Happy Holidays from everyone here at ShipHero! Black Friday has officially kicked off the gift-shopping extravaganza and like you, we’re all scrambling to find that perfect gift for that relative we haven’t seen in-person for the past 10 months… should be easy. (Hint: pajamas). While gift giving was difficult before, with 34% of Americans reporting to return gifts after the holiday season, knowing what to get your friends and family in 2020 is near impossible. So… just make sure to put that receipt in the box.
For retailers, the process of handling product returns, also known as reverse logistics, has always been a messy business, especially after the gift-giving season. According to Shopify, approximately 40% of customers have returned an online purchase in the last 6 months, and 42% of customers report buying a product with full intentions to return some or all of the order in the future. Product returns impact conversion rates, increase costs, and complicate inventory management. So, how can retailers minimize returns, all while making sure that they maintain a good relationship with their customers?
To celebrate our latest partnership with reverse logistic solution company Returnly (and the exclusive holiday deal), Shiphero proudly presents the following the three steps you can take to lower your return rates, improve your customer experience, and in fact develop a competitive advantage through an effective reverse logistics strategy.
Step #1: Offer a Clear and Generous Return Policy
Of course, return rates will drop with a no-refund or strict refund policy, making customers jump through hoops to return your item; however, this will drastically lower your conversion rates at checkout, lower the incentives for new customers to become repeat customers, and ultimately hurt your brand in the long run. Important topics to include in a return policy are:
- Specific products that can’t be returned, like high-ticket items or discounted items
- Additional fees such as restocking fee or shipping
- How long the customer has to return the item
- Conditions for return such as if the receipt is required, or tags, or that it hasn’t been used
- Reimbursement method like cash or store credit, and qualifiers for each method
Behind free shipping, free returns are a huge driver for customers to shop online, and 96% of customers reported that they would shop with a retailer again based on an easy return experience. Many retailers have offset the cost of free returns through increases in price or having customers pay for shipping.
The key takeaway is that your return policy should inspire confidence in your customers to buy from you the first time, and then provide an enjoyable shopping experience (albeit a return) to incentivize them to shop again, and maybe even tell a friend.
The return policy needs to be clear, concise and widely distributed. The policy language should be as easily understood as possible, devoid of legal jargon and fine print. Once set, it should be communicated clearly to both your customers and your employees. In fact, many companies place their return policy in several locations on their landing page and throughout their checkout process, and if it’s generous enough, they advertise it proudly.
And now that Black Friday 2020 has officially kicked off the holiday shopping season, offering a customer-centric return policy will certainly attract more holiday sales, as well as inspire repeat business in the future.
Step #2: Reduce Rates of Return
Simply put, fewer returns means lower costs — with each returned item adding restocking, processing, and possible refurbishing or scrapping fees. So the next thing to focus on is reducing the amount of returns that your company receives
MIT Sloan breaks down returns into two components: controllable returns and uncontrollable returns. Controllable returns are the result of errors or mistakes by the business or customer; as such, each controllable return has an identifiable root cause or causes that can be addressed and mitigated.
For example, the image below lists the most commonly reported causes for returns in 2020, alongside the percentage that they occur.
Around 80% of returns were the result of a damaged or broken product, and 7.5% were from a delay in delivery. These are controllable returns showcasing issues with your fulfillment process, which can be addressed through better packaging, better care, or a better third-party fulfillment provider.
Next, we see 64% of returns were the result of a mismatch between product and description. This is also a controllable return highlighting the need for better online product images or descriptions, or an updated sizing chart for clothes and shoes, to more accurately present the product. In fact, many clothing and footwear companies have minimized product returns by employing a “size and fit” specialist, contactable via phone or chat boxes on the company website.
The last controllable return we see making up 7.5% is poor value, which can either be addressed through your manufacturing process or marketing strategy.
The remaining factor is that the customer just didn’t like the product. This is an uncontrollable factor in some respects, in that it could have been a gift or perhaps the customer had a change of heart; but on the other hand, this could even be broken down into smaller factors — some of them controllable. Why didn’t the customer like it?
Finding the answer to the above question is where a well-designed return process needs to come in. Among other things, your company must ensure that all necessary data points are collected throughout the return process in order to further improve your return rates… which brings us to step 3.
Step #3: Optimize Your Return Process
According to MIT Sloan, an efficient reverse logistics strategy has the potential of reducing processing costs by up to 50% or more. For that reason, companies that have a systematic approach to handling returns hold a massive competitive advantage over those companies that treat returns in an ad-hoc way, and major corporations hire departments specifically dedicated to handling returns and optimizing the return process.
At a high level, every return process has the following steps: Receive, Sort, Analyze, Decide, Execute. The retailer receives the returned product, sorts it based on certain factors like reason for return, analyzes its condition, decides what to do with it, then executes on that decision whether it is restocked, refurbished or scrapped.
Make Decisions Upfront
What are your options when you get a return? Creating proper decision trees (IF, THENs) with clear conditions stemming from your return policy gives your company a roadmap to processing returns. This could have many different variations and nuances per your specific business, but as an example it could look like the below:
- IF there’s no issues, THEN restock and process refund
- IF the product is broken AND still fixable THEN refurbish, process refund, and sell through other channels
- IF the product is defective THEN send back to manufacturer for rebate
- IF the product is no longer salvageable THEN scrap
For refurbished products, find other channels to sell your returned items. The loss margins on returns can be minimized through effective and creative measures like selling refurbished goods in other regions or to different markets.
Pretty straightforward but until recently, the return process has been an extremely labor-intensive endeavor, from sorting to analyzing to deciding, thereby requiring loads of labor hours to process just one return. The answer to this sticky situation just so happens to be what an Australian calls his car.
But seriously, automation is the key. Retailers have found enormous success automating as much of the process as they can, while making the process self-serve for the customer. From the printing of return labels to the issuance of credit, companies that automate the process see large boosts in efficiency and cost-savings. According to Returnly, during a return process, customers expect, at a minimum, to be able to:
- Print labels
- Track their returns
- Know the status of their refund
This may require having a dedicated portal for refunds. And if you’ve made the necessary decisions upfront, these can be automated as well, further reducing your processing costs and allowing your return team to focus on any extenuating circumstances.
Along with automation comes data aggregation. Knowing why your customer returned the product along with other data points can paint a very clear picture on your reverse logistics landscape, allowing your company to address the various pain points and reduce your return rates.
This, among many other reasons, is why ShipHero has partnered with Returnly to automate the return process for any 3PL or retailer using the ShipHero platform, thereby minimizing human touches, improving accuracy, and reducing costs and errors in the return process, all while keeping the merchant updated in real-time.
This leads to faster returns processing time, faster issuance of refunds to the customer, and faster restocking or resale of the returned goods. Everybody wins, mate.
Processing returns necessitates much more than a part-time effort. Using a third-party provider to process your returns is a good solution if your company lacks the time, resources or know-how to process returns, or if you have a low amount of returns.
Because some specialize in processing product returns, third-party providers can perform product returns quickly and accurately, often through the use of industry-leading software solutions, thereby lowering costs and increasing revenue.
Also, if your company does not have dedicated personnel or procedures for handling product returns, you consider instituting a third-party to improve the process by delivering state-of-the-art inventory management solutions and data aggregation capabilities.
In summary, to handle the growing impact that returns have on your business, it is important to have a clear and generous return policy that fits your business needs, to consistently find and address the causes for returns, and to optimize your return process through automation or outsourcing.
ShipHero is proud to announce our partnership with Returnly to help empower retailers and 3PLs using the ShipHero platform to take control of their product return process.
And to help you successfully navigate the upcoming return season, we’ve secured our customers access to an exclusive deal — two months free when you sign-up for a Returnly Premium plan before January 31st.