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For Genco Distribution Systems, a 102-year-old logistics firm in Pittsburgh, crisis means opportunity. The company, which handles $6 billion in returns annually for retailers like Wal-Mart Stores and J.C. Penney, launched e-genco on Oct. 1 to do the same for online retailers. The goal: to help avoid the return altogether or, if that fails, make e-returns as easy as the initial purchase. It should have plenty of business this year. Online returns can run to more than a third of all Web purchases, compared with 15% for traditional stores. And so many holiday shoppers were disgruntled last year by cumbersome or unresponsive returns processes that many e-tailers may be looking for professional help this year. For instance, Value America used a third-party distributor last year but never considered what to do with its returns. "Unable to send returns back to the distributor, the returns ended up lining the halls at corporate headquarters," says Geri Spieler, a logistics analyst at Gartner Group, the Connecticut-based tech-consulting firm. The prospect was enough to turn shoppers away. A PricewaterhouseCoopers survey of 563 consumers taken in December, 1999, showed that 39% chose not to shop online because of difficulties with returns. Another survey in June showed that 41% of shoppers who wanted to return an item bought online didn't because it was too much hassle. ABOUT-FACE. Genco plans to make money off the misery by selling software and service: retailers can buy the software to handle returns themselves or hire e-genco to do it for them. Already, the company has licensed its software to Dickson's, a leading consumer-electronics store in Britain that plans to manage its e-returns in-house. Peter Rector, e-genco's president, would not say how many U.S. customers have bought software or hired e-genco to handle the returns. But the company projects 30% growth in annual revenue, to $1 billion, in five years, with e-genco generating half the amount. What's driving growth in returns processing? Holiday e-shoppers are expected to spend $19.5 billion this year, nearly double last year's figure, according to Gartner Group. The average online return rate is a staggering 36%, says Gartner's Spieler. That means lots of lost time and money for e-tailers. "Returns can erode more than 25% of profit margins," says Spieler. E-genco hopes to help companies fatten their margins by shaving percentage points off the return rate. "Reducing an 18% return rate by even 1% could save millions of dollars," says e-genco's Rector, a 30-year veteran of Sears, Roebuck & Co., where he headed the development of the company's reverse logistics and asset recovery program. Rector's new position is an ironic about-face: In 1993, he had hired Genco to help Sears solve its returns problem. "Without a financially attractive solution, workers were shoveling goods into a compactor before they got dumped in the landfill," Rector recalls. With Genco's returns software, Sears increased cost recovery for returns elevenfold. THAT BLINKING CLOCK. How does e-genco's system work? To return a clock, log onto the e-tailer's Web site and click the returns icon, which takes you to e-genco's "customer care" site. Click on one of five options -- including accessing the product's return policy, scheduling service with a nearby authorized service dealer, or telephoning a customer-service rep for help. Since your clock is blinking 12, you can access an online trouble-shooting guide for help. By selecting the option "clock blinks 12," your screen will tell you the problem is due to a power outage and that you can reset the clock using your instruction manual. If you can't find your manual, the system will produce the page online. And if your dog ate your receipt, the system can reproduce another for you. If you're sure you want to return your clock, e-genco lets you choose how to return it based on the e-tailer's policy. Those options include downloading a prepaid mailing label and dropping it into a U.S. post box or leaving it for your postal carrier. You could also arrange for a UPS pickup or go to any package service of your choice. Credit is validated within 72 hours, and you receive up to three status updates. If your package is late, the system can produce a $10 coupon based on the e-tailer's policy. Once it reaches Genco's warehouses, the company may either return it to the vendor or refurbish it for resale in outlets or foreign markets. E-genco will also have the potentially profitable option of auctioning e-returns on auction Web sites. BIG RIVALS? E-Genco isn't the only company trying to capitalize on the woes of last Christmas. Two rivals in third-party logistics are Return.com, a partnership between Innotrac Corp. and Mailboxes etc., and Newgistics, a new player allied with R.R. Donnelley Logistics Services and USF Processors. Both competitors offer consumers the convenience of returning goods to nearby locations. But the stiffest competition is yet to come, with UPS and FedEx preparing to get into the e-returns business. But none of the players in business now have the experience to match Genco's. "A lot of dot-coms have great vision but can't handle returns," says Jim Bunn, a retail consultant at KPMG Consulting. "E-genco is premier because of its bricks-and-mortar experience in returns." The third-generation, family-run company expects to prove that old dogs don't necessarily need to learn new tricks. They just adapt the old ones to new markets. Johanna Knapschaefer is a freelance writer based in Pittsburgh |
