Executive Briefings

Is Your Business Ready for a Spike in Customer Returns?

What would you do if you knew your business was going to face a loss of as much as nine percent of bottom line sales? Hopefully, you would try to avoid calamity by putting steps in place to manage the situation with a customer-friendly returns management program.

Is Your Business Ready for a Spike in Customer Returns?

Businesses are facing this reality today when it comes to customer returns.  Analysis of data by the National Retail Federation found that in 2012, returns accounted for 8.77 percent of total retail sales, a figure that represents more than $260bn annually.  This figure marks a 12-percent increase since 2008, and is expected to continue to climb.

The good news, though, is that businesses are getting smart about returns, and realizing that returns don't have to be an eight-percent drain on the bottom line.  Instead, a properly managed reverse logistics strategy can help recapture value from returned merchandise.

A good returns program can be an excellent way to connect with customers by providing high quality customer service through an easily accessible returns process.  ComScore found that 85 percent of online shoppers said they would not shop again at a retailer with an inconvenient returns policy.  Keeping customers is key as it costs five times more to attract a new customer than to keep an existing one.

As you consider how to manage your business's returns, it's essential to take a broad view.  It's not as simple as finding a way to accept and process returns from customers.  Other factors must also be considered, including regulatory issues, secondary market options, and sustainability.

You also want to give thorough consideration to your logistics partner.  Not every logistics provider can accommodate a comprehensive returns management process.  Choose a logistics provider that can be a part of your returns strategy from the ground up - a provider that will bring experience and resources and will add value to your returns objectives.  For example, if you expect a significant volume of returns from your Canadian customers, then be sure your logistics provider has expertise in the Canadian market!

First, let's understand why of returns are up.  Ecommerce is an obvious explanation, as many consumers order merchandise unseen, and either change their mind before the item is delivered, order the wrong size/color, click on the incorrect item, or simply decide it's not what they were looking for.  The Wall Street Journal reports a returns rate of between 20 and 40 percent for online purchases.

Businesses that sell over the internet also need to factor in returns coming from their non-U.S. customers.  To cite the Canadian example again, Canada has seen a surge in ecommerce in the past few years, and online spending is expected to double to more than $30bn by 2015.

Of special note to U.S. businesses, more than 60 percent of Canadian shoppers have made purchases on U.S.-based websites.  If your business has invested the resources necessary to cultivate Canadian consumers, you need to "finish the job," and make sure you have a way to manage the invariable returns from Canada.  This will mean having a process for your Canadian consumers to download the necessary labeling and shipping information; a distribution network that can access consumers living in Canada's remote regions; and expertise in navigating the highly bureaucratic and technical border compliance process.  Goods being returned to the U.S. are international transactions, and trigger very specific customs requirements.

Beyond the question of "why" rates of returns are up, it's important to keep in mind that most returns are sent back strictly because of customer preference, rather than because of any defect.  Reverse logistics consultant Greve-Davis reports less than 20 percent of returned products are defective.

The secondary market accounts for roughly 2.28 percent of overall GDP.  Consider the cell phone industry.   Every year roughly 1.2 billion cell phones are sold throughout the world, with a return rate of roughly 8 percent.  That means that 96 million phones - perfectly usable devices - are available for resale.   There's a lot of money to be had on the secondary market - more than $15 billion annually for cellphones and other consumer electronics.

Your business must adopt a returns policy that satisfies customers, aligns with your business interests, and is workable and affordable.  Once you have set the terms of your policy - how many days from point of sale will returns be accepted, is original packaging necessary, whether to issue refunds or credit, whether to offer free shipping - it's critical to work in partnership with your logistics provider to execute your strategy.

For one thing, you will need flexibility.  If your business is subject to peaks and valleys, you will need a logistics plan that can accommodate periods of high returns.  A ski apparel company, for example, will need more capacity during the winter months, but should not have to pay for unneeded capacity during the slower summer months.  A good logistics provider will be able to develop a returns management plan that sets terms for pick-ups and deliveries based on your expected volume.

Another consideration is where to bring those returns.  A growing trend is to process returns at a dedicated returns center, rather than via a traditional distribution center.  A dedicated returns center allows businesses to focus resources and build best practices.  A dedicated returns center can be as much as 20 times more efficient than multiple processing points.

The location of your returns center is critically important.  For returns from Canada, you will want to have goods consolidated at the border, so that smaller shipments can be combined into a single, larger unit.  Consolidation can greatly facilitate the customs review process and add a high degree of efficiency into the process.

Technology has enabled fabulous innovations in returns management, and can be a centerpiece to your reverse logistics program.  The Returns Management Authorization (RMA) process, for example, has become an integral part of a well-managed returns policy.

RMA technology tells a business exactly what goods are being returned and for what reason.  Pre-printed shipping labels guarantee that returns are sent to the correct processing center.  And from a consumer's perspective, the authorization number offers an easy point of reference for tracking the status of a return.

The importance of customer satisfaction in the returns process cannot be overstated.  Customers are demanding that returns be handled quickly, hassle-free, and with complete visibility into the process.

Once your customer's return arrives at your designated processing center, you have a very short window in which to identify and resolve the reason for the return.  One study found that 70 percent of consumers expect service on their returns within 48 hours!  Considering that only about 20 percent of returned goods are actually defective, it is essential for returned merchandise to be received, evaluated and processed as quickly as possible.

If a refund or merchandise credit is due, for example, turnkey solutions are available that can manage the process.  For product replacements, an ample inventory should be maintained at your returns center, to ensure that items returned because of sizing and other non-performance issues can quickly be processed.

Provisions should also be made for repairs.  Your returns center should stock a complete supply of spare parts necessary to make repairs.  Managing the repair process has traditionally been the weak link for many businesses.  In fact, a report by the Reverse Logistics Association found that "managing the "˜return and repair' processes account for 10 percent of overall supply chain costs."  But ineffective processes can compound this cost and reduce profit by as much as 30 percent.  Businesses are rectifying this problem by outsourcing their repairs, or contracting with repair centers.

A final consideration is the integration of sustainability into your reverse supply chain.  Sustainability can come in many forms ranging from removal of outdated products from inventory,  proper disposal of dangerous parts and chemicals, recycling of component parts on the secondary market, to the actual packaging and transportation logistics.

Certain aspects of sustainability - disposal of hazardous chemicals - require compliance with environmental and other regulatory mandates.  It's essential to have a logistics provider who is well versed in the nuances of  these requirements, and who can ensure compliance while at the same time maximizing efficiency.

Many businesses have found that increased sustainability has had a positive impact on efficiency and cost savings.  Cisco, for example, cites packaging redesign as the source of $24m in annual savings.

It used to be that a business would simply ignore customer returns - letting them sit in a pile until someone finally got around to dealing with them.  Or businesses would try and dissuade customers from even trying to return products by making the process difficult.  We've come a long way since then, largely because we can quantify the impact returns have on a business's bottom line.  Roughly 8 percent of sales are returned each year, at an annual cost that exceeds $200bn.  The question for your company is not if returns are going to occur, but rather, will you be ready?

Source: Purolator International


Keywords:  reverse logistics, returns process, reverse supply chain, supply chain management, logistics services, logistics & supply chain

Businesses are facing this reality today when it comes to customer returns.  Analysis of data by the National Retail Federation found that in 2012, returns accounted for 8.77 percent of total retail sales, a figure that represents more than $260bn annually.  This figure marks a 12-percent increase since 2008, and is expected to continue to climb.

The good news, though, is that businesses are getting smart about returns, and realizing that returns don't have to be an eight-percent drain on the bottom line.  Instead, a properly managed reverse logistics strategy can help recapture value from returned merchandise.

A good returns program can be an excellent way to connect with customers by providing high quality customer service through an easily accessible returns process.  ComScore found that 85 percent of online shoppers said they would not shop again at a retailer with an inconvenient returns policy.  Keeping customers is key as it costs five times more to attract a new customer than to keep an existing one.

As you consider how to manage your business's returns, it's essential to take a broad view.  It's not as simple as finding a way to accept and process returns from customers.  Other factors must also be considered, including regulatory issues, secondary market options, and sustainability.

You also want to give thorough consideration to your logistics partner.  Not every logistics provider can accommodate a comprehensive returns management process.  Choose a logistics provider that can be a part of your returns strategy from the ground up - a provider that will bring experience and resources and will add value to your returns objectives.  For example, if you expect a significant volume of returns from your Canadian customers, then be sure your logistics provider has expertise in the Canadian market!

First, let's understand why of returns are up.  Ecommerce is an obvious explanation, as many consumers order merchandise unseen, and either change their mind before the item is delivered, order the wrong size/color, click on the incorrect item, or simply decide it's not what they were looking for.  The Wall Street Journal reports a returns rate of between 20 and 40 percent for online purchases.

Businesses that sell over the internet also need to factor in returns coming from their non-U.S. customers.  To cite the Canadian example again, Canada has seen a surge in ecommerce in the past few years, and online spending is expected to double to more than $30bn by 2015.

Of special note to U.S. businesses, more than 60 percent of Canadian shoppers have made purchases on U.S.-based websites.  If your business has invested the resources necessary to cultivate Canadian consumers, you need to "finish the job," and make sure you have a way to manage the invariable returns from Canada.  This will mean having a process for your Canadian consumers to download the necessary labeling and shipping information; a distribution network that can access consumers living in Canada's remote regions; and expertise in navigating the highly bureaucratic and technical border compliance process.  Goods being returned to the U.S. are international transactions, and trigger very specific customs requirements.

Beyond the question of "why" rates of returns are up, it's important to keep in mind that most returns are sent back strictly because of customer preference, rather than because of any defect.  Reverse logistics consultant Greve-Davis reports less than 20 percent of returned products are defective.

The secondary market accounts for roughly 2.28 percent of overall GDP.  Consider the cell phone industry.   Every year roughly 1.2 billion cell phones are sold throughout the world, with a return rate of roughly 8 percent.  That means that 96 million phones - perfectly usable devices - are available for resale.   There's a lot of money to be had on the secondary market - more than $15 billion annually for cellphones and other consumer electronics.

Your business must adopt a returns policy that satisfies customers, aligns with your business interests, and is workable and affordable.  Once you have set the terms of your policy - how many days from point of sale will returns be accepted, is original packaging necessary, whether to issue refunds or credit, whether to offer free shipping - it's critical to work in partnership with your logistics provider to execute your strategy.

For one thing, you will need flexibility.  If your business is subject to peaks and valleys, you will need a logistics plan that can accommodate periods of high returns.  A ski apparel company, for example, will need more capacity during the winter months, but should not have to pay for unneeded capacity during the slower summer months.  A good logistics provider will be able to develop a returns management plan that sets terms for pick-ups and deliveries based on your expected volume.

Another consideration is where to bring those returns.  A growing trend is to process returns at a dedicated returns center, rather than via a traditional distribution center.  A dedicated returns center allows businesses to focus resources and build best practices.  A dedicated returns center can be as much as 20 times more efficient than multiple processing points.

The location of your returns center is critically important.  For returns from Canada, you will want to have goods consolidated at the border, so that smaller shipments can be combined into a single, larger unit.  Consolidation can greatly facilitate the customs review process and add a high degree of efficiency into the process.

Technology has enabled fabulous innovations in returns management, and can be a centerpiece to your reverse logistics program.  The Returns Management Authorization (RMA) process, for example, has become an integral part of a well-managed returns policy.

RMA technology tells a business exactly what goods are being returned and for what reason.  Pre-printed shipping labels guarantee that returns are sent to the correct processing center.  And from a consumer's perspective, the authorization number offers an easy point of reference for tracking the status of a return.

The importance of customer satisfaction in the returns process cannot be overstated.  Customers are demanding that returns be handled quickly, hassle-free, and with complete visibility into the process.

Once your customer's return arrives at your designated processing center, you have a very short window in which to identify and resolve the reason for the return.  One study found that 70 percent of consumers expect service on their returns within 48 hours!  Considering that only about 20 percent of returned goods are actually defective, it is essential for returned merchandise to be received, evaluated and processed as quickly as possible.

If a refund or merchandise credit is due, for example, turnkey solutions are available that can manage the process.  For product replacements, an ample inventory should be maintained at your returns center, to ensure that items returned because of sizing and other non-performance issues can quickly be processed.

Provisions should also be made for repairs.  Your returns center should stock a complete supply of spare parts necessary to make repairs.  Managing the repair process has traditionally been the weak link for many businesses.  In fact, a report by the Reverse Logistics Association found that "managing the "˜return and repair' processes account for 10 percent of overall supply chain costs."  But ineffective processes can compound this cost and reduce profit by as much as 30 percent.  Businesses are rectifying this problem by outsourcing their repairs, or contracting with repair centers.

A final consideration is the integration of sustainability into your reverse supply chain.  Sustainability can come in many forms ranging from removal of outdated products from inventory,  proper disposal of dangerous parts and chemicals, recycling of component parts on the secondary market, to the actual packaging and transportation logistics.

Certain aspects of sustainability - disposal of hazardous chemicals - require compliance with environmental and other regulatory mandates.  It's essential to have a logistics provider who is well versed in the nuances of  these requirements, and who can ensure compliance while at the same time maximizing efficiency.

Many businesses have found that increased sustainability has had a positive impact on efficiency and cost savings.  Cisco, for example, cites packaging redesign as the source of $24m in annual savings.

It used to be that a business would simply ignore customer returns - letting them sit in a pile until someone finally got around to dealing with them.  Or businesses would try and dissuade customers from even trying to return products by making the process difficult.  We've come a long way since then, largely because we can quantify the impact returns have on a business's bottom line.  Roughly 8 percent of sales are returned each year, at an annual cost that exceeds $200bn.  The question for your company is not if returns are going to occur, but rather, will you be ready?

Source: Purolator International


Keywords:  reverse logistics, returns process, reverse supply chain, supply chain management, logistics services, logistics & supply chain

Is Your Business Ready for a Spike in Customer Returns?