A Blog by Jonathan Low

 

Jun 27, 2016

The Reason Easy Customer Returns Policies Reduce Workers' Pay

This is another source of competitive dis-advantage for retailers versus ecommerce since the bricks-and-mortar merchants generally have to pay commissions to salespeople while digital commerce companies do not.

The retailers's response to the dramatic increase in returns has been to make returns policies even more generous than Amazon et al in order to compete. They then subtract the value of the returns from the sales peoples' commissions to offset the cost to the corporate bottom line.

The problem is that this does not accurately apply the cost to the cause of the return - which is the overly generous return policy - and it presents an added disincentive to attract and retain productive workers. JL

Rachel Abrams reports in the New York Times:

Americans returned $284 billion in merchandise in 2014, up 53 percent in five years. People are returning goods in record numbers, and often in worse condition, encouraged by the flexible return policies adopted by e-commerce sites like Amazon and the brick-and-mortar stores trying to keep pace.
Earnestine Gay, a longtime worker in the fragrance department at Macy’s in Herald Square, clearly remembers a bottle of perfume that was returned recently. It was practically empty.
“There was maybe a spray left,” Ms. Gay, 50, said.
Yet Ms. Gay knew that the bottle, bought weeks earlier, would probably lower her commission because it would count against her sales for that week.
The perfume’s return was not terribly unusual. These days, people are returning goods in record numbers, and often in worse condition, encouraged by the flexible return policies adopted by e-commerce sites like Amazon and the brick-and-mortar stores trying to keep pace.
But unlike returns at online retailers, those at many department stores have a side effect: They can unexpectedly lower a worker’s paycheck weeks or months after a sale is made.
“If you’re thinking, ‘This is my income for the week,’ and then you find out a month later, ‘Oh that wasn’t my income at all,’ you have to plan pretty far into the future,” said Stephanie Luce, a professor of labor studies at the City University of New York.
Some of the country’s leading department stores allow returns for up to one year, like Nordstrom, or set no time limit at all, like Macy’s. The commissions paid to sales representatives at Macy’s can be affected by returns made within six months, while returns at Nordstrom affect workers for up to a year.
These windows, union leaders say, are too long and fuel a culture of returns that has added instability to the paychecks of retail workers.
“Macy’s used to have a 10-day return policy,” said Ken Bordieri, president of Local 1-S, which represents Macy’s workers in New York, one of the largest organized groups of the retailer’s workers in the country. Macy’s eliminated its time limit on returns, which had been six months, in 2010.
“When you have a return policy that says ‘We’ll take anything back anytime,’ well, then returns go up,” Mr. Bordieri said.
The union, which provided the statements and arranged for the interview with Ms. Gay, says that changing the return policy is among its top priorities as it negotiates with Macy’s for a new contract by Wednesday.
In an email, a Macy’s spokesman, Jim Sluzewski, called the company’s return policy “fair and equitable” to employees. A spokeswoman for Nordstrom, Tara Darrow, said in an email that “we provide our employees with a commission agreement when they are hired that explains how we calculate commissions, and they can always get a copy of the commission agreement.”
For decades, department stores have used commission as a way to motivate employees. Hone your sales skills, help customers and you, too, can share in the rewards. Returned merchandise has also long counted against an employee’s sales, which are used to calculate commission.
Such policies help protect retailers from some legitimate concerns. For example, it prevents an employee from trying to game the system by selling a product to a friend, knowing the product will be returned after a commission is paid. Mark A. Cohen, director of retail studies at Columbia Business School, said companies’ commission policies can help stop employees from overselling products that consumers would be more likely to bring back anyway.
“It may create a distortion over a period of time,” he said of the variable paychecks. “But at the end of the day, the sales associate is being compensated for their net sales, and that is a typical practice.”
Still, the surge of returns has changed the dynamic. Online retailers, many of which have made generous return policies a prime selling point to shoppers — and which do not pay employees based on commissions — have led the push. Amazon, the world’s largest virtual merchant, and many other e-commerce sites offer flexible and sometimes free returns.
“Online-only retailers have conditioned consumers to be able to touch and feel products and then return them if they change their minds, hassle-free,” Kevon Hills, vice president for research at StellaService, a customer research firm, said in an email.
“It is becoming best practice,” Mr. Hills said, “for retailers that want to provide consumers with the best possible experience to allow this same ability to take products home and make a final decision at a later point in time.”
Americans returned $284 billion in merchandise in 2014, up 53 percent in five years, according to the most recent data available from the National Retail Federation, an industry trade group. Returns generally make up about 8 percent of overall sales, according to the group.
Department stores have among the highest return rates, according to the Retail Equation, which collects shopping data.
“There’s pressure on them to take these things back, but you can’t charge that back against the workers,” said Mr. Bordieri, the union local president.
Worker advocates have had some success in changing return policies. In 2012, union leaders in New York pressured Bloomingdale’s, which is owned by Macy’s, to reduce the time employees could be affected by returns to 150 days from 180 days, and then to 120 days last year, according to a copy of the labor contract reviewed by The New York Times.
These return policies have taken on added meaning as department stores have cut jobs and increasingly relied on part-time workers with less control over their own schedules, and therefore income, labor advocates say.
“I have two sons that I was proud to raise while I was at Macy’s,” Ms. Gay said. “Thank God they’re old now, because I wouldn’t be able to make it.”
Department stores employed 1.3 million workers as of May, the smallest number in a decade and 10 percent fewer than in 2009, at the height of the financial crisis, according to the Bureau of Labor Statistics.
Mr. Sluzewski, the Macy’s spokesman, said that Macy’s employees had “the opportunity to make their own schedules, within some guidelines that ensure that our stores are well staffed” during the busiest shopping periods. He noted that the company’s scheduling processes had been praised in the past by worker advocates.
Ms. Darrow, of Nordstrom, said in an email that the company had increased its reliance on full-time workers and that some return policies — like buy online, return in-store — could actually benefit employees by creating an “opportunity to serve a customer on the spot and potentially make a sale.”
But many employees still complain that return policies have become so lax as to encourage people to essentially borrow products, maybe for a one-time event like a vacation or a party.
In 2011 and 2013, Ms. Luce, the CUNY professor, surveyed hundreds of retail workers as part of two separate studies, and said that many said that they felt return policies had gotten too lax. While she cautioned that the studies did not include enough commissioned workers to identify statistical trends, there were some repeat complaints.
“We were pretty consistently hearing that for workers who had been in the industry for 10 or more years, they felt that first, your commission rates are smaller, and that this returns issue was more and more of a problem,” she said.
Ann Pascarelli, 60, who works in Macy’s luggage department and has been at the store for nearly four decades, would be one of those employees. She gets particularly worried when customers announce plans for a trip.
“We call ourselves the rental luggage department,” she said.
“‘I’m going on my trip tomorrow and I’ll be back in a week,’” Ms. Pascarelli said, repeating what she said was an oft-heard refrain. “You can time it. In one week’s time, they’ll be back.”

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