Product returns are easily some of the most pervasive, complex problems in ecommerce. As much as 30% of sales flow backwards as returns. As you scale your D2C business, returns will become a bigger and bigger deal.
That leaves the question: What do we do with all of these returns?
To that we ask: Do you want to optimize for less returns or more profit?
Any seasoned business owner, ecommerce manager, or operations lead will choose more profit.
This begins and ends with creating an amazing experience for your shoppers. And there are three pillars that deliver this experience:
As we have learned, an effective returns management process itself cannot truly be captured in one initiative. It’s a holistic approach that culminates in a single methodology.
This methodology we call Returns Optimization.
Returns Optimization asserts that returns are not a problem to hide from, but an opportunity to learn about friction points in your shopper's journey. The fruit of these lessons lead to a higher customer lifetime value, a more efficient ecommerce operation, and increased profits.
And because returns are complicated, returns management software solutions like ReturnLogic have emerged to systemize the process, enforce policy rules, and provide clarity on how returns are impacting the business.
Before we dive into how you can implement a streamlined returns management process, it can help to define a few key terms.
Return Policy – The rules for what can be returned & exchanged so all customers are treated fairly. It is made up of several different components: Return Types indicate if a product is being returned for refund, exchange, store credit, or warranty. Return Windows cover when those products can be returned. Return Rules govern what can and cannot be returned. Return Reasons address the cause for the return.
Return Center – A simple customer-facing portal where shoppers create a return and shop for an exchange following the rules and policies set by the retailer.
Returns Management - All the policies, rules, workflows, and processes that build a return for a shopper as well as the systems used by the retailer to receive, grade, and complete the return.
Reverse Logistics - The processes involved in physically handling a return from the shopper back to the retailers, and onto the final destination with the of goal of maximizing the recovery value of the product.
Product Dispositions - A set of conditions used to classify the grade of products once they are returned. For example, “New w/ Tags,” “Dirty,” or “Damaged,” etc.
Returns Data – The data generated by customers, products, orders, and resulting returns, and the unique connections between each.
Returns Optimization – Continuous improvement strategies that use Returns Data to enhance the experience for the shopper, improve operational efficiency, and grow profits.
ReturnLogic Founder and CEO, Peter Sobotta, makes it clear that the sphere of retail known as “returns” can be further segmented into the front-end side of returns management and the back-end side of reverse logistics.
The focus of returns management is to create a frictionless experience for shoppers that seamlessly enforce the return policies and automate the backend communication that happens on the retailer's team.
The other side, reverse logistics, is all about efficiently handling returned products and recovering their maximum value. This can occur by restocking products back into inventory, selling them through an off-price channel such as T.J. Maxx, liquidation, or recycling.
Returns management feeds reverse logistics.
The two pieces relay information back and forth, and both depend on the operational processes that a retailer has in place.
You can see that the return center is the gateway, the threshold, between returns management and reverse logistics. It is where the customer experience transitions into the workflows of a returns management solution.
At this stage in ecommerce, a combination of shopper expectation’s and competition have resulted in pressure for retailers to provide a blindingly fast forward supply chain.
Just look at Amazon unleashing same-day delivery on over 1 million items in 14 metropolitan hubs - and in some cases it’s free. A similar demand for impression is building in the reverse supply chain, as well. The problem is, much of ecommerce has not kept up.
As stated on Commerce Clarified:
“Reverse logistics is one of the few remaining areas of the eCommerce supply chain to be efficiently optimized. While many companies have begun making investments to improve warehouse efficiencies and/or post-purchase customer experiences, many still leverage an inefficient combination of spreadsheets, images, improperly managed areas within distribution centers and unconnected systems of local resellers / liquidators.”
Once the returned product arrives back at the retailer’s warehouse or 3PL, the journey is just beginning. At this point, the warehouse team must process the return as fast as possible.
Returns cost retailers money for each touch point from an employee, and every minute they sit in the warehouse. On top of that, shoppers want returns dealt with fast.
Keep in mind, product returns are an opportunity for customer satisfaction. Sobotta emphasizes, “You can maximize the recovery value [of returned goods] only after you have solved the customer experience problem.”
Return processing speed is a key backend component of a positive customer experience. Monitoring the RMA Status Report will help operations teams understand where returns are getting stuck in the process.
As soon as the returned merchandise has been processed, the next priority is directing it to its new path, whether that be immediately restocking the product into inventory, cleaning or repairing it for restock, or an aftermarket option such as wholesaling or liquidation. This is where product dispositions come into play.
The disposition are assigned to a product by the team that receives returns in the warehouse. They dictate what is to happen with the product.
While it seems appealing to try to resolve as many products as possible to be in perfect restock condition, this is a common pitfall in reverse logistics. It simply is not scalable as the retailer’s volume grows.
You have to consider what you think the product could be worth versus what it is worth right now.
As one of our retailers stated about his category, “Fashion is aging – you don’t want to sit on it too long. You want to turn it to cash fast.”
With apparel in particular, by the time a product is returned and processed by the retailer, it may very well be outdated.
Sobotta cites the subjectivity of dispositions as a scourge of recovery value. “If it’s not new with tags, what is it?”
This uncertainty not only adds complexity slowing down the process, but also creates risk for the aftermarket buyer, which greatly limits the product value.
Within apparel, where the asset value is not as high as in a category like consumer electronics, for example, Sobotta recommends that retailers keep their dispositional flows simple, potentially just differentiating returned products as either “New with Tags" or “Liquidation."
Preventing ambiguity and errors in this process is crucial to reducing the headaches and financial burden of product returns.
D2C brands live and die by inventory. This is why smart Shopify inventory management is so important. With every minute a product spends in transit, on the warehouse dock, or in a pile you're losing money.
When a return arrives at the warehouse, a team member should open the box and scan the RMA slip. This is the single moment of truth. This should be the only time you touch the return.
You want to maximize the efficiency of this task by making it easy for them to receive the products, give the product a grade by marking the disposition, and then restocking the item in Shopify if appropriate.
(A returns management platform like ReturnLogic will give you team this functionality and allow them to restock to Shopify with one click. Click here to see the platform in action.)
Once the product is back in inventory, it can then be shipped out again in future orders. Minimizing this turn around from return to read for resale is key to managing your returns costs.
“The deeper you dig into reverse logistics, the more of a nightmare it becomes.” – Peter Sobotta
Success in retail rides on inventory. Retailers often face immense pressure to have enough units to satisfy demand, and not have any excess. But when 30% to 40% of merchandise that’s sold comes back as a return, fulfilling demand precisely can be nearly impossible.
Not to mention that retailers (especially newer retailers), have almost no say in the value that their excess inventory holds. The bargaining power in a grey market lies with the buyer - typically an off-price department store - who knows the retailer is eager to release the surplus.
This dynamic set the stage for liquidation marketplaces.
According to Eric Moriarty, VP of Sales at B-Stock, many of the greatest challenges that retailers face in the aftermarket revolve around inventory. Specifically, moving inventory fast and recovering maximum value from returned and excess inventory.
Moriarty describes, “We offer a direct sales channel between sellers and business buyers of aftermarket inventory. This includes returned, excess, and liquidation products.”
B-Stock thrives by taking what was a one-sided, fragmented market and bringing it closer to a free market driven by supply and demand.
Eric Moriarty explains, “We bring a huge business buyer network and introduce real time competition for the goods, which produces higher pricing on the merchandise as well as a faster sales cycle.”
Whereas ecommerce retailers were previously left to unload excess and returned merchandise to discount chains or other off-price channels, B-Stock draws a mass of aftermarket buyers interested in bidding on inventory.
This moves the products fast and achieves a higher recovery value for retailers. Two of the biggest struggles in the aftermarket, addressed at once.
On top of that, retailers can easily implement liquidation on a regular schedule with B-Stock. Rather than waiting until the end of the season, while a mountain of merchandise amasses, retailers can list inventory every month or even every week.
By efficiently grading returned products as they arrive at the warehouse, retailers minimize the man hours spent handling goods. This also maximizes the recovery value for the returned merchandise because liquidation buyers know exactly what they’re getting when bidding on a pallet.
Eventually, around a quarter of returned products end up being thrown away by the retailer. This immense physical waste, plus packaging and shipping emissions, make returns one of the greatest threats to environmental sustainability within ecommerce.
Marketplaces like B-Stock provide retailers with a convenient and healthy outlet for their excess inventory, at least dampening some of the burden.
However, aftermarket players are increasingly seeking alternate avenues to reduce the imprint of the industry. Whether re-routing products to charitable organizations, or integrating into an upcycling operation, there are still a variety of options with a more positive impact.
This is a step in the returns management process where retailers need to get creative while remaining cautious not to over-handle the returned items.
Returns management bring an ever-evolving series of challenges for ecommerce retailers. It is important to remember that in the midst of these challenges are hidden opportunities for growth.
Returns optimization focuses on improving the returns process, reducing return rate, streamlining operations, and increasing customer lifetime value. Reverse logistics, on the other hand revolves around creating an efficient process to maximize the recovery value of returned products.
D2C brands are the future of ecommerce and returns are not going away. Returns Optimization is the path to leverage them for systematic growth.