Online stores are points of no returns

CompUSA is the latest retailer to articulate this policy, announcing yesterday that its newly renamed site, Cozone.com, will operate separately from its network of stores, and online customers will be required to handle returns through its Web site.

CompUSA joins other prominent retailers such as Wal-Mart, Barnes & Noble, Best Buy, and Victoria's Secret in prohibiting in-store returns. But industry analysts warn that these stores aren't meeting customer expectations and risk losing customers as a result.

"This is one of the worst policies [retailers] can possibly have," said Argus Research analyst Alan Mak. "I don't think it's a smart strategy, and I don't think it's going to be long-lasting."

Many traditional retailers such as Toys "R" Us have struggled to gain traction against Internet competitors. Offering in-store returns is one way brick-and-mortar retailers can set their online sites apart, industry observers say.

But such open return policies pose challenges for the traditional retailers.

Accepting returns of items bought online creates a link between the online site and the local store that requires the company to charge sales tax at its online store. In industries such as electronics, where consumers often make decisions partially on price, having to charge sales tax can be a big disadvantage.

In addition, returning items bought online to the stores often means logistical and accounting nightmares as the items have to be transferred from one distribution center to another.

Wal-Mart spokeswoman Melissa Brown said that although the company is trying to keep the customer in mind, Wal-Mart doesn't have a system in place yet to receive online returns in their stores. While the company has an extensive distribution network to distribute goods to its brick-and-mortar stores, it is relying on Fingerhut to handle fulfillment for its Web store.

Brown said the company is considering allowing such returns in the near future: "It's an option we're looking into."

Industry observers say that many consumers don't realize that there is a difference between companies' Web stores and their brick-and-mortar outlets. Consumers expect the two to work together, especially on returns.

"Consumers expect an online presence to extend to the physical store," the Gartner Group states in an upcoming report. "During the post holiday season, consumers will want to avoid the time, expense, and delayed credit associated with mailing returns back to the online merchant."

Missed opportunities
Traditional retailers typically have used post-holiday returns to draw consumers back into their stores. Once there, consumers can be enticed to make impulse buys or to exchange goods instead of returning them. But by forcing consumers to return goods through the mail, rather than to the stores, brick-and-mortar retailers such as Wal-Mart miss out on this selling opportunity, said Forrester Research analyst Seema Williams.

Such policies may cause retailers to miss out on future opportunities as well, Williams said. Given a choice between an online retailer that accepts returns in its offline stores and one that doesn't, consumers will chose the former, she said.

"Every time you lose a sale [because of your return policy], it's another reason for a customer to go some place else. And they may never come back to you," Williams said. "It's a stupid reason to lose a shopper."

Several traditional retailers, however, have overcome the challenges inherent in accepting in-store returns. Nordstrom, for instance, has accepted returns of items bought online since it opened its Web site last year. Bob Schwartz, general manager of upscale retailer's online site, said that accepting in-store returns is part of offering good customer service.

"The customer doesn't care how big a pain in the rear [accepting returns] is," Schwartz said. "It's the right thing to do."