Opinion: How to minimise lost profits and maximise customer satisfaction with returns

There are huge opportunities for retailers to reduce the money they lose through returns by improving the process, says Andrew Tavener, head of marketing at Descartes.

Online retailing has expanded rapidly, the growth of the Internet and advancements in delivery capabilities has seen many small businesses take advantage of this, selling through online marketplaces to maximise their reach.

These global marketplaces are predicted to own 39% of the online retail market by 2020.  On the surface, this approach is perfect for consumers, who can easily shop from their favourite retailers all in one place. However, underneath, retailers are faced with the difficult and sizeable task of managing the deliveries and returns efficiently and at a low cost.

For while more marketplace exposure means more sales, it also equals more returns; made even more complex by the requirement to offer the return policies designed by the marketplaces. For example, Amazon now requires third-party sellers to accept “automatically authorised returns”.

This means retailers must accept returns without having any direct contact with the customer, exactly when many businesses try to resolve customer issues to preclude returns. There are, however, ways to improve the control of online returns in the face of changing customer expectations and marketplace practices, which are critical in this competitive environment.

Understanding how best to manage product returns to reduce costs and maximise efficiency is key, and as disappointed gift recipients are busy returning their unwanted merchandise, here are four strategies online retailers can use to tighten the returns process:

  1. Return policies must be a forethought.

Marketplace policy changes give retailers the opportunity to rethink how they handle returns. According to recent research from Royal Mail, nearly half of shoppers (47%) said they would be unlikely to shop with a retailer again if it charged for returns, and 60% would be less likely to shop with them again following a difficult returns experience. Clearly a well thought out returns policy is critical to good customer relations. Sellers need to decide whether to offer one return policy – for example, Amazon’s – or different policies for each marketplace/channel or for various product offerings (for example: low-end versus high end).

Some businesses set policies based on the most generous marketplace policy. If sellers choose an “Amazon-style” return policy with instant returns and free shipping, this can be promoted up front as part of a company’s brand. Unmistakably, a simple online returns process helps drive sales and cement customer loyalty – and overlooking the impact of a poorly considered returns opportunity can be costly.

  1. A free returns policy might not always work.

Returns can have a big financial impact on profits. Depending on the industry, return rates can be very low or very high. Book and video returns can run two / three per cent, while clothing and jewellery can run upwards of 30 per cent. Companies should right-size return policies based on industry standards and actual return rates.

Businesses with healthy profit margins can build the cost of returns into a product’s price. Charging restocking fees or not accepting online returns is less common but, for certain products or industries, it makes financial sense. For example, companies selling new laptops might find a restocking fee may be the only way to support thin margins.

Likewise, for clothing subscription services a restocking fee for returns makes sense, since the items are essentially specifically tailored for an individual. Evaluating whether the return policy of a particular marketplace works is therefore a critical part of the business decision to sign up to the marketplace in the first instance.

  1. Sellers should right-size returns automation based on business needs.

Retailers with high return rates may need a great deal of automation. Small businesses with fewer returns can often manage them in-house using cloud-based shipping solutions that simplify printing or electronically creating return postage labels that customers print themselves. Barcodes on labels quickly identify customer records and product numbers to speed the return process, cut down on errors and save time.

Integrating with internal systems is important for large retail operations with high return volumes. Returned packages sitting on the warehouse floor cannot be effectively put back into stock without the right system in place. Connectivity must flow from the customer to the warehouse to the shipper into marketing, sales and accounting.

For companies with few internal fulfilment resources, a third-party processing service can help. Merchants need to weigh the benefit versus the cost of using fulfilment and returns processing by marketplaces or third-parties. Another way to manage returns if there aren’t in-house resources is to monetise returns by sending returned merchandise directly to a reverse logistics partner that liquidates inventory.

  1. Returns cut into profits so minimising them is important.

Good customer service helps avoid unnecessary returns by solving a customer’s problem with support, rapidly replacing missing/damaged items or making exchanges. But, heading off an unnecessary return is hard when marketplaces allow automated returns with no merchant contact.

To combat this, sellers should use “scan based” return labels when possible. With these labels, the retailer is only charged if the label is used. Some retailers report that 10 percent or more of the requested returns are never actually sent in, making scan based return labels an instant money saver.

Providing customers with current, accurate product information is also important. By connecting ecommerce marketplaces to internal order status, pricing and inventory processes, customers know if a product is in stock and when it will ship. Detailed product descriptions and quality images help to avoid misunderstandings. Customer feedback/review functions provide even more information to support making the right choice.

Finally, it’s useful to track which products are returned and why. Develop a “reason for returns” report by manufacturer and SKU. This allows vendors to troubleshoot and avoid future returns.

Changes in return policies by Amazon and other marketplaces are an opportunity for ecommerce businesses to take charge of returns. Online sellers can use this as a chance to create better customer communication and loyalty, whilst addressing how returns affect the bottom line and streamline logistics.

Andrew Tavener is head of marketing at Descartes.