Monday, February 01, 2010

Bought on the net and returned at a store - what do retailers do?

Multi-channel retailers (ones with physical stores) are trying to get a leg up on pure web retailers by offering "(web)site to store" options and / or convenient returns at the store for their customers. What are the best practices to deal with products that are returned to the store but are not in the assortment for that store? 

More and more retailers with physical stores are allowing customers to buy on their website and pick up the product at the store, at no extra cost. This is a great strategy both from the retailer and consumer perspective. From the retailer perspective, they can have a sensible, small assortment at the store and let the rarely sold items to be purchased by the consumer using the "(web)site to store" option.  The consumer gets access to a bigger assortment at no extra cost. This could be rarely bought sizes, colors, flavors but also could be rarely bought items like high end running shoe.  In addition the consumer gets to return the product in the store if it is not what the expected.  Here is a good article on this. 

This looks like a great win-win for the retailer and the consumer. One of the rubs in this whole thing is returns. Since the purchases on the web are usually for items that are not in the store, what happens to returns? The retailer can put these returns in a special area in the store and try to sell them. Most probably these products are going to in the store for a long time given that the consumer is not coming into the store looking for the product. So it is pretty unattractive for the retailer to dedicate valuable shelf space for these returns. The retailer can ship it back to the distribution center and then try to pool it there and ship it to other customers who buy the same item from the web. That is an added expense for the retailer eating into profitability.  The third option is to setup a way to ship the returns directly from the store when a retailer orders it. But this leads to a significant inventory management issue (a central system needs to keep track of what inventory is in which store and these systems are usually very error prone), and an order allocation issue. 

What are the best practices that have evolved in this area?  I will edit this in the future to incorporate the feedback I get. 



  1. Hi Karthik,

    Option 1: No returns for the option "web site to store" purchase. For pure online purchase, when the customer is ordering something from the web site and see’s it only when the item arrives (shipped), it falls under "distance selling regulation", pick-up at the store option allows to see an item before delivery, which leads to a very simple policy: (a) the retailer can apply payment for the order only if the customer is satisfied with the purchase (b) the retailer can enforce a "no return" policy for the item which been inspected by the customer before pick-up. This is a very common setup for high value or customised items, for example jewellery and there is nothing new about it (at least in the UK) and we've been setting up scenarios like that for years.

    Option 2: Each physical store is treated as a standard "fulfillment" location with "warehouse" and/or "pick-up" functions, which obviously depend on the store’s capabilities. This means that items can be picked-up only at the stores with a "pick-up" function and return items can be shipped only to the stores which have a "warehouse" function. This is not hard to implement, especially since sales and tracking have already happened at the central location, which is the web site store. Any e-commerce platform with proper ATP (available to promise) and Inventory tracking sub-system should handle it without much difficulty.

    Of course, an exact scenario highly depends on the way the multi-channel retailer is setup in the first place. For example, if the online store has it's own fulfillment center which already processes returns for online purchases, then returns should be shipped to the online store location and physical store which sold an item should not even bother about it, since it is basically acted as a "delivery method" (dispatch location) for the item sold online. In that case, the returned item is simply entered into the online store inventory.

    All in all, there is nothing new about "web to store". Basically, it's just another method of delivery for the online store which has a physical location (or locations), such as a high street shop, warehouse or showroom. What's really great about this option, is the reduction of fraud and returns because the customer's identity can be verified at the store and a signature for the payment slip can be enforced, voiding the "Cardholder not present" issue. As for returns, customer’s can inspect the purchased product before it's delivery, which means that if the customer doesn’t like an item, there will be no return, but simply an order cancellation.

    Andrei Vesselovski
    From Linkedin Answers

  2. From a consumer perspective, a store should accept a return no matter what the channel as long as the person has a receipt. Should be hassel free. Also even if the item is not in the store assortment, information about the item should still be loadedd into the POS system so that when it is scanned it shows up.

    Tom Hockaday
    Retail Industry Experts, Linkedin Groups

  3. I agree with Tom. Additionally a monthly "RTV" back to the warehouse should be done,so the stores do not have the merchandise back stocked - if they will never be selling it at the store.

    Roberta Kraus
    Retail Industry Experts, Linkedin

  4. With exception of one point, I agree the return should be consumer friendly. Shipping back to the central DC (or other designated resourcd) should be done more frequently than monthly. Preferable timeline is weekly but no more than twice monthly.

    Dan Bolger
    Retail Industry Experts, Linkedin

  5. Karthik,

    Hasn't retailors like REI been doing this for year?


  6. Willie:
    Yes, they have been accepting returns at the store for sometime now. I am trying to get best practices for the post return scenario: once the customer returns the product at the store, what should happen to the product for for the best impact to the bottom line.

  7. I basically agree with everyone.
    The store actually has an good opportunity to make or retain a customer, so treat the customer like you would like to be treated by taking back the merchandise, and then either reselling it at retail (improbable, but possible) or returning it to the manufacturer.
    My boss in my first job on the floor in a women's retail store taught me a valuble lesson. I had refused to take back a blouse that the customer was trying to return because she did not like the color. I knew that she was mistaken and had actually bought the blouse from a competitor down the street. My boss overruled me on the spot, and gladly took the blouse back and gave her a store credit. After the customer was out of earshot my boss told me two, now we have a stronger relationship with that customer than we did before.....and two, we buy thousands of dollars worth of blouses per month from vendors, why can't we buy one or two from good customers to make them happy?

  8. Tom & Richard: I agree that taking back a web store bought product at the store makes sense. I even go as far as saying that it gives a significant leg up for the retailers with physical stores when they compete with the pure web retailers.
    Tom and Dan, shipping back to central DC seems to be the easiest solution. But does that make the most financial sense? Does it make sense for the returned products that are not in the store assortment to be marked down (by the cost of shipment to the DC) and sold at a specially designated area? May be an the specially designated area should be in the impulse purchase area right in front of the check out area.

  9. Karthik, Like most things, it depends - the retailer should do what will garner the most profit and incur the least cost. If the item is in perfect condition, why mark it down? Some sophisticated POS systems can determine if the item should be transferred to another store, sent back to the DC or marked down.

    I've never seen this done, but stores are frequently asked to make contributions to one cause or another - perhaps this is the type of item that could be donated to a cause and used to get the full price as a tax deduction - thus everyone wins and the store does not have to spend a lot of time and effort handling the item or explaining why it is the only one, etc...
    From Linkedin

  10. Tom, the reason to mark down a perfect condition part is: you have to sell it to customers who are not looking for it at this store (because it is not the usual assortment) or you have to "special" ship it back to the DC.

    Tom, that was a very creative idea to donate it to a cause that you are going to contribute to anyway. Yes, it depends on the type of business - high value, low shipping cost items might be better of returned to the DC; low value and high shipping cost items might be better of with more creative disposals - "donate to a cause" or "markdown at a store to attract impulse shopper" etc.