Originally created 12/23/99

Internet returns assessed

Merchandise purchased online but returned to traditional stores after Christmas could create big problems for some merchants, affecting everything from employee salaries to store leases, retail analysts say.

That's because many stores tie lease agreements and raises to their total retail sales, and returns subtract from that important figure.

While some experts believe the impact of Internet returns could be great, it's tough to find a retail executive -- much less a store salesman -- who's worried about the effect it may have on them.

"With it being the second year for us (accepting Internet returns in physical stores), it's not really that big of a deal yet," said Steve Hughes, store director for Toys `R' Us on Wrightsboro Road. "But you can definitely tell a big difference between last year and this year."

He says there are rumors the company may adapt its method of tracking returned merchandise to better handle items bought from its Web site.

Internet sales have exploded in the retail industry. Of the 73 percent of retailers who are online this year, more than a quarter -- 28 percent -- did not have e-commerce sites a year ago, according to a survey conducted by Deloitte and Touche, a consulting firm, for the National Retail Federation.

And companies are just realizing Internet returns' impact on their bottom lines.

When something is bought from and returned to the same store, the retailer breaks even. No profit. No loss.

But when something is bought on the Internet and then returned to a brick and mortar store, it could be reported as a loss, experts say.

"You're lowering the overall profitability of that store," explained Malachy Kavanagh, a spokesman for the International Council of Shopping Centers. "It's an issue."

Even though the transaction doesn't lose money for the company, it reduces a store's total sales, he said.

The likelihood is that these issues will be worked out by next year.

"The Internet is in its infancy, and all these issues are percolating to the top of the industry and working their way through," Mr. Kavanagh said.

Some industry experts believe retailers may feel the consequences this year.

"You don't want to confuse the difference between Internet and store sales, or it will drive down comp-store sales inappropriately," said Jack Russi, a partner for the consumer business practice of Deloitte and Touche.

At some stores, total sales figures affect employee incentive programs. These numbers are tied to performance and often are used to evaluate managers and other sales personnel for bonuses and promotions.

"Everybody doing any volume on the Internet is going to want to deal with this particular issue," Mr. Russi said. "It will get a lot of attention by the sales associates if it affects their compensations."

In addition to compensations, total sales have the potential to affect lease agreements, especially if the stores are located in a shopping mall.

The Rouse Co., for example, ties store sales to some of its tenants' leases.

Rouse, headquartered in Columbia, Md., owns and manages 64 malls throughout the nation, including Augusta Mall.

While officials say few retailers choose to hinge their store's lease on total sales, those who do risk being evicted if certain profits are not achieved. Rouse does not disclose the terms of its leases with individual retailers, so it is unclear if any Augusta Mall tenants hold such leases.

Rouse is aware of issues surrounding Internet returns for its retail tenants, but has no immediate solutions, spokeswoman Nancy Tucker said.

"I don't believe it's significant enough to worry about," Ms. Tucker said.

The few stores that are currently able to separate Internet returns from in-store returns are mainly those that also sell from catalogs.

J.C. Penney's, for example, uses customers' ZIP codes to credit the closest store with a catalog sale. That system is now being used for Internet purchases as well.

While the ZIP code tracking method is a viable solution, what most retailers will likely do to cope with Internet returns is change their bar coding system to track merchandise differently, based on the origin of purchase, Mr. Russi said. Creating such a system would take three to six months to implement, he said.

ReachHeidi Coryell at (706) 823-3215.


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