If you sell goods online, returns are inevitable. In this QAD Precision Report we look at strategies retailers can use to control the costs of returns.
The growth of e-commerce has been a mixed blessing for retailers. On the one hand, the internet and the rise of cross-border shopping has allowed retailers to reach potential customers all around the world. On the other hand, it does mean that retailers — including market-leaders — are increasingly competing with international rivals, digital start-ups and online marketplaces.
Competition has always been a feature of the retail industry, generally to the benefit of the consumer. However, the explosive growth of e-commerce not only means that retailers are jostling with an ever greater number of rivals — they are dealing with significantly more returns and grappling to control those costs.
Online shoppers return items in much higher numbers than those purchasing goods from physical stores. Only about 10 percent of bricks-and-mortar purchases come back; for online shopping, rates of returns generally fall between 30 and 40 percent. Good old human error is often to blame. The warehouse or distribution center might send the wrong item; goods can be damaged in transit; or the customer didn’t read the description properly.
Clothes have a higher rate of return than most items — around 40 percent. There are a number of reasons why this should be. Sizing charts are not always consistent, particularly when a retailer sources from a variety of suppliers. Even clothes that fit correctly may be less flattering than hoped, or the material is not as expected. Then there is the “serial returner” who orders multiple items never intending to keep them all.
Fitting Roomers vs Wardrobers: Types of Serial Returners
Serial returners are an increasing problem for online and omnichannel retailers — so much so that retailers are beginning to crack down. A survey of retailers in the UK found that 1 in 5 have already tightened up their returns policy, and that almost the same number plan on doing so.
Not all serial returners are the same, however. Some shoppers will order variations of outfits in different sizes and colors, choose the ones that they like best and return the remaining goods. Known as “fitting roomers”, these shoppers are trying to recreate the fitting room experience in their own homes. Although these shoppers are serial returners, they are often profitable and loyal customers too. As a result, the value of their purchases outweighs the costs of returns.
More egregious are the “wardrobers” — serial returners who wear an outfit once and return it for a refund. In 2018 The Wall Street Journal reported Amazon had begun banning serial returners by closing their accounts. Most retailers are loathe to do this, however. Deactivating accounts can result in negative attention and lost revenue. Having said that, retailers can be at the mercy of unscrupulous shoppers. Around a third of UK retailers say that shoppers are returning worn items. Given this, it is hardly surprising that retailers are penalizing shoppers who return used goods.
Nonetheless, retailers need to be able to distinguish between different types of serial returners. This would include flagging wardrobers, whitelisting fitting roomers, and tracking shoppers’ spend versus the cost of returns.
Tracking the Cost of Returns
Whatever you sell, and whoever you sell it to, your customers want a hassle-free returns process. Returns may be open to abuse, but they are also an important differentiator. Retailers that don’t offer an easy and free way to return unwanted items will lose business. The 2018 UPS Pulse of the Online Shopper global survey found that 79 percent of shoppers rate free shipping on returns as important when deciding to purchase from an online retailer. The same study also found that more than two-thirds of shoppers check the returns policy before making a purchase.
Free and easy returns for the customer is neither free nor easy for the retailer. Managing reverse logistics is trickier than outbound shipments. As a result, different processes, technologies and expertise is necessary to handle returns, especially high volumes. Not that long ago, many retailers all but neglected their returns processes. However, as online sales drive higher returns, retail organizations that want to protect margins need to manage and control their reverse logistics spending.
This means that retailers need better insight into their shipping spend with reporting and analytics that allows them to understand where and how their reverse logistics dollars are being spent. Were returns shipped via parcel when a lower cost freight or 3PL reverse logistics carrier service was available? What is the ratio between spending on reverse logistics and overall shipping costs?
The Importance of a Multifaceted Returns Strategy
Returns are inevitable. That means that retailers need clear processes regarding what to do with returned products. For example, an item sent back because of a simple error — the customer received the wrong color t-shirt — can go to inventory. Other returns are more complicated, such as a customer returning a mobile phone with a cracked screen. The retailer needs to identify some way to recycle this technology or recoup the loss. There are a number of issues retailers should consider when implementing their returns processes. Let’s take a look at these.
LEVERAGE YOUR STORE FOOTPRINT
The first strategy to control the cost of returns is to get those returns back to your facilities at the lowest possible price. That means that retailers with store footprints should consider using their existing infrastructure to turn stores into a fulfillment and returns centers for online consumers. This allows you to drive margins by reducing shipping costs. Furthermore, this increases customer footfall, and many of these customers are ready and eager to buy.
Ship to Store — also called Buy Online Pick-Up In Store (BOPIS) — gives customers the chance to decide if they will keep an item before taking it home, as well as to make additional purchases. BORIS — Buy Online Return In Store — is not only less costly for retailers, customers prefer it. The UPS study found that 58 percent of shoppers prefer returning an item in store, versus 42 percent who prefer to ship items back to the retailer.
If you don’t have bricks-and-mortar stores, or if you have a limited store footprint, using pick-up/drop-off (PUDO) facilities can control reverse logistics costs too. This also allows you to aggregate returns.
Staffed drop-offs offer much of the same benefits to customers as BORIS facilities — including no need to print a label as well as an immediate refund. Staff at drop-off facilities can also ensure that customers are not “wardrobers” returning worn clothes.
WORK WITH MULTIPLE CARRIERS
Many online retailers try to make it easier to facilitate returns by working with a single carrier for all returns. This works out great for the carrier, but could be costly to your business. A single carrier strategy means you’re unable to take advantage of cost efficiencies or lower priced services that other carriers may offer.
Multi carrier shipping software makes it easy to get the lowest price on every return. Despite the fact that you may use a number of carriers, multi carrier software solutions also give retailers a single source of reliable data about return shipping costs and performance. A comprehensive solution will allow you to track all return shipments, across all carriers, from a central portal. Retailers can also make this tracking facility available to customers, as well as store staff and managers.
ENSURE TIMELY DELIVERY
Seasonal and holiday items have high rates of returns — around 38 percent. If these goods are not delivered to customers in a timely manner, chances are they will look for an alternative in a bricks-and-mortar store. After all, nobody needs a Halloween costume in November. The holiday period is also peak season for parcel deliveries. Therefore, a multi carrier shipping solution helps ensure that your goods reach your customers efficiently — even at times when high volumes of parcels squeezes a carrier's capacity.
INCLUDE RETURNS PACKAGING AND LABELS
When retailers ship a product to a customer, they package it neatly, often with bubble wrap if necessary. Customers are unlikely to send back unwanted goods in the same pristine manner. Often they simply shove returns back into the box. Retailers should consider the type of packaging they use and whether customers can repurpose it for returns. For example, if you package a t-shirt in a dark plastic bag, the customer will rip it open before realizing that they have received the wrong color item. Retailers should also include appropriate returns packaging with delicate items to prevent breakage.
Furthermore, retailers should consider including a return label with the item. Should a customer decide to return, a pre-printed label encourages them to use your preferred return service. In addition, including a label with the delivery ensures that unwanted items return to the correct warehouse. If you sell high-value or seasonal goods, getting them back into inventory before they become obsolete is crucial.
REDUCE, REUSE & RECYCLE
Retailers who can’t return goods to inventory, or repurpose them, must consider recycling returned items. Around 30 percent of returns end up in landfill, often because clear procedures are lacking. E-commerce platform Shopify notes that more than half of distribution managers do not have the resources to determine if they should add a returned item to inventory, return it to the vendor or scrap it. Discarding products that could go back to inventory or sold to secondary markets not only damages a retailer’s profits, it has a huge environmental cost. Retailers should have a plan of action in place for returns, and remember to reduce, reuse or recycle.
About QAD Precision – Trusted Global Trade and Transportation Execution
QAD Precision (Precision Software), a division of QAD Inc., provides industry-leading global trade management, transportation execution and multi carrier shipping software solutions from a single, integrated platform. Preeminent industry leaders in every region of the world rely on QAD Precision’s global support centers to leverage thousands of carriers and manage millions of shipping transactions every day. Our open architecture easily integrates with Enterprise Resource Planning, Warehouse Management Systems and legacy solutions. An ISO-certified company, QAD Precision assists companies to minimize shipping costs, optimize first mile and last mile deliveries, automate free trade agreement compliance, avoid customs delays and mitigate the risks associated with dynamic trading environments to maximize their competitive advantage. QAD Precision’s customers span multiple industries including banking and finance, life sciences, high technology, retail, industrial, automotive, higher education and public sector as well as logistics providers. For more information about QAD Precision, visit www.precisionsoftware.com.
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