Mail Order Returns Business Plan

QuickReturns will provide its retailer partners with physical points of presence at which their customers can return unwanted or defective merchandise. To minimize capital expenditures, operating costs, and scalability time, QuickReturns will utilize a distribution partner model. Its centers will be located inside of stores owned by its distribution partners (e.g., Kinko’s, Staples, Pak Mail) and will utilize their employees as QuickReturns agents. Agents will use stand-alone terminals linked directly into the back-end systems of QuickReturns affiliated retailers to electronically obtain return authorization, inspect and approve merchandise for return, arrange for shipping back to the merchant or manufacturer, and initiate instant refunds to customer credit cards–-all at no charge to consumers. For those customers wishing instead to exchange merchandise they’ve returned, dedicated “QuickExchange” terminals will provide access to each retailer partner’s website, where customers can make new purchases using credits received for their returns.

Retailer partners will pay an annual fee as well as a per-transaction processing fee that is based on the number of return criteria that must be met before the QuickReturns agent approves the return. It is projected that retailers will require more conditions be met for returns of expensive merchandise; thus, the returns processing fees will loosely correlate with the price of the returned merchandise. Finally, retailers will pay a standard 10% commission on new purchases made through QuickExchange terminals.

Retailer partners will benefit by retaining existing customers, 80% of whom claim to increase spending at sites where they receive positive customer care, and by driving new sales from the large segment of consumers that now avoids buying online because of potential return hassles. Moreover, QuickReturns can help retailer partners reduce supply chain costs by as much as 61%, by eliminating call centers, multiple shipping destinations and extraneous processing.

Distribution partners will benefit in three ways. First, they will receive 50% of return processing fees and product exchange commissions. Second, they will retain 100% of revenues resulting from customer purchases of packaging materials and services. Estimated profit margins for distribution partners are projected to be 62% from average per-transaction revenues of $8.32. Finally, QuickReturns will act as a targeted marketing channel, driving an attractive demographic-–wired consumers-–into their stores.

Consumers will benefit from the availability of a fast and convenient return channel that does not require calling ahead or being confined to a single location to coordinate pick-ups that could occur any time during the day. Moreover, consumers will pay no shipping charges when returning merchandise and will enjoy the peace of mind brought from instant refunds. QuickReturns will aggressively develop its brand into a customer service seal of approval that consumers will consider when selecting among retailers.

3.1 Competitive Comparison

A number of companies are beginning to focus on providing returns solutions to e-tailers, but none offers a business model as compelling to consumers or as cost-effective to retailers as the QuickReturns model. Start-ups such as The Return Exchange have built regional warehouses to help e-tailers with reverse logistics management, but such models are not convenient for consumers and add unnecessary steps to the reverse logistics supply chain.

Parcel delivery carriers such as FedEx, UPS, and USPS are developing programs directed at returns. However, their focus remains on the first step of the returns supply chain, pickup requests by customers. This limits the channels through which consumers can return goods, and provides little added value to consumers or retailers.

The most significant brick-and-mortar competitor is Mailboxes, Etc., with its existing 3,300 U.S. locations. Mailboxes, Etc. has announced intentions to pursue online returns, but its strategy lacks many of the compelling features of QuickReturns. Moreover, the company has had trouble with execution, due in part to the difficulty of coordinating independent franchisees and in part by repeated corporate restructuring of its parent company, U.S. Office Products. Launch of the Mailboxes, Etc. returns program is currently six months behind schedule, and a new roll-out date has not yet been determined.

3.2 Service Description

Return procedure
When the customer decides to make a return, he or she will take the product and receipt to a QuickReturns location. The QuickReturns agent will select the retailer from which the product was purchased. The agent will then look up the customer’s order number from his or her receipt or packing slip and enter it into the RPT. The RPT will automatically download the order data from the retailer and display the products purchased in that order. Finally, the clerk will select which product is to be returned, triggering the RPT to display product-specific inspection criteria prepared by the retailer. Each criterion must be met in order for the return to be approved.

Criteria will include rules (e.g., the return is made within 30 days of purchase, the original package is unopened) and attributes that must be considered when inspecting the product (e.g., list of sub-components that should be present, whether merchandise is damaged). Criteria will be set forth by each retailer partner and can be customized by product type (e.g., all DVD players) or by product model (e.g., Sony DVD player model #DVP-S7700). For the convenience of retailer partners, QuickReturns will provide a database of default criteria that may be used in lieu of original criteria from the retailer. QuickReturns personnel will use information gathered from manufacturers to develop the default criteria database, which will then be offered to retailer partners free of charge. Default criteria will be developed first for those product categories that are best suited for QuickReturns, followed by categories that will be allowed by, but not ideally suited for, QuickReturns.

Retailers will have the option of providing digital photographs of products to aid clerks in their inspection. Product photographs will be particularly important for complex merchandise with which clerks may not be intimately familiar (e.g., consumer electronics, computer hardware, etc.).

If a product does not meet all criteria, on-screen instructions will direct the QuickReturns agent to refuse the return, and the RPT will automatically generate a pre-formatted letter written by the retailer partner describing why the product cannot be accepted for return and inviting the customer to use an onsite telephone to call the retailer’s customer service line if he or she wishes to further discuss the matter. This is important for two reasons:

1. It will deflect anger over the failed return from the QuickReturns brand and agent to the retailer.
2. The clerk will likely not have enough information about the retailer’s return policy or the product being returned to decide whether to override the standard criteria. Only the retailer’s customer service department will be authorized to override a return decision.

If all criteria are met, the software will instruct the agent to approve the return and automatically download the RMA number from the retailer. The software will then automatically generate and print a shipping label. The address on the label will be based on the product being returned as well as the reason for its return. For example, a retailer partner may choose to direct unopened items back to itself, damaged items back to the manufacturer, and opened but unsalable items to a liquidator. The shipping label will include the product’s RMA number (to facilitate tracking by the retailer and its agents), the retailer’s shipping account number (to facilitate direct billing by a shipping carrier, such as UPS), and other product description and tracking information specified by the retailer. Finally, the QuickReturns agent will affix the specially-printed QuickReturns label to the package, which will be ready for pickup by the shipping carrier.

Through QuickReturns, retailers can offer customers three ways to be credited for a return:

1. Credit card refund,
2. Retailer credit, or
3. Product exchange.

If the customer chooses credit card refund, a command will be sent from the RPT to the retailer to initiate an immediate refund to the customer’s credit card account. If the customer selects retailer credit, he or she will receive a printed “gift certificate” coded for the value of the return which can be used on the next purchase. If the customer selects product exchange, the customer will be directed to the self-service QuickExchange terminal (see below for discussion of product exchange process).

A return processing fee will be charged to the retailer after each return. The processing fee will average $5.00, and will be charged regardless of whether or not the return was approved. Distribution partners will receive 50% of the return processing fee and QuickReturns will retain the remainder. Retailer partners will be electronically debited every 30 days to pay for QuickReturns services. Distribution partners will be paid their share immediately upon collection of payments from the retailer partners.

Packing and shipping
Consumers who did not save their original packing materials (e.g., box, bubble wrap) will be given the opportunity to purchase materials and packing services directly from the distribution partners. This will be a separate transaction, independent of QuickReturns or the services it offers. For customers who bring the returned merchandise to QuickReturns locations with the original packing materials, packing tape will be provided to seal the package after inspection.

A shipping carrier (e.g., UPS, FedEx) will pick up packages at QuickReturns locations throughout each business day. Ground service will be used unless expedited is specified by the retailer partner for a given item. Retailer partners will be expected to pay for shipping charges and be billed directly by the shipping carrier using the retailer’s account number printed on the return label. It is anticipated that QuickReturns will reduce the cost of returns handling sufficiently that retailers will be able to absorb shipping costs and still save money in comparison to the cost of handling a return without QuickReturns.

Upon receiving the return, QuickReturns retailer partners or their designated agents will merely need to scan the label on the box to notify their computers that the merchandise has been received. Customer refunds will have already been processed, and the inventory management system updated. It is estimated that QuickReturns can save retailers up to 61% on returns processing costs through its optimized handling procedure.

Product exchange procedure
QuickExchange terminals will be available at all QuickReturns locations. The terminals will run a modified Internet browser that allows access only to QuickReturns retailer partner websites. Customers wishing to exchange products will be given a printed exchange code that can be entered into the section of the retailer’s website that asks for gift certificates or coupons (instructions for using the exchange code will be clearly printed on the sheet, along with the code itself). The exchange code will activate a store credit in the amount of the returned merchandise, allowing customers to apply the credit against the cost of the new purchases. Product purchases made through the QuickExchange terminal will generate a commission from the retailer for 10% of the purchase price. Distribution partners will receive 50% of commission revenue and QuickReturns will retain the remainder.

It is projected that 20% of people returning products will prefer a product exchange rather than a refund, particularly if they received the product as a gift and cannot receive the refund on their own credit card. The QuickExchange terminal will make this easy and convenient, and will provide retailer partners with the opportunity to recoup what would otherwise have been lost sales.

3.3 Future Services

QuickReturns will maintain rapid growth by quickly expanding beyond its core business model into new markets and services. The following are services QuickReturns intends to offer after the core service is rolled out across domestic markets.

International expansion
While the U.S. leads countries in Internet usage and e-commerce, other countries are rapidly catching up. Western Europe and Japan in particular are experiencing dramatic e-commerce growth. E-commerce revenues in Western Europe are expected to grow from $8.9 billion this year to $64 billion by 2003, while Japan’s is expected to grow from $11 billion to $45 billion. QuickReturns intends to apply its business model to overseas markets soon after its U.S. roll out.

Delivery destination and holding
Many consumers have been reluctant to order products online because they cannot be present to receive deliveries. The inconvenience and delays caused by missed deliveries is a frustrating problem, especially for working households. Customers will be allowed to have deliveries sent to any QuickReturns location, where they can be held for customers. Customers will be charged a nominal fee for this service. In addition, the service will increase brand awareness and drive traffic to distribution partner locations.

Sale of returns data
QuickReturns will collect and aggregate detailed data from thousands of returns transactions. Over time, a sizeable database of returns transactions will be generated, which will be used to generate individually tailored reports for sale to manufacturers, market research groups, and retailers. Detailed data analyses will highlight trends among consumers, products, and industries that can be used to make forecasting and other business decisions. For example, a manufacturer could learn which of its products are returned most often and why. That information could then be used to modify the product specifications in order to lower its return rate and increase profitability.

Product liquidation
Some products, such as music CDs, cost retailers more money to take back and return to inventory than to buy anew. Other products may be functional but unsalable because they have been opened. U.S. retailers now lose $35 billion each year by destroying or discarding returned merchandise. Product liquidation or auction services allow retailers to salvage some value from returned products, cutting costs and increasing profits. One of the first ancillary services QuickReturns will offer to its retailer partners is the ability to liquidate products that are not profitable to resell.

QuickReturns will offer to send returned products to a central recovery center, operated by a third party, where they can be sorted for parts, reconditioned, or auctioned to the public. QuickReturns also will form partnerships with returned merchandise auction sites (e.g., ClickReturns, The Return Exchange) to extract maximum possible value for opened or damaged products on behalf of retailer partners. QuickReturns will earn revenue in the form of commissions from its liquidator and auction partners.

Home/office pickup service
Multiple distribution channels will allow QuickReturns to meet the needs of different consumers. Some customers prefer to have their returns picked up at their homes or offices. To meet this demand, QuickReturns plans to partner with same-day fulfillment companies. These companies currently realize poor capital utilization because their vehicles leave warehouses with full loads but come back empty. By picking up returns along their delivery route, they will increase revenue with little marginal cost.

Same-day fulfillment services are in the process of rolling out across the U.S. cities. Sameday.com, Kozmo.com, WebVan, Peapod, and Streamline all have set up operations in major cities to deliver goods at specified times. Kozmo, for instance, promises to deliver music, videos, books, and convenience items in under one hour. It already has rolled out operations in eight cities and plans to be in 22 more by the end of the year. Moreover, it recently began delivering products for Amazon.com, in an attempt to squeeze additional profit from their growing distribution network. A partnership with QuickReturns would be a logical next step for same-day fulfillment services, given their strategy of leveraging their fixed infrastructure.

QuickReturns will outfit delivery partners with wireless devices, allowing their drivers to remotely process returns, including inspection and refund authorization. The merchandise will then be brought to a central location where it can be packed and shipped to the address specified by the retailer partner. Customers will pay an additional fee for home pickups. Also, centralization of packing and shipping operations will allow returns going to the same destination to be bundled and shipped in bulk, lowering shipping costs to retailers.

Returned product storage
Under pressure to lower working capital and inventory levels, many forward-looking retailers are exploring ways to carry minimal or no inventory, a model exemplified by Cisco Systems in the business-to-business arena. Retailers utilizing this model sell products to customers, but order the products’ manufacturers to ship them directly to consumers. Business 2.0 magazine recently predicted that, “in the future, manufacturers will manage the electronic shelves or aisles that display their wares on hundreds or thousands of retailers’ websites … some retailers might want the manufacturer to handle fulfillment.”

One difficulty with this model arises with returns handling. Manufacturers are not equipped to receive individual product returns, and the retailers will be unprepared to store them. QuickReturns, through partnerships with reverse logistics companies (e.g., UPS Worldwide Logistics, Genco) or through company owned warehouses, will solve this problem by inspecting, storing and refurbishing returned products for retailers until the products are resold. Once the retailer resells the products, warehouse personnel will ship them directly to the new customers. By offering a storage service, QuickReturns will offer its retailer partners a more complete reverse logistics solution.

Dynamic product recommendations
A significant advantage that brick-and-mortar retailers have over e-tailers and catalog merchants is their ability to convert returns into exchanges. Sales clerks often recommend different products to customers making returns, enabling the store to recoup what otherwise would have been a lost sale. Although QuickExchange terminals will address this opportunity, exchanges will be dependent on the ability of customers to find substitute goods without assistance. To offer customers more support with the exchange process, QuickReturns plans to leverage the personalization and recommendation engines that many e-tailers use on their sites. QuickReturns will have the ability to download product recommendations tailored to individual customers. In this way, customers will be proactively directed to purchase products using the QuickExchange terminal. 

Point of sale opportunities
QuickReturns will offer retailers the chance to provide promotional or informational materials to customers making returns. For example, e-tailers wishing to provide selected customers with coupons or special offers could have them printed directly onto the return receipts given to customers after each transaction. A supplemental fee will be charged for this service.

Distribution partnerships with fulfillment and customer service providers
QuickReturns will seek partnerships with business service firms that would benefit by adding returns handling to their service offerings. Customer service providers (e.g., PeopleSupport) currently do not offer returns handling as an option to their customers. Returns handling is a crucial customer service component, making a partnership with QuickReturns a natural fit. Similarly, logistics suppliers (e.g., Fingerhut) allow retailers to outsource elements of their supply chain. Many logistics providers do not currently offer reverse logistics services; QuickReturns fills in that void, allowing them to provide turnkey solutions to their customers. 

Technology partnerships with software companies
Many e-tailers and catalog vendors purchase off-the-shelf software solutions rather than build their own. QuickReturns will seek partnerships with companies such as Bea Systems, OpenMarket, and Marimba that sell stand-alone commerce packages. If “hooks” for the QuickReturns system are built into future versions of software applications subsequent to integration, it will be extremely fast and inexpensive. In return, QuickReturns would offer such software companies a share of revenues from new retailer partners that use their applications.

3.4 Technology

Using off-the-shelf solutions wherever possible, QuickReturns plans to outsource development of a robust software application that integrates QuickReturns’ terminals into the inventory, payment processing, and customer database systems of retailer partners. This application will be hosted on a middleware server, which will be linked, through a web-based interface, to network PCs at each QuickReturns location. The end-user interface on the network PCs will be designed to be intuitive, user-friendly, and simple. The business logic, inspection criteria, and shipping address information will be housed on a central QuickReturns server, while the customer order records will continue to be housed on the retailer partners’ own systems.