While the tastes and purchasing habits of American consumers are as diverse as the country itself, every shopper will agree that there is little joy to be found in the process of returning a product. An accurate statement long before the advent of e-commerce, it’s just not a lot of fun standing in line at a store or having to box up an online purchase for return shipping.
Known as “Reverse Logistics” in trade circles, the methods that folks can use to return products are almost as varied as the ways in which they can shop. With options that include traditional returns to a store, product recovery at a home, or shopping online & return at a store, the practice of “Omnichannel Selling” has created myriad options for getting goods back to a seller.
Product returns have been a problem for merchants since Sears & Roebuck opened the first large-scale mail-order catalog business in 1891, and the growth of department stores and subsequent expansion of malls only contributed to its complexity. Needless to say, the billions spent every year on e-commerce have added a level of difficulty that even the most astute of logistics professionals didn’t anticipate.
Whereas all of this is common knowledge amongst retailers and shoppers alike, the level at which product sellers carry out a returns program can vary from “good” to a “total disaster”. In markets where product returns will only continue to grow, and with so much at stake from both a service and financial perspective, retailers, e-commerce merchants, and omnichannel sellers have no choice but to up their game when it comes to merchandise returns.
Below are three reasons why the long-term viability of retailers and e-tailers depends on a top-flight reverse logistics program.
As the name indicates, the term, “Customer Experience” encompasses everything that shopper experiences from the time he/she drives to a store or goes online, until a product is received and used. Depending on the method of purchase, positive moments in this process range from an easy-to-navigate website, to be helped by a knowledgeable salesperson, or on the downside, having to park in a distant and poorly lit mall parking lot, to not being able to remove an item from a virtual shopping cart.
With so many ways in which a shopper’s vibe can go sideways, the last thing merchants can afford is a botched returns process. Basically, one of the fastest ways to lose customers is to turn their “Returns Experience” into a time-consuming and ultra-annoying nightmare. Whether it’s avoiding long holiday return lines or eliminating dead-end customer service phone calls, a product returns program comes down to identifying and then removing the ways in which a customer can be inconvenienced and become annoyed.
In a world with websites like Yelp, a bad returns experience is not limited to a single client; a nasty review can amplify a problem and drive business away without the merchant ever knowing it. Of equal importance, there are plenty of shoppers who don’t say a word about a bad return and simply vanish, never shopping at a store or website again. Either way, what is essentially “word of mouth” marketing can elevate a brand or drive it into the ground, with returns being at the top of the list of how to earn a negative image.
In what seems like a counterintuitive statement, a returns program that is fast and (relatively) painless can increase sales and improve profits in the long run. Most notably, a shopper who has a positive outcome when returning merchandise is more likely to come back to a store or website and buy more stuff. In fact, it has been statistically proven by firms that study consumer behavior that a shopper’s choice of where to shop in the future is heavily influenced by how things go when they execute a return.
On a more immediate basis, if a retailer can pull off a quick return, it’s possible to get the product back into circulation and sell it to another customer. Particularly important for companies that offer seasonal products such as clothing and footwear, a rapid turnaround can also mean the difference between selling a heavy jacket at full price, as opposed to having to mark it down (or hold onto it until next year) because winter has come and gone.
In addition to the cost of merchandise, store rent, retail employee payroll, and order fulfillment, the biggest expense that a merchant must deal with is reverse logistics. With retail sales experiencing a return rate of 5-10% and e-commerce sales at 25-40%, the reality is that companies have to seek a balance between creating a great returns experience and the cost of making that happen.
Unfortunately, some of the costs attributed to reverse logistics are easier to identify than others.
The most obvious returns expense is the transportation associated with getting an item back to a fulfillment house or distribution center. Conversely, it’s a lot harder to quantify indirect expenses like the time warehouse personnel dedicate to handling returns, the amount of space that goods take up in a facility or the carrying cost of having products in inventory for months on end.
When combined with the aforementioned factors like lost sales and margin erosion, the financial impact of product returns will eventually find its way into a company’s income statement, balance sheet, and cash flow statement. With such a pervasive impact from both a service and financial viewpoint, it goes without saying that retailers should pay as much attention to reverse logistics as they do to outbound shipping. Like most activities in the logistics world, that undertaking is a lot easier said than done.
A company’s attitude towards returns is manifested through the policies, customer service structure, and logistical techniques that are put in place to turn an unpleasant activity into an opportunity to shine. Of course, the specifics of how a firm executes a reverse logistics program are a function of other factors like product type, the probability and frequency of returns, transportation, and storage costs, and whether an item can be re-sold.
Regardless of the business model or type of merchandise, the one thing that all product sellers have in common is that returns influence how shoppers view their brand. Bearing in mind that many people are more inclined to talk about a negative experience than a positive one, the amplification of a not-so-good return experience on social media can literally ruin a brand.
Given the link between product returns, brand perception, and most importantly, how both positive and negative experiences influence future shopping decisions, retailers must put the mechanisms in place to not only execute a successful return but to do so in a way that entices customers to keep coming back. Hopefully, this blog has demonstrated why it’s so important for all types of product sellers to have a fast and trouble-free returns process.
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