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When Customers Cheat: The Tricky Business Of Online Returns

A clientele of people with a “return” mentality is burgeoning
A clientele of people with a “return” mentality is burgeoning
Birger Nicolai

HAMBURG Georgios Titokis is actually too old for the remote-controlled car he’s holding in his hand. But the toy interests him. Cautiously, the Greek-born Titokis removes the beach buggy from its box and checks to see if any parts are missing. Then he checks the batteries and looks for any sign of wear and tear on the car.

It could be the client’s right. The buyer claimed that the box should have contained a police car, but instead there was this brightly-colored racing vehicle. But Titokis is skeptical. It could just as easily be that the person who ordered the police car kept it and replaced it with the beach buggy, thus getting a brand new toy for free.

Healthy doubt is part of Titokis’s job description. He’s been with Hermes group, a supply chain partner, since 1991. His work bench is located in a vast factory hall in Hamburg-Wandsbek, and every day he handles hundreds of returned items that customers either decide they don’t want or that are defective. Over 50 million returns will pass through his hands and those of his colleagues this year. The period after Christmas is high season, and workers are on the job in three shifts, six days a week.

The return of mail-order items has become the norm in a business that is growing fast and has a burgeoning clientele of people with a “return” mentality. Some order three sizes, and send back two. Which is the very least of it. But because struggling retail businesses in Germany don’t want to alienate their online customers, they tolerate it.

As online buying booms

After all, Internet sales represent their hopes for the future. Last year, Internet sales grew an estimated 22% to overall turnover of 33.5 billion euros. Business models like that of online shoe retailer Zalando take as a given that four out of five pairs of shoes it sells will be returned.

Otto, a subsidiary of Hermes, estimates that the average return rate for online businesses is 50%. It’s more for textiles, and less for furniture, but the industry’s main job is to work through the returned items and get the merchandise back onto the “shelves” — virtual or otherwise — as soon as possible.

Some merchandise needs more time than others to be processed. Take, for example, the Super Girl costume in its original packaging lying on a table in the Hamburg returns center. On the form accompanying the item, the client has checked “don’t like it” as the reason for returning it. But the fact that the costume clearly bears signs of having been worn to a party will prompt some follow-up questions. If the party evidence pans out, the client will get back via mail not only the costume but also the invoice.

If that example leaves room for ambiguity, others don’t. Workers occasionally find ski passes in the pockets of supposedly unworn winter jackets, which makes those cases pretty clear-cut.

But sometimes it’s difficult to judge whether signs of wear are due to actual wear or to trying on the clothing. Are the marks on the soles of these shoes from gravel on a street or did they happen as the customer tried them on in their home? Were these holes in the jeans there at the outset or did somebody tear them when they snagged the trousers on a table corner?

“Returned items are not a bad thing per se,” says Dieter Urbanke, managing director of Hermes Fulfilment, a company that works for Otto Group mail-order companies and others. “They’re part of our business, and we earn money with them.”

It’s a balancing act: Merchandisers play up the return option with customers, but actually try to keep as tight a check on it as possible. And the rate of returns has been held in check. “In the first decade of this millennium, there was a notable increase in rate of return, but figures have remained stable these past few years,” Urbanke says.

To charge or not to charge for returns?

Online retailers can count on some help from a new EU consumer guideline that takes effect mid-year, which allows them to charge for all returns. Right now, they can only do so if the purchase totals 40 euros or more. But again, what merchandiser is going to do that if it means losing customers?

“Only a few smaller businesses will actually do that,” Urbanke says. And indeed up to now no big merchandiser is planning to charge. Not Amazon, not Zalando, and not Otto Group’s companies.

But there will be some that do. “Certain sectors like jewelers with expensive merchandise, and medium-size companies, will start charging,” says Jean-Marc Noël, the French founder of Trusted Shops.

The reason for this is simple: Some merchandisers need the money. When, for example, a small dealer mails a video projector to a mail-order customer and then gets the device back two weeks later because the customer apparently doesn’t like it, he may not be able to put the item back up for sale, at least not at the same price. Electronic devices are mostly used before return, as ascertained by returns processors such as Georgios Titokis.

Back at the returns operation...

Catherine Xavier holds a T-shirt dress up to the light: The sequins on it read, “You are my princess.” The material is undamaged, and the merchandise matches the look and description that Xavier, from Sri Lanka, can see by comparing it to a screen image.

Any signs of use are otherwise dry-cleaned or pressed away. Xavier is especially well-versed in spotting tell-tale signs. She knows all the gimmicks, and will sometimes examine items under a magnifying glass to get to the bottom of the situation. Are those hairs on the black clothing remainders of the light thread used on the seams or are they dog hairs?

While on the lower floor of the returns operation the conveyor belts rattle and Gloria’s Gaynor’s “Never expand=1] Can Say Goodbye” streams from the radio, the upper level is eerily silent. Here, Ursula Szymanek sits at a worktable and takes a small pair of pliers out of the drawer. She uses them to pull out the pin used to set the watch she holds, thus stopping it and saving a little battery.

She looks over the links of the gold armband, checks the clasp, and shines the item until it gleams. Whether the watch works or not Szymanek will only be able to tell after she’s replaced the pin and set the watch aside for a bit.

In the case of jewelry and watches costing thousands of euros, it is particularly important to get the items back for sale as fast as possible. But here the processing is quite long — on average, 15 calendar days between the time the Internet customer orders the piece and the time the item finds its way back.

On average, items spend six days with the customer and the rest of the time covers shipping to the client’s address, the trip to the returns operation, processing there, and finally transport back to the warehouse.

The ultimate goal is to get as much merchandise as possible back on the shelves, and apparently with textiles that goal is realized about 98% of the time. If, however, an item of clothing can’t be salvaged, it’s put in a pile with others that will be sent off to another online shop or perhaps a weekly street market abroad.

But at the Hamburg returns operation, nothing is wasted. “We do not destroy merchandise,” says Urbanke. “We usually send it back to the merchandiser who decides what to do with it.” Which is a bit of a shame. Georgios Titokis’s grandkids would certainly have enjoyed getting that little beach buggy.

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Society

Debt Trap: Why South Korean Economics Explains Squid Game

Crunching the numbers of South Korea's personal and household debt offers a glimpse into what drives the win-or-die plot of the Netflix hit produced in the Asian country.

In the Netflix series, losers of the game face death

Yip Wing Sum

-Analysis-

SEOUL — The South Korean series Squid Game has become the most viewed series on Netflix, watched by over 111 million viewers and counting. It has also generated a wave of debate online and off about its provocative message about contemporary life.

The plot follows the story of a desperate man in debt, who receives a mysterious invitation to play a game in which the contestants gamble their lives on six childhood games, with the winner awarded a prize of 45.6 billion won ($38 million)... while the losers face death.


It's a plot that many have noted is not quite as surreal as it sounds, a reflection of the reality of Korean society today mired in personal debt.

Seoul housing prices top London and New York

In the polished streets of downtown Seoul, one sees endless cards and coupons advertising loans scattered on the ground. Since the outbreak of the pandemic, as the demand for loans in South Korea has exploded, lax lending policies have led to a rapid increase in personal debt.

According to the South Korean Central Bank's "Monetary Credit Policy Report," household debt reached 105% of GDP in the first quarter of this year, equivalent to approximately $1.5 trillion at the end of March, with a major share tied up in home mortgages.

Average home loans are equivalent to 270% of annual income.

One reason behind the debts is the soaring housing prices. In Seoul, home to nearly half of the country's population, housing prices are now among the highest in the world. The price to income ratio (PIR), which weighs the average price of a home to the average annual household income, is 12.04 in Seoul, compared to 8.4 in San Francisco, 8.2 in London and 5.4 in New York.

According to the Korea Real Estate Commission, 42.1% of all home purchases in January 2021 were by young Koreans in their 20s and 30s. For those in their 30s, the average amount borrowed is equivalent to 270% of their annual income.

Playing the stock market

At the same time, the South Korean stock market is booming. The increased demand to buy stocks has led to an increase in other loans such as credit. The ratio for Korean shareholders conducting credit financing, i.e. borrowing from securities companies to secure stock holdings, had reached 21.4 trillion won ($17.7 billion), further increasing the indebtedness of households.

A 30-year-old Seoul office worker who bought stocks through various forms of borrowing was interviewed by Reuters this year, and said he was "very foolish not to take advantage of the rebound."

In addition to his 100 million won ($84,000) overdraft account, he also took out a 100 million won loan against his house in Seoul, and a 50 million won stock pledge. All of these demands on the stock market have further exacerbated the problem of household debt.

42.1% of all home purchases in January 2021 were by young Koreans in their 20s and 30s

Simon Shin/SOPA Images/ZUMA

Game of survival

In response to the accumulating financial risks, the Bank of Korea has restricted the release of loans and has announced its first interest rate hike in three years at the end of August.

But experts believe that even if banks cut loans or raise interest rates, those who need money will look for other ways to borrow, often turning to more costly institutions and mechanisms.

This all risks leading to what one can call a "debt trap," one loan piling on top of another. That brings us back to the plot of Squid Game, "Either you live or I do." South Korean society has turned into a game of survival.

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