3 Hidden Returns Costs and How Retailers Can Reduce (or Eliminate) Them

It’s rare for survey respondents to agree decisively on anything, but Voxware's third biennial consumer survey found that nearly every shopper shared the same opinion in one key area: 96.8 percent of consumers agreed that how well an online retailer handles returns influences whether they will decide to order items from it again in the future.

What can a retailer do to deliver a positive returns experience in the eyes of today’s discerning shopper? For starters, retailers need to make it easy for consumers to return items purchased online or over the phone through the channel of their choice. The survey found that 36.2 percent of shoppers prefer to return items via pre-paid mailing label, and 44.9 percent prefer to make in-store returns.

Additionally, although consumers return items for a variety of reasons (e.g., disliking an item after seeing it in person, poor quality, signs of damage or previous use, wrong size), 23.2 percent of respondents reported that 10 percent or more of the items they return are due to retailer error. Of this group, 31.4 percent have received an item that was the correct style but incorrect size or color, and 21.5 percent have received the incorrect item altogether.

One of the biggest takeaways of these findings is that far too many gaps remain in many retailers’ distribution operations and that these gaps lead to unnecessary returns and costly errors that cut into already slim margins.

If retailers fail to correct these shortcomings, there are three hidden returns costs that they will continue to incur:

Cost No. 1: Replacing incorrect items quickly:

When consumers receive an incorrect item, they demand that the mistake be fixed promptly: 28.4 percent expect to receive the correct item in two days or less, and 72.8 percent expect to receive it in four days or less. In practical terms, that means retailers must absorb both the shipping fees to return the incorrect item and the expedited shipping to send the correct item.

Cost No. 2: Compensation for late and incorrect items:

Retailers that think the financial impact for botched deliveries is limited to the logistics costs to replace the item should think again. This survey found that 37.7 percent of consumers expect compensation in the form of a discount, coupon or credit for both late and incorrect deliveries.

Cost No. 3: Damage to brand reputation:

In addition to the first two immediate and direct hits to the bottom line, retailers that ship incorrect items must also contend with the impact that a single customer’s experience can have on their reputation. After receiving a late or incorrect delivery, 45.5 percent of consumers report that they're likely or very likely to share their negative experiences on social media, customer review sites or other public forums.

Can Companies Reduce or Eliminate These Hidden Costs?

Fortunately, the reason that many companies incur costs associated with processing incorrectly shipped items is because they still rely on outdated or inefficient systems in the distribution center, and that’s a problem that can be fixed. Retailers should consider implementing technology in their distribution centers to exceed accuracy and efficiency goals across a broad spectrum of functions to ensure both correct delivery of items and fast processing of returned items. A number of tools can help companies improve accuracy to over 99.9 percent, which not only reduces the direct costs associated with incorrect deliveries but also helps companies deliver the superior customer experience essential to achieving greater brand loyalty and higher customer lifetime value. Smart retailers will take steps over the next few months to upgrade their distribution centers to ensure a better returns experience for customers.

Keith Phillips is the CEO of Voxware, a provider of cloud-based voice solutions.