Your planning for this year’s peak holiday season is well underway. One area that often gets less attention is ecommerce returns processing. Returns are a necessary evil in an ecommerce business and if the process is not efficient, it will hurt both profitability and the customer experience.
Here are 12 ways to get your ecommerce returns operations ready for the upcoming peak holiday season:
Quantify Projected Number of Returns
Two aspects are important: the rate of return of categories and number of returns expected in the peak return week. From our consulting experience, the following are typical return rates we see (as a percentage of demand) for consumer ecommerce categories:
Category Returns Rate
Hard goods, gifts 1%-5%
Home décor 5%-9%
Casual apparel 10%-20%
Fitted apparel 20%-30%
High fashion 25%-40%
Returns lag the order shipment curve by two to three weeks. How many returns will you need to process in a peak return day and week? This should be used to evaluate space use and process improvement.
Identify Returns Costs
Returns cost more than orders to process. Identify these operational costs:
- Handling: unloading returns; processing through all customer service and merchandise disposition steps; put away.
- Refurbishing: Preparing product for resale including pressing, re-bagging and re-boxing.
- Pick/ship customer exchanges: labor, materials and shipping costs for exchanges, which can be as high as 30% of the returns received.
- Lost gross margin: if damaged in fulfillment or shipping.
- Lost gross margin on a sale: if not an exchange.
- Customer confidence: potential loss of customer and lifetime value from poor return handling, damage or poor product quality
Consider these costs as you look to improve the process.
Reasons for Returns Reporting
Quantify the reasons customers are returning your product. For every category there is a natural return rate. Ask the customer to identify the reason and report it out by vendor, item and SKU to merchandising, inventory control and creative. Put in place methodology to improve controllable returns causes.
All but the last reason in this list below you can control or reduce occurrences. Typical reasons for returns include:
- Poor product quality
- Damaged in shipping
- Wrong size
- Wrong item sent (mis-pick)
- Received late
- Not as pictured or described
- Unspecified choice
Best-in-class companies process ecommerce returns within 24 hours of receipt for all steps including crediting customer accounts.
Improve Returns Layout
Is the area near the inbound docks right sized considering the return rate and the projected weekly flow? Locate it strategically to avoid congestion moving returns through warehouse. Supplies and equipment should be readily accessible at work stations. The work station needs to house a terminal, open boxes and paperwork, and is often undersized. Provide rubber mats to reduce fatigue from standing. Set up separate areas for refurbishing, re-bagging and re-boxing.
Ecommerce returns generate a lot of trash from cartons and dunnage. How will it be removed, bailed and stored for recycling? Clearing trash is essential to keeping workspaces freed up. Do you have takeaway conveyors?
Consider adding a barcoded return label to outgoing orders. Include instructions and return policies for returning and a simple “reason for return” check box.
Streamline the Process
Some fulfillment centers have a single person do all the steps for each individual return. Others have found a two-person team can work more efficiently. One person opens the carton, inspects the item and determines disposition. The second handles paperwork and all online customer service steps, then processes the item back into stock.
Provide adequate shelf/rack storage for items ready for put-away. Items should be clearly identified by pick location.
Pick from Returns
Some companies have set up returns pick locations rather than restocking in forward or bulk storage. This eliminates long walk times for restocking small items. The downside: you need additional pick faces.
For companies with high return rates, consider the use of a third-party logistics (3PL) provider that handles reverse logistics.
Use more experienced people in returns to reduce costs and speed up the process.
While you’re never going to eliminate all ecommerce returns, you can improve efficiency and reduce costs and make the customer experience less painful.
Brian Barry is president of F. Curtis Barry & Company