### 1992: Returns Matter

Here's five popular songs from 1992:

• "I Will Always Love You" - Whitney Houston
• "Smells Like Teen Spirit" - Nirvanna
• "End of the Road" - Boyz II Men
• "Rhythm is a Dancer" - Snap!
• "To Be With You" - Mr. Big
Returns kill e-commerce, catalog, and retail brands.  Imagine working at Zappos, where +/- a third of all shoes are returned!?  That's a big number.

A big, fat, unprofitable number.

Returns hurt us at Lands' End, back in 1992.  My boss, and my Director, wanted me to do something about it.

What can a lowly statistical analyst do about it?

Simple.

Do not market to customers who return A LOT of merchandise!

How?

The Hyperbolic Tangent Function (click here, geeky followers)!

Now, you never, EVER, share the details of the math you use with folks at a Director level and above.  It's just not good practice.

But the geeky math makes all the difference in the world.

To over-simply the issue, the math suggested that customers who return at least 67% of their merchandise over at least three purchases should not be mailed catalogs.  Why?  Well, these customers were predicted to have at least a 50% future return rate, making all of their future purchases unprofitable.

You are not under any obligation to mail customers who, or will be, unprofitable.

This yielded another \$700,000 in incremental, annual profit ... on top of the \$1,000,000 in incremental, annual profit generated by the statistical models that I used to select customers for catalog mailings.

Yes, my work was starting to be noticed.  In a company of 5,000 employees, I was responsible for \$1,700,000 of annual profit - greatly overshadowing the \$29,600 annual salary I was being paid (about \$50,000 in current dollars).

All analysts, early in a career, must find ways to get noticed.  3-D color contour plots make a difference.  Profit makes a much bigger difference.

If you work for a catalog brand, e-commerce brand, or retail brand, you are under NO OBLIGATION to send catalogs or email campaigns to customers who return a lot of merchandise.  Why would you purposely cause your company to be less profitable?