Solving Online Returns: More Automation Would Cut Costs

While product returns are set to cost Internet retailers an estimated US$3.2 billion in 2001, online merchants could "drastically" slash the figure by implementing automated Web-based return systems, according to a report released Wednesday by Gartner.

The research group said e-tailers can save up to 73 percent of the return processing costs, in part by reducing the number of returns, if they allow customers to access detailed merchandise information online, as well as generate return data and a returned merchandise authorization (RMA) if needed.

Despite the cost-cutting potential, fewer than one-third of e-tailers currently have their inventory databases integrated with their Web sites' systems for processing outgoing orders, much less for handling returns.

The most problematic effect of these unconnected systems has been a spike in the number of orders that are not filled to a customer's satisfaction.

Corrosive Effect

Gartner concluded that the costs of processing returns will increase in tandem with Internet sales growth.

"Returns are expensive," said Gartner research director Geri Spieler. "They tax resources and lower profit margins."

According to Spieler, without a well-structured return system that has been automated for maximum efficiency, returns can erode 100 percent of the profit margin on the cost of goods sold.

In related news, a Jupiter Media Metrix study released Thursday emphasized the need to collect detailed data explaining why online customers were returning their purchases.

Self-Service

Gartner outlined a number of ways online merchants can decrease return costs, such as those arising from expensive call center calls, order look-ups, data entry, return authorization, and second- and third-stage shipping.

As a first step, the report said that online self-service will help e-tailers reduce returns by providing customers product warranty specifics, answers to frequently asked questions, and Web chat support, thereby allowing users to resolve questions and problems prior to completing a transaction.

Template Tasks

Internet vendors should create an online return order template that includes a customer's complete order history, said the study. Rather than having shoppers phone a live call center and manually fill out a return form, the template enables shoppers to send and receive electronic communications and customized return labels.

The return template also should include a list of return codes, as well as information that must be linked to product warranty data and company business rules, said Gartner.

If necessary, an RMA can then be generated, in addition to a customized address label and bar code that contains all the data needed to manage the entire process once the returned box is received and scanned.

In addition, Gartner advised online merchants to partner with a shipping company to create shipping labels containing all customer information regarding the return. These labels would greatly reduce resending costs -- particularly if the merchandise is being sent in for liquidation or repair.