Don't Let Product Returns Eat Into Your Online Profits This Holiday Season

Here are seven tips for making return processing smarter, more efficient and cost-effective.

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By Rafael Zimberoff

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As the 2018 holiday season approaches, merchants prepare for the traditional spike in sales and the inevitable surge in online returns. According to an article in the Wall Street Journal, the 2017 holiday season saw 28 percent of the gifts people purchased returned, at an estimated value of $90 billion. In a similar study featured in the 2018 Shopify Holiday Ecommerce Returns Guide, Forrester also estimated holiday returns for high-end products surge to 50 percent.

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The increase in "intentional returns" is also compounding the size of the returns problem. According to Forrester, consumer behavior is changing, with 89 percent of customers having returned items and 40 percent of customers ordering multiple sizes of items and/or things they're not sure of because returns are either free or cheap.

Traditionally, the primary focus for merchants during the holidays is fulfilling outbound sales, letting returns pile up until after the rush. Waiting until the holiday dust settles, however, can cut into profits because returned or exchanged products often can't be sold for the original prices for various reasons (e.g., goods have been worn, items damaged, the retailer has taken seasonal markdowns by the time products come back, hot holiday gifts lose appeal in January, etc.).

CNBC reports that the average return represents 30 percent of the purchase price, which is substantial when the average margin for online orders is 10 percent. The increasing number of returns and effect they can have on margins makes it even more critical for companies to improve their returns processes -- and strategies and technologies that standardize and automate return workflows can help the returns department work at peak capacity during the holiday season, regardless of the sales surge.

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Here seven tips to minimize the effect returns have on your company's holiday profits:

1. Actively work to prevent returns.

With Forrester estimating the average cost of one return at about $15, investing time and money in preventing returns makes sense. Customer service must be available to answer consumer questions or concerns promptly and effectively. Missing or damaged items must be efficiently processed with rapid exchanges. Cloud-based shipping solutions that automatically download marketplace orders will limit mistakes by reducing the need to re-enter customer order and shipping information. Detailed product descriptions and photos that accuractely represent the products ensures customers know what they are buying. Consider including a customer feedback or review option with each product so consumers have even more information before they buy.

2. Create incentives and rules to encourage good returns behavior.

A simple return policy with minimal exceptions helps to keep shoppers happy and make them more apt to come back. It also empowers customer service representatives with clear rules to follow to determine next steps for a return. Although 80 percent of customers expect to be able to return purchases for free, just 25 percent of brands offer free return shipping, according to Shopify.

Consider what room you have to recoup return costs, for example, by establishing restocking fees and limiting returns for clearance items. Some companies even develop incentives to encourage customers to accept all shipped items. For example, "try before you buy" clothing curator Stick Fix offers customers a 25 percent discount for accepting all the merchandise they receive.

Related: 5 Online Shopping Trends to Watch This Holiday Season

3. Create a unique return record to make returns more transparent and enhance analysis.

Even today, there are still ecommerce players who make the return process as difficult as possible by not providing email status updates or notifying customers when returned goods are received. By creating a digital return record attached to the customer's original order, merchants can track the status of a return and provide customers with timely updates at every stage, from receipt of merchandise to refund status. If a return arrives with no invoice number, advanced search features can help locate the order by customer name, address or phone number.

Keeping track of individual customer return profiles also helps the merchant to prevent fraud by setting up alerts for customers with high return rates or open balances.

4. Capture reasons for returns and use them to improve processes and help customers make better buying decisions.

There is a lot to be learned by asking why a customer wasn't satisfied (e.g., wrong size, damaged, not as described) -- and by sharing this information organization-wide. Invest in technology to help collect and analyze return reasons and trends. Understanding why one product is returned more often (e.g., size tends to run larger than labeled) helps companies better describe products, fine-tune inventory or even drop products frequently damaged in transit. Develop a "reason for returns" report by manufacturer and SKU to support troubleshooting and to help avoid future returns.

5. Keep goods handling and customer service separate.

Creating a return process that separates reimbursement and inventory management helps retailers speed up both parts of the returns process. The item is received, evaluated and then the shopper is automatically reimbursed as appropriate. Some companies are even willing to give refunds before a product is received to keep customers happy and increase the speed of processing refunds.

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Once returns enter the reverse logistics workflow, they need to be evaluated. If there is no damage, inventory can be updated immediately via a warehouse management system and made available again to all sales channels. Consider upping what is spent on return postage to get returns processed even faster.

6. Classify returned merchandise for more efficient processing.

It is helpful to classify returns immediately via simple mobile solutions with bar code scanning (e.g., needs repackaging, discount it, send it back to new inventory, recycle or trash). Even identifying what to recycle or trash can save time and money because it limits the energy spent on products that no longer have value.

Including photos of returned items with the customer's return record can also speed the product classification process. Warehouse associates can even take pictures with their phones. While some merchants photograph every return, others only take photos if something is defective or damaged. Classification helps separate the small number of returns that do need special treatment for customer service attention.

7. Rapidly return merchandise to the sales cycle.

Today, returns are much more complicated with many merchants selling online from multiple marketplaces to a wide range of geographic areas. Whenever possible, send returned products to the right reverse logistics channel that can best deal with the incoming merchandise. The faster returned items are checked for integrity and re-introduced into inventory the more value most returned items retain. Processes and workflow must be as automated with the goal of the reverse logistics team touching the returned product as few times as possible. Using workflow solutions to automate returns processing quickly means goods can be seen as available in inventory faster and approved for sale sooner to help generate revenue.

Simple, low-cost returns are changing online buying behavior and increasing the number of intentional returns. An increasing number of sales channels and markets continue to add to the complexity of dealing with holiday returns. Since less than half of returned goods are re-sold at full price, Gartner Group calls old-fashioned return management a "ticking time bomb turning into a major cash hole." This holiday season, to help protect profits, companies need to modernize their whole return process from customer initiation to getting products back into the sales cycle when they still hold the most value.

Rafael Zimberoff

Founder of ShipRush, part of Descartes Systems Group

Raf Zimberoff is the primary architect driving the Descartes ShipRush solution. He has been automating small business shipping for 20-plus years. His experience coupled with his keen insight into parcel shipping, ecommerce and accounting led to the Descartes ShipRush solution used by thousands of small businesses.

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