Start-ups capitalizing on costly business of returning goods
One of consumers major hang-ups about buying goods on the Web is the hassle involved in returning unwanted stuff to the store like an ill-fitting sweater or a Palm Pilot that doesnt work. To solve the problem, a handful of start-ups and veteran mailing services have created return services geared for electronic retailers.
Returning goods is a huge and costly hassle for Internet retailers, too. Gartner, a research firm in Stamford, Conn., estimates that in 2002, companies that sell merchandise online will take back $11 billion in returns and, as a result, lose $1.8 billion to $2.5 billion on that merchandise. The cost of processing returns was $2.5 billion last year or twice the value of the merchandise itself, according to Geri Spieler, a Gartner research director.
Part of the problem is that at many companies, no one is in charge of the returns process. Thats where companies like Return.com, ReturnBuy.com, ReturnCentral.com, ReturnExchange.com, Returns Online and Ireturnit.com, now known as Newgistics, come into play. Each one has created a specialized way to handle returned merchandise for Web retailers. They also compete with powerhouses like the U.S. Postal Service, Federal Express and United Parcel Service, all of which offer special returns programs tailored to Internet retailers.
Some return firms have struck strong alliances with companies already in the logistics business. For example, U.S. Office Products Mail Boxes Etc. owns a 40 percent stake in Atlanta-based Return.com, a product returns program for online and mail-order shoppers. MBE plans to launch Return.com services through its franchise system nationwide.
Some of the services allow consumers to log on to the original purchasing site, enter pertinent information and handle the return without calling customer service. For the manufacturer, capturing that information electronically allows the return to be processed quickly and at far less expense. Gartner estimates the average cost of processing a return electronically at $4.75 compared with $25 when returns are processed through a call center.
Handling returns easily can even spur some consumers into buying. Forty-two percent of online shoppers polled by Jupiter Media Metrix, a Net research firm in New York, said they would increase online buys, and 46 percent of browsers said they would buy, if returns were easier.
"Its a pretty powerful equation we can solve for retailers," says Clarence J. "Gabe" Gabriel, president and CEO of Newgistics, in Austin, Texas. Last Christmas, Newgistics launched a trial of its ReturnValet service with Lillian Vernon, an Internet and catalog retailer. The company plans to roll out the ReturnValet service nationwide later this year, Gabriel says.
During the trial, Lillian Vernon customers in the Dallas-Fort Worth area who wanted to return merchandise could take the item into any of more than 100 designated neighborhood mail centers for quick credit on purchases and low shipping costs. Newgistics handled all the packaging and provided insurance, up to $100, on all goods. ReturnValet shipped packages from a centralized processing center that ships returns in bulk. The merchandise could be restocked, shipped to a retail outlet, liquidated or disposed of, as specified by Lillian Vernon. During the trial, Newgistics processed 3,000 returns, Gabriel says.
Newgistics, backed by $10 million in first-round funding led by Austin Ventures, also has strong partners behind it with R.R. Donnelley Logistics and USF Processors. Donnelley Logistics manages a nationwide network for pickup and transportation of the returned items from the neighborhood return centers. USF Processors specializes in material handling, product disposition and data management.
Newgistics also faces a slew of competition. ReturnCentral in Pittsburgh offers services specific to reverse logistics. The company has a business-to-consumer product called Virtual Returns Desk that automatically issues return merchandise authorization and prints shipping labels from its Web site. Its ReturnMatrix product accommodates high-volume business-to-business shipments.
ReturnBuy in Ashburn, Va., offers a different twist on returned merchandise for online retailers. The company, which closed a $15 million round of funding led by Draper Fisher Jurvetson ePlanet Ventures a few months ago, uses channels like eBay to auction returned goods to consumers. ReturnBuys online auction channels dramatically increase resale revenue from returns, says Walt Shill, president and CEO of ReturnBuy.
Historically, retailers have recovered only a small portion of the retail price on returned merchandise, but resale of returned goods through eBay, for example, has enabled ReturnBuy to recoup three to five times what might have been gained through traditional liquidation, Shill says.
At a time when many Internet retailers are ditching real-estate space, ReturnBuy last week opened a new 250,000-square-foot processing center in Columbia, S.C.