E-commerce retailers have a problem. A $42 billion one.
That’s the amount of online purchases shoppers are expected to return this holiday season. Returns rates are growing even faster than expected, with overall returns rate going up 10 percent annually. On average online shoppers return anywhere from 15 to 30 percent of their online purchases.
If you’re not prepared for the volume of returns you might get back, you could find yourself in a dire situation fast. Return season is real, and you need to be prepared to face it.
The Volume Problem
Why are returns such a problem for e-commerce businesses?
Howard Rosenberg, formerly of eBay Private Marketplace and currently of B-Stock Solutions, notes three changes in the last 10 years that have driven this problem.
First is the growth of e-commerce as a sector. Even 10 years ago, people were less open to the idea of shopping online. That’s changed significantly. The sector is pulling away from brick and mortar as a proportion of total retail.
Second is Amazon’s user-friendly returns policy. Much like Walmart’s famously generous returns policy, Amazon has realized that its size allows it to build goodwill with a more generous returns policy than many of its competitors can give. That’s forced the sector as a whole to be more generous about returns. As Amazon moves, so does e-commerce.
Finally, online retailers are realizing how crucial it is for them to cut back on their return costs. They need to figure out ways to recoup money from these goods instead of sending them from warehouse to warehouse or storing them for a long time while they’re processed.
The three factors involved in this aren’t going away, at least not any time soon. And if you don’t figure out how to deal with them you’re in trouble. Fortunately there are a few steps you can take to get ahead.
Change Your Mindset
Zappos has had struggles with profitability off and on, but it’s one of the longest-lasting e-commerce sites for a reason: they treat the customer right. Zappos notes that its best customers are also often the ones with the highest return rates.
That may not be true for every industry, but for the shoe industry at least it seems that a generous return policy opens more doors than it closes.
Take a look at your customers and segment them according to both sales and return rate. Put together a scatter plot and figure out whether returns are actually as big a problem as you think—or just a natural part of doing business with your most profitable customers.
Segment Your Returners
Some returners are just going to be a drag on your bottom line no matter what you do, and you’ll probably discover that as you map out your customer data. In some industries—especially apparel—you’ll note a pattern of serial returns as people wear something and send it back or buy multiple pieces of clothing just to try on.
Amazon has started banning many of the people who generate an extremely high return volume. You may have to implement something like this for any people who are just a constant drag on the bottom line, depending on the volume.
A properly-equipped CRM can help you segment this out, but it may get beyond your control depending on your volume. That’s where you might have to call in some help from a third party.
Streamline Your Processes
Anything that comes back to you as a return is a money-losing proposition. That’s a pretty hard and fast rule. That means that the more you can streamline your returns process, the better off you’ll be.
Start with the physical. Do you have space? Are your workstations set up efficiently? Returns generate a lot of garbage. Is it able to be effectively stored and disposed of? Consider optimal flow, too, and make sure the space is set up to effectively drive that efficiency.
Most warehouses aren’t equipped with the space for a high returns volume and the return season can overwhelm them. You’ll need to make sure there’s enough space cleared.
Then look at the process itself. Many businesses send return labels in the box, which can make processing much quicker with barcodes. And if you have an item on backorder, it can be easier to cross-dock an unopened item from returns than pick the item from the warehouse.
Consider a Third Party
Returns are big business, and there are several companies out there who offer to take care of all of some or all of that hassle for you. These reverse-logistics firms charge a little more up front but take the guesswork out of what can be a frustrating and difficult process for many businesses.
Some companies also offer liquidation services to help you get rid of returned merchandise. This can be a far more effective means of getting rid of it than selling it yourself—or worse, just eating the cost. Many of these companies also offer applications and platforms that make the process easier.
Returns are a hassle for every e-commerce business, particularly in the wake of the holiday season. But if you’re willing to lay some groundwork you can minimize the impact on your bottom line. Take a closer look at your return process and find out where you can optimize, because returns aren’t going away any time soon.
