By Mattias Gredenhag, CTO, nShift
Reverse logistics can be a costly and complex process for retailers. Shipping, handling, and processing returned items can lead to increased costs and management overheads. Furthermore, managing reverse logistics can be a complex task, especially for ecommerce businesses that operate across multiple channels and locations.
Online returns are on the increase, and fast becoming the silent profit killer. But they are prized by customers. Easy returns encourage people who might be feeling the cost-of-living pinch, to buy with confidence.
The silent profit eater
Yet the impact of returned goods for retailers is the same. They find themselves bearing significant additional costs, including:
- Transportation: according to Deloitte, transportation costs can account for up to 60% of the total cost of reverse logistics
- Restocking: returning products to inventory can include the cost of refurbishing, repackaging, and relabelling those products, and the costs can range from $10 to $40 per returned item (source: Statista)
- Disposal: handling products that are not immediately resold can involve recycling, scrapping, or landfill costs. Additionally, retailers miss out on revenues they could have earned from restocking them
That means effective management of reverse logistics is crucial for maintaining positive customer experiences, as poor returns management can lead to delays, errors, and dissatisfied customers. Get it right, and retailers can minimise the risks to their revenue, while also maximising customer loyalty and repeat purchases.
So, if returns are inevitable, how can retailers benefit from them too? The answer is in three parts: minimise the financial hit, use returns to maximise customer loyalty, and automate the reverse logistics process.
Minimising the revenue hit
Handled well, some 30% of returns can be converted into exchanges. Studies show that once a customer has parted with their money, they consider it spent. They are naturally more open to trading in their unwanted item for something more appealing. Not only does that mean retaining revenues, but it also means satisfying the customer and improving loyalty and the likelihood of a return purchase.
Similarly, handled well, it’s possible to get more returned stock back onto the shelves so it has a second chance of generating revenue.
Damaged items can also be up-cycled or sold at a discount.
We’re also increasingly seeing retailers taking an active interest in creating second-hand markets, re-selling pre-loved stock, which is not yet at end of life, as well as offering repair services.
All these approaches offer ways for retailers to realise revenues from returned items, which might otherwise go to waste. But doing so depends on having the right platforms and technology in place.
Maximising customer loyalty
Many retailers are thinking beyond share of wallet, and increasingly about the share of life. If the cost of a relationship now is a returned item, then what’s the best way to ensure that good customers keep coming back?
The first step is to identify them. New data techniques are increasingly spotting the difference between someone who will always return goods and the potentially loyal customers who will only send goods back for very good reasons.
Once identified, it is then possible to think about the returns policy. The truth is that high customer expectations need not translate into needless generosity through “one size fits all” returns policies.
Most retailers still offer immediate refunds on returns. The customer may go away happy, but the retailer loses out twice: once, through the refunded payment, and again, when returned items go unsold.
A more tailored approach to returns, where a range of offers are targeted to different customer groups, could transform that picture.
They might include recommending alternative products for exchange or inviting customers into stores to see different options for themselves. In the case of customers who egregiously abuse returns policies, retailers might charge a collection fee. At the other end of the spectrum, they may think in terms of making returns easier still, with payments refunded in seconds.
Automating reverse logistics
Returns processes today often depend on paper forms and manual processes. As a result, perfectly resaleable items can go to waste, handling costs go up, and the likelihood of errors, particularly at busy periods, increases.
Investing in the right returns platform can help retailers streamline their reverse logistics processes and reduce costs. Leading platforms offer:
- Flexible workflows which enable resaleable items to find their way back to shelves without delay
- Tailored returns policies for different customers. These can encourage more people to choose exchanges, helping protect cashflow and profits
- Root-cause analysis, helping businesses understand which products are being returned, and why. This can help highlight issues with descriptions or product images
- Simple front-end for customers – a slick user interface which makes returns easy, and encourages customer loyalty
If the customer relationship really begins when a non-customer goes to the online checkout and clicks on the buy button, then the first test of that relationship is how the retailer deals with requests to return the goods.
Get their returns strategies right, and retailers can benefit from increased revenues, thanks to greater loyalty and reduced wastage. By automating the entire returns process and placing the customer experience front and centre, effective reverse logistics management can have a significant impact on the bottom line.
Find out how nShift helps prevent up to 30% of returns related refunds.
