Returns on average are around 17% of sales – rising to 45% for some categories.
Understanding the full impact of returns on customer experience, costs, sustainability and resale return requires a holistic end to end view of the entire process.
Gartner estimates 69% of businesses don’t understand the full cost of returns.
One of the persistent problems that all retailers deal with, and especially when a sale is online, is returns – in Australia the return rate ranges from approximately 5% for categories such as computers to up to 35% in fashion - one retailer has told me that in during sale periods this can rise to 45%. In the US returns are now 16% of sales ($816B) - up from 10.6% two years ago . The impact of returns and how they are managed is significant:
Customer Experience – the ease, speed and cost of returns if a factor in determining if a shopper will purchase in the first place and a positive returns experience leads both to a likelihood of an exchange and future purchases. But the best outcome is not to have a return in the first place – and there a number of strategies ranging from merchandising through to improved use of data and analytics that can drive return rates down.
Waste– consumers are increasingly making choices on brands that demonstrate a commitment to the environment. In the US 2.6 billion kg of returns went to landfill In Australia, although not all of this is returns, the Fashion Council estimates that up to 220 000 tonnes of clothing goes into landfill each year.
Cost and Profitability – a recent study found that it costs between 20 -39% of an items value to process the cost of a return. Gartner estimates that 69% of businesses don’t understand the full cost of returns and less than 20% of retailers have clearly defined metrics for returns – ranging from understanding the full impact on customer experience and lifetime value of customers through to the actual logistic return cost, the physical handling and assessment, the storage and if the return on “re-commerce/re-sale” maximizes the value of the product.
So, what can be done? A good place to start is re-framing returns. When I have managed the return process it was often referred to the “back-end” of the business – something that was messy, hard and with multiple owners – not all of whom were aligned around a common set of objectives. The team members dealing with returns also are often organized in functions with little or no visibility of the end-to-end process or goals. Return processes are sometimes even managed, and measured, differently depending on the sales channel – all of which leads to a sub optimal result for the customer, the brand, costs, profitability and employee engagement. Who wants to come to work each day not knowing how you’re impacting customers, the business or making a difference to the environment?
One of the ways to approach returns would be to ask “what if returns was our business” – reducing/avoiding returns as much as possible but there is to be a return, how is the process managed that:
delivers an outstanding customer experience and
processes the return quicker with lower costs and
with lower impact on the environment/supporting our brands sustainability message and
maximizing the price in brand approved channels/markets if goods are resold.
These goals don’t need to be “traded off” – return avoidance, customer experience, lower cost, improved sustainability and improving resale return are all possible. I’m not suggesting it’s easy (often there are not just different functions but also third party logistics providers, processing providers etc.) – but by reframing the returns process as a business opportunity and applying the same rigour and focus to “new sales”. For example, using data and insights (for return avoidance, return forecasting and return planning) through to ensuring that the entire process and handoffs is understood and managed – and that teams all have visibility of the end goal and the impact that they are making.
Breaking through organization silo’s and organizing around a common set of objectives can be difficult – and even more so when there are third party companies involved. The good news is that once the returns opportunity has been identified and metrics for the overall process the overall process can be broken into distinct stages, each with its own metrics that can be linked to the overall goal. In my next note I’ll suggest some steps to take to bring this to life.
Comments