8 Ways to Lessen the Profit Impact of Ecommerce Returns

In deciding whether to shop direct or in brick-and-mortar stores, more than 80% of consumers say that ease of returns is an important in their decision. The numbers are even more telling after a return is made, with an even higher percentage of customers likely to shop with an online merchant again if the return process is convenient.

Who wants to buy a product that can’t be returned or carries many conditions?

Bill Crutchfield, president and founder of car audio and home theater direct marketer Crutchfield, Inc., learned early on in his business about customer returns. He told me a while back that he almost quit the business over 25 years ago because returns were so high. Luckily, before he did so, he decided to call many of the customers returning products to find out why. What he learned was that they were frustrated by not being able to install the product in their vehicle – there were no instructions provided by the vendors! He realized he would have to invest in researching and writing installation instructions for each product in every vehicle the product would fit.

Now Crutchfield has a database of thousands of models that its technicians can use to talk customers through the installation. The company also developed mount hardware to hold the products to the car dashboard and interior, and produces vehicle-specific instructions with pictures. In the end, Bill Crutchfield’s lesson resulted in one of America’s largest, most innovative and customer-centric multichannel marketers.

That’s what I call ‘save the sale”: Working with customers to help them understand the product and how to install or use it. Consumer electronics, software and technical products are far and away the biggest problem categories that can benefit from this approach.

Fitted apparel and color/size items also have high return rates between 15% and 30% where customers choose different colors and sizes.

You can’t expect to totally eliminate all ecommerce returns, but here are 8 ways to lessen the profit impact:

Understand your rate of return: Measured as a percent of gross demand, product categories will vary. Ride herd on the controlled problems that cause returns such as creative and

photography, carrier damage problems, picking errors and vendor/supplier problems. Develop reason for returns reporting by vendor and SKU. Return information also comes from correspondence, email and chat messages and contact center reps.

Returns cost more than orders to process: If the return isn’t an exchange transaction you lose the gross margin, processing costs and customer acquisition cost. Streamline the return process in your order management or warehouse management system to process them more efficiently. This includes credit refunds or exchanges, updating the customer file and determining the product disposition. Apply barcode reading to access customer records from carton labels and return processing documentation will cut down on errors and save time.

Credit customer accounts quickly: Customers are often at their credit limits. Intentionally lagging credits and refunds to aid your cash flow may add to customer dissatisfaction and reduce future purchases.

Reverse logistics: For businesses with high return rates, consider using a third-party returns processing service such as Newgistics or FedEx GENCO to gain efficiency, reduce costs and improve the customer experience. UPS research has shown a positive impact on customer loyalty when a merchant provides free return labels.

Make returns part of your purchase plans: As part of your inventory control, you should purchase based on net of planned returns rather than gross demand to avoid ending up with end-of-season overstocks.

Workstation design: Design your workstations with efficiency in mind, including allowing room for removal of returned boxes and other trash. Consider the desired flow of product and provide sufficient operating space.

Warehouse space: Many warehouses are not planned with sufficient space to receive returns, including the ability open, process and inspect returned products. In high-return businesses this can significantly slow down DC production.

Returns in, backorders shipped out: Cross-dock returns whenever possible. If the returned item is on backorder, you can ship it right out to the waiting customer rather than restocking it, thus replenishing your forward pick locations.

Curt Barry is Founder and President of F. Curtis Barry & Company

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