Start-Up Promises E-Tailers Many Happy Returns

As they are busy pushing product out the door, Internet retailers should remember that nearly one out of 10 items finds its way back. That’s where The Return Exchange hopes to step into the picture with a service that promises to make handling returns easier.

Set to launch Monday, the Santa Ana, CA-based start-up offers to take possession of returned products and verify their authenticity. The company will house and refurbish the products, and then finally liquidate items directly to consumers in online auctions from which it splits revenue with the retailer.

“It’s a real young market and a new issue for online retailers,” said Vincent Bianco, president of The Return Exchange. “They haven’t had the time to really study how to manage the returns process because they’re too busy growing and ramping up revenues and dealing with customer service issues.”

The solution offered to retailers consists of three components:

• Verify – the return authorization and verification system.

• Restore – a reverse-logistics operation.

• Final Call – where consumers bid for returns posted on The Return Exchange’s service and other online auction sites.

For clients who sign up with the company, the return address on the retailer’s site is The Return Exchange’s. Depending on the condition of the returned item, the company may either send it back to the retailer for resale or to the manufacturer if there’s a defect. In both situations, the e-tailer cuts the check or credits the consumer’s account or payment card.

A third option is to auction the returned product on The Return Exchange’s FinalCallAuction site or other services, including, Yahoo, and Here, The Return Exchange is the basic registered seller and sets the reserve price on the item.

“We use whatever means necessary through online auctions, including our own, to receive the highest price possible for the returned merchandise,” said Bianco.

The Return Exchange prefers to sell the entire service package to retailers – a key point of difference from companies such as Fingerhut and that handle returns, but focus more on fulfillment.

Each of the three Return Exchange services is priced based on transaction, though auctions will be the real revenue generator. Verify 1, based on volume and product costs, can go up to 40 cents per transaction. Restore depends on the sheer bulk of returns and can vary from pennies to dollars. And Final Call is a risk-for-rewards deal, where the auction proceeds are split with the retailer.

For most online start-ups, inbound logistics has not been a primary concern. David Cooperstein, director of consumer e-commerce at Cambridge, MA-based Forrester Research, said that handling a return or exchange right, especially if it’s a present, instills loyalty on par with customer service in the pre-sales mode.

“Unless [an e-tailer’s] current fulfillment efforts include returns, they’ll need firms like The Return Exchange to ensure the return process runs smoothly,” he added. “No one wants a process that involves returning cash to the consumer to be inadequate.”

Returns can be difficult for offline retailers as well. Store chains and catalogers usually assess the returned merchandise’s condition and either push it back into inventory, send it to an outlet store, donate it or mark it out-of-stock for eventual destruction.

In the online world, returned products are known to sit in the company’s executive offices because there was no contingency plan, or they go back to the fulfillment house to gather dust. If the e-tailer planned for this eventuality, products in pristine condition are returned to inventory for resale.

The smarter companies can offload non-damaged returns at surplus inventory liquidators, though in bulk and not item by item as The Return Exchange promises to do.

Players including, VerticalNet, and run online marketplaces for surplus retail inventory, auctioning excess merchandise to the highest bidder. Offline, Boston-based Gordon Brothers Group is one of the leading liquidators, and next month will launch online through its arm.

The growing trend of online auctions perhaps is a boon to direct marketers looking for ways to handle returns. While the return rate for bricks-and-mortar stores is around 5 percent, online and catalog returns are double that.

A study of 9,800 online buyers this holiday season estimated returns of 10 percent to 12 percent. Of the roughly 50 million orders placed in November and December, 5 million to 6 million will be returned. And based on historic data, 25 percent of returns will be apparel, followed by computer software at 20 percent and books at

15 percent.

In the case of apparel, for instance, consumers sometimes buy two sizes, keep the one that fits and return the other, said Mark Hilinski vice president of marketing and sales at The Return Exchange.

“So the point is, yes, there is a distinct need to have a firm handle returns when the reverse thrusters get turned on for e-commerce firms in January and throughout the year,” said Forrester’s Cooperstein.

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