Many retailers aspire to be omnichannel, integrating their online and physical shopping outlets. Great customer service is seen as a cornerstone of the omnichannel experience, and as driving sales. As part of this, most retail businesses offer free delivery and multiple ways of returning items - including return to store of items sold online. However, the downside has been the unanticipated number of returns generated by online sales. With this ‘free’ offering to customers, many businesses are unclear about the TRUE costs of returns to the business and specifically, the extent to which this policy is being abused leading to retail loss.
The findings are very clear, the ’Buy Online, Return in Store’ policy does create unexpected additional costs. For example, businesses have to find more physical space to store returns in their shops and use store staff to process returns. It has also been difficult for firms to integrate and develop underlying IT systems quickly enough to cope with the demands of online shopping and returns. Many businesses have complex procedures for managing returns. With little senior management oversight of the returns process, retailers find it difficult to pin down crucial information such as the rate of return and the costs of handling a returned item.
The good news is that it can be a problem that responds well to good management and that just a small reduction in the rates of returns and the additional costs can directly improve profitability. For an average company, the researchers estimate that a five percent improvement in the rate of returns has the potential to deliver real improvements (200 basis points) in net margin. In the tough trading conditions retailers face, such improvements could be critical to help them deliver the services which customers expect (such as free delivery and returns) whilst keeping prices competitive.
In this new ECR report, the researchers make a number of recommendations to improve the management of returns and increase profits from online sales. These include:
- Have a strategic plan to treat returns as a profit centre; understanding the true cost of returns and the potential opportunities in reducing this cost is key step;
- Develop lean management thinking in returns to realise an effective omnichannel organisation;
- Manage the growing impact of returns to the business by simplifying and integrating IT systems;
- Make communications with customers and employees smarter as a low-cost initiative that reduces cost of returns and increases income from secondary sales;
- Participate in the circular economy to create net benefits in terms of cash, corporate social responsibility and reputation.
As importantly, the report also makes clear recommendations on what those in operations, loss prevention and finance can do the day after reading the report, that include:
- Adapting the costing assumptions in the report and the cost of returns template to the needs of your business to create your own true cost of a return estimate;
- Creating a mini cross functional task force team to undertake a simple process map and flow of returns model. Identify how many ways this process can go wrong
- Understanding the flow of returned product beyond the jobber, where is it sold, to whom is it sold, where is it then destroyed, etc
The report was a result of a comprehensive investigation involving a desk study of 100 retailers’ online returns policies; a review of other existing studies; conducted four in-depth case studies with major UK retailers, including over 25 interviews, observations and site visits; and held structured interviews with another 17 retailers in the UK and Europe.
To participate in a round table discussion in London on April 2nd with the academics, retailers and manufacturers, click here to register.