Strategies to Convert Returns Management From a Drain to a Profit Center

Product returns are a part of every merchant's operations, whether you sell online, retail, catalog, B-to-B, apparel, consumer electronics, etc. In fact, according to a recent survey, returns cost retailers $53 billion last year alone. But what's often viewed as a drain on profits and employees’ time can also be an opportunity to attract and retain customers when the process is handled right.

At last week's National Conference on Operations & Fulfillment in Orlando, Fla., Rob Martinez, CEO of Shipware Systems Corp., a distribution solutions and strategies consulting firm for volume parcel shippers, led a session to help retailers identify best practices in returns management.

Impact on Customer Experience
Consider the following statistics from a recent survey conducted by Shipware Systems highlighting the value consumers place on a retailer's returns policy:

• 85 percent of consumers said they'll not shop with a retailer again if its return process isn't convenient; and
• 95 percent said they'll shop again with a retailer if its return process is convenient.

Depending on the channels you sell in and the products you offer, the percentage of your sales that are returned can vary greatly. Online and catalog retailers, for example, generally see much higher return rates than retail stores. This makes sense for a couple of reasons, Martinez said. Products sold online and in catalogs are unseen (consumers are unable to touch them); there's greater opportunity for buyer's remorse as the time delay waiting for products affects emotional purchases; there's greater opportunity for error with delivered products (e.g., picking, packing, out of stock); and consumers behave differently when they shop online — e.g., purchase multiples of the same item (e.g., a sweater), then return the sizes that don't fit.

As for return rates for product categories, apparel registers higher rates of return than electronics, for example. The national average for returns as a percentage of retailers’ outbound products is 5.2 percent.

Return Policy Best Practices
With product returns inevitable, retailers must shift their focus from what returns are costing them to what they can gain from the process — namely, customer loyalty. Martinez presented the following best practices to help make your returns policy a source of strength.

Make your policy visible. Include your company's returns policy on all outbound packages that you send, Martinez said, as well as prominently display it on your website. Then run tests to find the optimum places to post this information — i.e., which creates the least amount of returns.

Determine a balance between customer satisfaction and profitability. While very few retailers are currently making money off of returns, you can build customer loyalty with a liberal returns policy. Of course, that may mean eating some more of the costs yourself.

Martinez cited Zappos.com as an example of a company that's set itself apart in its marketplace because of its returns policy. Zappos.com takes all returns, no matter the reason, and picks up 100 percent of the costs. Consequently, it has a 35 percent return rate. But the trade-off is its extremely high customer loyalty and retention rates, which in part have led the company's skyrocketing growth.

Require return merchandise authorization (RMAs) forms. Without capturing the information contained in these forms — including product(s) being returned, customer who's returning it, why they're returning it, when they bought it, whether they want credit for their purchase or a replacement product, etc. — you're blind, Martinez said. Once you have this information, communicate it with your marketing team and suppliers.

Identify your top reasons for returns, then target solutions. If you find there's a high percentage of returns because the wrong size or color of the product was shipped, for example, investigate whether a new pick/pack system would be a wise investment. Likewise, if you see buyer's remorse is a problem, consider a shipping carrier that can deliver products more quickly. If you're frequently hearing from customers that items in-person look different than what's featured online or in your catalog, seek to improve the quality of your photography (e.g., various angles, zoom-ins).

Survey customers to ensure satisfaction with your returns policies and practices. This is as simple as sending a postcard to your customers, Martinez said. Consider including the following questions:

• Was our return policy easy to find?
• Was it easy to understand?
• How was working with our shipping carrier?
• Did you receive your credit?

Evaluate your returns policy frequently. At a minimum of once a year, Martinez advised. And the more frequently you revise your policy based on analytics — e.g., reorders, future sales — the lower your return rates will be, he added.

Provide visibility to customers throughout the return shipping process. This can be accomplished via email, Martinez said, alerting customers where their product(s) is during each stage of the return process. Issuing RMAs greatly aids in this process, as you'll know the shipping carrier and the item(s) being returned. Doing this improves customer service through CRM updates and more timely customer refunds, as well as enables operational efficiencies and proper staffing through scheduled deliveries and accurate forecasts.