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Special Report: Customer returns can sometimes make or break online retailing

The unexpectedly heavy cost of processing returned goods could force some retailers to abandon their online businesses and return to concentrating solely on their bricks and mortar estate. By Glynn Davis in Germany.

GENERAL MERCHANDISE

Special Report: Customer returns can sometimes make or break online retailing

Speaking at the Fujitsu Forum 2012 in Munich this week Sarah Kellett, associate director at Fujitsu UK & Ireland, predicted that there will be "some train crashes following the rush online and some retailers will give up on it as it is killing them".

She suggests the combined issues of the high cost of processing returned goods and the still modest volume of sales online was proving problematic for many merchants. It is particularly troublesome in the fashion sector where the trend by customers to order three different sizes and return two of them was requiring retailers to operate with "enormous stocks", according to Kellett.

In contrast, among the successful operators are those established mail order/online businesses such as N Brown that use sophisticated analysis of stock holdings for each size.

(*Don’t miss Alan White, Chief Executive, N Brown Group plc who will be talking part in a Retailer Interview: Taking A Fresh Look At Customer Loyalty Through Traditional Multichannel World, at the Retail Bulletin’s Multichannel Retailing Summit 2013. The event is being held in London  6th February 2013. Click here for programme details and registration.)

Kellett says surveys have shown that the biggest concerns for retailers who have made the move online are the high levels of stock they have to maintain and managing the complexity of the sizeable levels of returns they typically face.

The emergence of multi-channel and internationalisation has resulted in IT and logistics coming closer together in order to potentially help solve the returns issue for retailers and enable them to offer the likes of click & collect and to fulfil across countries and channels.

Such big changes in the industry are an element in the move by retailers and IT providers to develop new models of operating and offer different ways for merchants to purchase hardware and software solutions. 

Whereas Kellett suggests retailers previously "pulled out a big cheque" when buying IT solutions things are very different today. They now want to measure the business outcomes and to then buy on the basis of these. This means the likes of Fujitsu are working with them to devise the most appropriate business models.

This might be on a per-transaction-per-month basis for Point-of-Sale solutions and for IT servicing contracts it could be on the basis of hitting specific 'availability' standards rather than receiving fees for fixing broken devices.

Jon Stretton, business development and sales director at Fujitsu, says that unlike with previous models where the company would benefit from equipment failing the emergence of outcome-based contracts means "it's absolutely in the interest of Fujitsu" to have things running correctly.

Another example of this new flexible structuring of contracts is for Fujitsu to have a role in handling a retailers' capital expenditure for IT. This simplistically results in them prioritising spending on things that fail the most, which Stretton says is based on the company's "solid manufacturing principles".

He believes such developments are reflective of a greater partnership between suppliers such as Fujitsu and retailers: "We're working collaboratively to come up with solutions to problems. They'd have had problems that we don't know about. But now when we do know about them then we can innovate."

He cites the example of a major supermarket client that had a problem with lost shopping trolleys. The Fujitsu solution has been to put RFID technology in the metalwork by working with the trolley manufacturer.

Other more broad-based innovations that he believes will have a big impact on the retail sector over the next year will be the use of customer data and geo-location information to allow retailers to engage with customers in real-time in-store via their mobile devices. This could include them pushing personalised offers to customers when they are in specific aisles in-store.

Stretton suggests that a 'proof on concept' for this solution will be created in 2013 that will utilise real-time data analytics, the tracking of individuals in-store through heat mapping, the increased penetration of mobile devices, and the use of cloud technologies to sell the solution on a rent-by-the-hour basis.

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