked
Starting around the mid-2000s, Sierra made the key decision to enhance its reverse-logistics process. “Until that time, we just relied on our customers to figure out how to get packages back to us,” Koehler says. “We left them a preprinted address label on an invoice, and it was up to them to decide if they wanted to send it back parcel post, UPS or FedEx, and they incurred the full cost of that.”

The company came to realize such a haphazard approach wouldn’t cut it with Sierra’s sophisticated customers, many of whom combine knowledge and use of online technology with considerable disposable income.

With a booming business through distribution of some 60 million product catalogs annually, Sierra had what it considered a consumer-friendly, “no questions asked” reverse-logistics process in place since its founding in 1986.

But despite the kudos for attention to customer service, Koehler says Sierra needed to push to a higher level of service as e-commerce created new sales opportunities.

Working with UPS, Sierra created a custom returns program: Sierra provides a UPS Return Service label in every package for a customer to use in case an exchange or return is needed. The customer just has to give the package to a UPS driver or drop the package off at a UPS pick-up point. As part of the process, Sierra provides immediate communication with the customer and a 24-hour turnaround for any credits back to the customer payment account.

“We recognized that we could improve our customer experience and really provide a service to our customers if we were to provide these preprinted return service labels in the package and tell them how to use it,” Koehler says.

What resonated most deeply with Sierra customers was the option to receive an immediate online credit vs. a traditional refund, allowing them to begin shopping again while still on the company’s website. This option helped the company reduce its net return rate, Koehler says.

“We started doing that and we really wowed some people,” he says. “That lends itself to customer retention. And, especially nowadays with social media, it lends itself to positive comments in the social realm. People talk pretty positively about Sierra.”

Coupled with flat-rate pricing from UPS, Sierra’s returns policy even generated “a little bit of margin into the shipping charge,” Koehler says. “It really was the only area of shipping in the company that had a positive margin.”

In judging the success of the policy, Sierra examines returns as a percentage of sales, the rate of returns, the dollar value associated with the return rate and how it affects profit and loss, he says.

Building customer loyalty
David Sisco, UPS director of retail marketing, says a study commissioned by the delivery giant confirms what it already suspected — that a workable returns policy is vital for driving customer loyalty and serves as “that first opportunity to make a sale to a consumer.”

The study of 3,100 online shoppers, conducted by comScore, sought to determine factors that drive online purchasing behavior by evaluating shopping habits and preferences, including ease of checkout, ease of returns and exchanges, free shipping, online tracking and flexible delivery options.

One of the survey’s most illuminating findings: 63 percent of respondents said they reviewed a retailer’s returns policy before they made a purchase. Additionally, 48 percent said a positive returns experience would spur them to shop more often with a retailer and would prompt them to recommend the retailer to a friend.

“When a new consumer comes to a retail site, if the returns policy is difficult to understand or very restrictive, they may not make a purchase at all,” Sisco says. “If they don’t make that first purchase, they may never come back.”

Koehler says that given the competitiveness in today’s marketplace, retailers have no choice but to explore ways to enhance the customer experience, and returns are a key to that.

At Sierra, “We talk all of the time about how we [can] differentiate ourselves from the competition,” he says. “The vendors and companies that don’t perform on the returns side are creating a diminished experience for the customer, and customers aren’t going to stay with a company they aren’t 100 percent satisfied with.”