Supply chain · 8 December 2015

After the peak trading of Black Friday and Cyber Monday, comes the much less fashionable “Returns Saturday”

Returns can represent more of a headache than fulfilling customer orders in the first place
Returns can represent more of a headache than fulfilling customer orders in the first place

Ok, I admit it, “Returns Saturday” isn’t a defined day just yet – but parcel collection services up and down the country recently braced for the inevitable wave of requests to return recent deliveries.

For online retailers, this can represent more of a headache than fulfilling customer orders in the first place – with margins that have already been slashed damaged further by the cost of the returns. Having an easy, efficient and convenient returns service which is able to bend to customer demand is crucial to establishing and maintaining customer loyalty.

So how important is a customer returns process?

In addition to the statutory rights which generally allow buyers more flexibility and time to return products bought online than purchases made in physical stores, it’s clear that internet consumers are paying increased attention to the returns procedures when shopping online.

Some 36 per cent of respondents in a recent Comscore poll identify an easy and convenient returns process as a key way of differentiating between online retailers. And 89 per cent of respondents to the same survey would purchase online from the same retailer again following a positive experience sending something back.

How do I know the optimal rate of product returns for my business?

Identifying an appropriate level of customer returns for an individual business is fairly complex, as it relies on a variety of factors such as: business strategy, customer demographic, online industry and product range.

A fast growing fashion startup which achieves a product return rate of sales of around 20 per cent would be seen as having a good rate of return – especially if the returns primarily came from new and existing customers purchasing new product lines (i.e. a loyal customer, who usually buys t- shirts, purchasing shoes).

But a well-established electrical retailer with a return rate of sales of 20 per cent would be considered to have a high returns rate, and would need to quickly understand why the products delivered appeared to not meet customer’s expectations.

Is there anything I can do to reduce my sales rate of return?

There are a wide range of strategies which can be employed at each stage of the supply chain, including: clearer product imagery and descriptions, improved fulfilment processes to prevent errors and offering a wider variety of delivery options.

An emerging area of focus is identifying and limiting “deliberate return purchases” – when a customer purchases at least one additional item to qualify for a promotional discount or free delivery. In a high proportion of cases these products are returned with product seals intact, as they were purchased without the intention of ever keeping the additional items.

Detailed analysis of customer behaviour can shed light on when and why certain customers opt for such purchases, and if a business is using the appropriate combination of delivery services and pricing required by its customers.

Once the cost of delivering, collecting, processing and restocking the returned item is taken into account, the remaining margin on the resale of the product – on the proviso that someone else is willing to buy it – tends to be significantly impacted.

However, reducing the sales rate of return is not always right for every business – with various studies showing that a higher rate of returns can drive higher sales. Encouraging existing customers to try new product categories is likely to lead to a short term increase the proportion of product returns but has the potential to deliver long term sales growth.

By answering the questions above, online retailers can begin the process of developing a product return strategy.

Only once this is done and targets appropriate to the business plan have been agreed can the logistics be addressed.

There are a range of questions which need to be asked to identify the most suitable return logistics processes, including:

  • Would a single returns method be suitable and cost effective for a diverse product range?
  • How is the carriage cost of returns going to be reimbursed to the customer?
  • Does the returns rate vary between product groups?
  • Do the businesses’ supplier agreements meet the customer requirements?
  • How frequently are customer returns going to be processed and paid?
  • Does the business have the enough spare management capacity to handle the processes?

Through mapping the physical flows and expected volumes, the amount of warehousing space and resources required can be analysed over a variety of timescales. This process helps identify any peak capacity constraints and allows solutions to be developed before these events occur.

In summary, a defined product return strategy is crucial for maintaining customer loyalty and business growth. Those online retailers who operate a detailed returns strategy and have in place a defined returns logistics processes are far more likely to meet and exceed customers’ expectations.

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Simon Dixon is the managing director of supply chain and logistics advisors Hatmill. He has worked in supply chain management for the past 19 years, both in industry and in consultancy. Simon's client experience includes the top four UK supermarkets and over 50 other clients spanning sectors such as construction and ecommerce.