8 Ways To Lessen The Profit Impact of Customer Returns


In deciding whether to shop direct, or in brick and mortar stores, major studies in the past couple years show 80%+ of the consumers state that ease of returns is important to their purchasing decision.  The numbers are even more telling after a return is made.  An even higher percentage of customers are likely to shop with an online merchant again if the return process is convenient.  This includes “free returns”.

Who wants to buy a product that can't be returned, or carries numerous conditions?

 My favorite example is Crutchfield Corporation.  Bill Crutchfield, president and founder of Crutchfield, Inc., the car audio and home theater direct marketer, 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 who were returning products to find out why. What he learned was that the customers were frustrated by not being able to install the product in their vehicle.  There were no instructions provided by the vendors! He realized that 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 their technicians can use to talk customers through the installation. Crutchfield also developed product mountings to hold the products to the car dashboard and interior, and they produce customer 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", that is, work 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 areas that could benefit from this approach. 

However, fitted apparel, color/size items and shoes have high return rates between 15% and 30% where customers choose different colors and sizes and return those they don’t want.

One can’t expect to totally eliminate all returns, but here are 8 ways to lessen the profit impact of returns on your multichannel business:

  1. Understand your categories’ rate of return. Measured as a percent of gross demand - product categories will vary. Ride herd on the problems you can control that cause returns.  Some examples may be creative and photography, carrier damage problems, picking errors, vendor supplier QA problems, etc.  Develop a meaningful reason for returns report by vendor and SKU.  Additional knowledge about item returns can come from return correspondence, emails and chat messages and the contact center reps.
  2. Returns cost more than orders to process. If the return isn’t an exchange transaction you lose the gross margin on the sale, order and returns processing costs, customer acquisition costs, etc. Streamline the return process in your order management system or warehouse management system to process returns efficiently. These processes include credit refunds or exchanges; update to the customer file and determine the product disposition.  Apply bar code reading to access customer records from carton labels and return processing documentation cutting done errors and time.
  3. Credit customer accounts quickly. Customers are often at their credit limits. Intentionally delaying credits and refunds to aid your cashflow may add to customer dissatisfaction and reduce future purchases.
  4. Reverse logistics services. For high return businesses, consider using a third party returns processing service such as Newgistics and Genco for more efficiency and reduced costs.   UPS surveys have shown positive impact from customers in businesses providing free return labels.
  5. Plan returns into purchase plans.  Inventory control should buy net of planned returns rather than gross demand to not end up with overstocks at end of season. 
  6. Work station design. Design your workstations where returns are processed with efficiency in mind.  Returns generate tremendous trash and recyclables.  Is there sufficient space to store unopened packages?  Can trash be taken away to a compactor by conveyor?   Consider the desired flow of product and provide sufficient operating space.  Consider what supplies or equipment is needed in order to put the inventory back into saleable stock – i.e. steamers for getting creases and wrinkles out of apparel.
  7. Receiving space. Many warehouses are not planned with suffice space to receive returns, open, process and inspect returned product. In a high return business a 15% to 30% return rate requires considerable additional space near the dock.      
  8. Returns used to fill back orders. Cross-dock returns whenever possible. If the returned item is on backorder, you can ship it to the waiting customer rather than restocking it, replenishing forward pick and then pick, pack and ship the new customer order.

Returns are expensive.  In the new year consider how you can significantly reduce their impact on customer attitudes, your service and profitability. 

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