Resources / Returns Management Processes

Chapter 1

Returns Management Processes

Introduction

With over 70% of consumers wanting more flexible returns options, and only 4% of retailers adhering to this within their own businesses, it’s clear that the industry still hasn’t cracked it when it comes to a truly effective returns process

We all know that returns are a necessary cog within the retail industry.

However, with over 70% of consumers wanting more flexible returns options, and only 4% of retailers adhering to this within their own businesses, it’s clear that the industry still hasn’t cracked it when it comes to a truly effective returns process.

With this in mind, we’ll go through the returns management processes in this article to help you better understand what your customers expect from you when it comes to returns and how you can fulfill their needs.

2 Common Returns Management Processes Explained

Within the retail industry, there are two common returns management processes:

  1. Pre-authorized returns

  2. Hassle-free returns

Returns Management Process #1: Pre-Authorized Returns

If you require your customers to call or email in their return requests in advance, then we refer to these as pre-authorized returns.

Pros

  • You have an opportunity to speak to your customer and provide personalized service

  • Speaking to your customers also gives you the opportunity to upsell and cross-sell additional products

  • You and your warehouse team have a view of inventory due back to the warehouse

Cons

  • Taking the call and sending the return instructions can put unnecessary stress on your customer service team, resulting in more staff hours being typically spent

  • If you deal with a high volume of returns (e.g. you have an apparel business, which averages at 25 – 50% of goods being returned), this could require a full team of people to manage (usually seven people touch each return that comes in)

Returns Management Process #2: Hassle-free Returns

With a hassle-free returns management process in place, you’ll ensure your customers can initiate the returns process themselves. You can do this by either including a return slip and free shipping label in the original shipment, or by allowing your customers to print a returns slip directly from your website.

Pros

  • If your staff do not need to get involved until you physically receive the returned inventory, then less staff hours will be typically spent

  • An easier and hassle-free returns process will result in happier customers who are more likely to return and shop with you again

Cons

  • An easier returns process could result in a higher rate of returns

  • You don’t have a view of the incoming inventory until it has arrived, which affects you if you want to mark down your inventory line for a quick turnover

Why is Effective Returns Management Important for Retailers?

Customers Are More Demanding of the Returns Process

A survey sponsored by shipping technology leader, Endicia, revealed these insights about US shoppers:

  • 36% want an easy and convenient shipping process

  • 12% want a swift refund or credit

  • 89% say they’ll shop again at an online store after a positive returns process

This same Endicia survey also established that over two-thirds of American shoppers want a returns label in the box or an easy to print return label available online. In other words, they want access to a hassle-free returns process so that everything is much more seamless and streamlined for them.

return+to+sender+infographic

Returns Efficiency Directly Impacts Your Margins

An effective returns process can positively influence sales, revenue and customer retention. In fact:

  • 67% of shoppers will check your return policy before buying from you [Source: Shopify Plus]

  • 72% of shoppers are willing to spend more and buy more frequently from brands that make the return experience simple [Source: Shopify Plus]

While being able to offer free returns to your customers could result in:

  • Customers increasing their number of purchases over the next two years by 58% to 357% [Source: ScienceDaily]

  • Consumers being twice as likely to spend more than $1,000 online [Source: Walker Sands]

But in order for retailers to be able to offer free returns and the perfect customer-facing policy, an effective returns process is vital. However, a staggering 69% of retailers are not deploying any technology solutions to help them process returns efficiently.

Consider the following workflow that a typical retail business will go through when processing returned inventory. Just imagine how time consuming and costly it would be to do all of this manually; and how much human error could occur throughout!

1. Product Handling

Once received, the products need to be checked to decide:

  • Are they good for resale and therefore need to be restocked?

  • Do they require repair?

  • Or should they be returned to the original supplier?

2. Inventory Management

Inventory levels need to be updated to:

  • Increase inventory or write off in your inventory management software

  • Update all channels, such as ecommerce websites, marketplaces and brick and mortar stores

3. Customer Service

Decide what your customer requires, including:

  • Do they need a refund? (This requires a payment to be made to the customer)

  • Do they need a replacement or alternative product? (This requires a new pick in the warehouse)

  • Or should you credit them? (This requires an issue to be logged and credit to be applied to their account)

4. Accounting for Returns

All of the above transactions affect the financials of the business and each part needs to be accounted for, including:

  • Adding the inventory asset to the balance sheet

  • Recording the write off in the income statement

  • Recording and reconciling the refund from the bank to the customer

  • Tracking the credit balance the customer holds (as a liability on your balance sheet)

  • Crediting the original sale on the income statement

  • Reversing the cost of sale in the income statement

  • Reversing the sales tax collected and the tax liability

What this means is that the 69% of retailers not using technology to help them with returns are totally exacerbating the cost and complexity of managing returns themselves.

This complexity is reiterated in an article in the Financial Times, which found that an “average returned purchase passes through seven people before it’s listed for resale,” while the National Retail Federation says: “Americans return more than $260 billion in goods each year”.

Retailers must actively engage in the notion of deploying technology solutions to help them streamline back office inefficiencies. Rather than having to charge customers for returns that have been made in good faith, merchants should first investigate whether they can introduce more efficiency into the process; certainly as this data suggests that there is plenty of scope for improvement.

With this in mind then, throughout the rest of this article, we’ll focus on some returns best practices you should consider to help improve efficiency within your own warehouse operations – whether you sell online, in store, via wholesale, dropship or even a combination of any of these selling methods.

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