Too Many Happy Returns

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For retailers hoping a surge in holiday sales will make the year-end numbers look attractive, there’s a catch—especially for those who specialize in e-commerce.

As much as a third of all Internet sales gets returned,” according to The Wall Street Journal. “And the tide of goods flowing back to retailers is rising. Shipper United Parcel Service Inc. expects returns to jump 15% this season from last year, making them a significant and growing cost for retailers.” This is especially common now that both shipping and returns are often free.

For this reason, retailers are trying to collect data in order to figure out which returners are chronic—and taking steps either to discourage their business altogether or encourage them to keep more of what they buy. “Retailers are zeroing in on high-frequency returners like Paula Cuneo, a 54-year-old teacher in Ashland, Mass., who recently ordered 10 pairs of corduroy pants in varying sizes and colors on Gap Inc.’s website, only to return seven of them,” the Journal reported. “Companies are also tracking ‘wardrobers,’ shoppers who buy items to wear once and return, as well as people who order clothes just for the fun of trying them on at home, without any intention of actually keeping the items.”

Peter Drucker considered it useful for businesses systematically to analyze “cost points,” or, as he explained in Managing for Results, “the few activities within a cost center that account for the bulk of its costs.” A cost point can be anything from an ingredient to a process to a customer. For example, one company found that of the 10,000 retailers that carried its product, the 2,000 largest retailers accounted for 80% of its sales, while the remaining 8,000 small retailers made up 80% of the cost of supplying the market.

“These small dealers were put on a cash-with-order basis. Salesmen stopped calling on them,” Drucker wrote. “Total sales actually went up as the salesmen, no longer forced to spend one-third of their time calling on unproductive accounts, concentrated their energies and time where the opportunities were.”

But Drucker could also cite a more direct authority on the subject of store returns: a man named Henry Bernheim, also called “Uncle Henry,” with whom Drucker shared an office when he was living in London in the 1930s.

Bernheim had been a successful retailer and had the motto of “satisfaction guaranteed or your money back.” In his memoir, Adventures of a Bystander, Drucker recalled asking Uncle Henry what he would do with a customer who wears a garment, washes it and then brings it back for a refund. “Why, give her the money, of course,” was Bernheim’s reply. “How else can she find out if it’s the right dress for her?”

Drucker then asked about what should be done if the customer were to do it again. “Then she gets nothing,” Bernheim answered. “The first time she does it we put her name on a list and watch out, or else it becomes habit-forming.”