E-commerce merchants have thrilled investors with record-breaking revenue and seemingly unstoppable growth, but they haven’t been as eager to publicize a glaring weak spot: product return rates that can reach up to 20% of total sales.
“It’s the industry’s dirty little secret,” says Vincent Bianco, president and chief operating officer of The Return Exchange, a Santa Ana startup aiming to take a slice of the estimated $700 million in online returns this year alone. “It’s not a sexy, fun part of e-commerce, and it’s not something they like to talk about. No one likes airing their dirty laundry.”
That’s not stopping Bianco or his fellow executives from pushing the issue, though. He and the company’s three other principals,chief executive Mark Hammond; vice president for sales and marketing Mark Hilinski; and vice president for engineering Alex Dionysian,founded the company last year after selling a credit-card fraud detection firm called Risk Data Corp. to San Diego-based HNC Software Inc.
The Return Exchange is using that experience as the first component of a three-pronged service that combines fraud detection, return logistics and an online auction of returned merchandise for bargain-hunting consumers.
Exacerbating The Problem
Product returns have always been part of retailing, especially catalog and TV mail-order sales, but in some ways e-commerce has exacerbated the problem.
In addition to the longstanding practice by consumers of ordering redundant merchandise (such as ordering a shirt in two different sizes to ensure a fit), the Internet makes it easy for online consumers to order the same merchandise from different vendors to ensure a delivery date. And bad computer monitors can skew colors on style-sensitive merchandise such as clothing, giving purchasers another reason to send items back.
Though company executives say their system would work equally well with traditional retailers, they plan to target online sellers, who usually have less experience with returns than their brick-and-mortar counterparts, not to mention a lower tolerance for lost revenue.
The company is launching a press and investor tour on the East Coast this week, and will demonstrate the product at retailing expos over the next few months. Several e-tailers have already signed on, including apparel maker Mossimo Inc. and online artwork seller Art.com.
Verify-1, The Return Exchange’s fraud-detection system, ferrets out people who try to swindle merchants by detecting patterns of abuse through an online authorization system. It uses a data analysis technique similar to that used to identify fraudulent credit-card purchases. The company’s Restore service, meanwhile, manages the return process through a network of eight warehouses, routing merchandise that goes back to the manufacturer, returns to the retailer for restocking or becomes part of Return Exchange’s Final Call Auction process, the final leg of the system.
One-Stop Shop
Though Bianco admits that none of those elements is unique, he says his company is one of the first to combine all three into a single service, which can turn what is typically a 13-week headache into a three-week turnaround.
In addition to making the process easier for online sellers and customers, the company could salvage a bigger portion of the product’s value for merchants, which typically get 5 cents to 10 cents on the dollar from return liquidators, who resell the merchandise through a variety of middlemen and eventually back to the consumer through dollar stores and other outlets. Return Exchange’s system, its founders say, could get retailers 15 cents on the dollar, plus a portion of the resale price.
The online concept, Hilinski says, evolved over time as a blend of business-to-business and business-to-consumer e-commerce.
Verify-1 will cost up to 40 cents per authentication; Restore will cost from 2 cents to $2, depending on product type and volume; Final Call Auction will charge using a minimum bulk purchase of the returned products or from a consignment model, where the merchant gets part of the sale price.
Several competitors have launched services offering different fragments of The Return Exchange’s system, including verification firm Equifax, return logistics specialist Genco and online discounters Tradeout.com and RetailExchange.com. But Bianco contends that none of them offer a complete service package.
Though The Return Exchange will run its own auction site (www.finalcallauction.com), officials say they’ll work closely with established online players such as eBay and Yahoo! Auctions and Amazon.com to move the merchandise more quickly.
“Competing with eBay is kind of crazy,” Bianco says.
Naturally, there’s one catch to the auctions: All sales are final. n
