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The Honolulu Advertiser

Posted on: Monday, February 18, 2002

Returns add to shippers' business

By Marina Mello
Bloomberg News service

ATLANTA — Kirsten Ahrens is happy when that $162 Brazilian amethyst ring you bought on the QVC shopping network doesn't look as pretty as it did on television when it shows up on your doorstep.

Ahrens, who manages a Mail Boxes Etc. store in Atlanta, says about 40 percent of her business comes from customers returning purchases that didn't meet their expectations.

She's glad that companies such as United Parcel Service Inc. and FedEx Corp. make it easy for shoppers to return unwanted L.L. Bean boots and Victoria's Secret bras.

Customers spend $7 to $20 from their own pockets to send back Web, catalog and TV purchases using UPS, FedEx and other shippers because they're fast and guarantee delivery, she said.

"By the time a customer has ordered something online and then returned it, they've spent as much on shipping as they have on the actual product," Ahrens said. Most merchants don't pay for returns.

UPS, which owns Mail Boxes Etc., said its volume of returned merchandise rose 20 percent last year. FedEx said it had "dramatic growth" in returns.

Internet purchases by consumers and businesses rose to $47.6 billion in 2001, a 12 percent increase from 2000, according to Forrester Online Retail Index. Since 1996, sales through catalogs soared 71 percent to $120 billion, while television direct sales rose 61 percent to $126.5 billion, according to the Direct Marketing Association.

The goods are mostly sent through package-delivery companies. If they don't live up to expectations, there's often no "bricks and mortar" store nearby to return them to, so the package ends up being shipped back.

While declining to provide actual numbers, package-delivery companies said returns have become a "significant" part of their business, though nowhere as much as regular deliveries.

Atlanta-based UPS handles "tens of millions" of returned packages a year, said Gary Mastro, vice president of brand and product marketing at the largest package-delivery company.

Based on industry numbers, about 2 percent of total package- delivery volume is returns, he said.

"Year over year, we have seen continual double-digit growth in returns," said Jeff Maddock, FedEx manager of reverse logistics, which oversees returns. "I feel like we are only scratching the surface."

Despite the growth in online shopping, returns remain a "sliver" of UPS and FedEx's revenue, said Salomon Smith Barney analyst Scott Flower, who doesn't own shares in either company.

"Business-to-business delivery is 80 percent of what they do," he said.

Returns are probably more significant to UPS because it has more electronic-commerce customers, said US Bancorp Piper Jaffray analyst Stephen Jacobs, who doesn't own shares in UPS or FedEx.

"Returns are more consumer-driven," he said.

Package-delivery companies recently added a number of services they offers shippers, seeking to increase this business.

The latest offering from UPS is an "electronic return label," which costs the merchant 75 cents a package. Customers then get an e-mail and can click on a link to get a return label, print it out and send the package back to the merchant using UPS.

Memphis, Tennessee-based FedEx has a similar service called NetReturns.

Other options for businesses include sending batches of return labels for merchants to place inside the packages they send to customers or can mail on request, as well as software that lets those customers access their own labels.

The options evolved from the UPS "call tag" service of the 1940s, which let people have their furs picked up and returned to department stores for summer storage. Now they help shippers avoid the time and expense of making and distributing their own labels.

UPS return services are used by companies such as Sam Meyers Formal Wear Inc. for returning tuxedos and Amazon.com Inc., the largest Internet retailer. Amazon.com and UBid, an online auction site owned by CMGI Inc., use UPS's Returns On The Web, which includes the e-mail label and helps them manage inventory.

UBid pays shipping costs for all its returns.

"We treat our customers the same as if they were buying from a bricks and mortar store," said Rick Kautz, general manager of UBid.

The services let businesses reduce staffing costs, use less paper and keep better track of inventory, UPS's Mastro said. The options don't require as many people to answer phones, he said.

"With our services, a business can ensure a product is returned to the right warehouse the first time and gets back into a company's inventory quicker," FedEx's Maddock said.

A good return service can give a competitive edge to a business and prove a deciding factor in which package-delivery company a merchant uses, the companies said.

"Returns are part of business today and if we can create a good experience on the Web for our customers' customers, then they will continue to buy from them," Mastro said.

Maddock added, "A good return service really can be a strategic weapon for a business today."