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Tackling the great unknown of returns

12 April 2013

The failure to truly understand returns has been a factor in the recent demise of high profile retailers. Simon Duddy asks how do you stop it happening to your business?

It’s the run-up to Christmas and an electronics retailer should be entering its most successful time of the year. Instead the business is going bust and part of the reason is returns.


Milton Guffogg, COO of GA Europe, the liquidator brought in to manage the decline is shocked to find returned items stacked in a corner of a warehouse with no process for returning them to profitable use.


"The returns had a face value in the millions, 5% of total inventory costs, and the board would not write it down. In fact, the stock had only 10% of the value they thought. The company had not changed its processes quickly enough to cope with the move to online retailing.”


The internet has made what was once a marginal issue central to the retail business model. Post Christmas, returns for goods bought online can be up to 40% for clothing and 5-10% for electrical goods. Is it any wonder that Cranfield research suggests that the value of retail returns in the UK is currently running at £6 billion annually.

 

"The returns had a face value in the millions, 5% of total inventory costs, and the board would not write it down. In fact, the stock had only 10% of the value they thought.”


Faced with this, what can the retailer do? The most obvious thing is to minimise returns in the first place. Online retailers offer very detailed size charts on their websites, with the hope that customers will be less prone to ordering ill-fitting items. Indeed, this is a becoming a science to some online retailers. Home shopping retailer JD Williams works on body scanning with Manchester University and has built up knowledge on how body shapes change as weight is gained.


Prevention is key, but as returns are inevitable, a well thought through process for managing them is essential. It is difficult to face up to the loss in value of a return but it must be factored in. Make a decision quickly about what products are worth re-integrating into the supply chain, and which can be sold on eBay or given to a jobber. This has to be balanced with consideration of the impact indirect selling of returns may have on mainstream sales.


Nevertheless, there is a growing role for 3PLs here, as Phil Streatfield of LCP Consulting explains: "3PLs have been adding value in his area and this will develop further. Partnership are developing in this new world and will be key to the success of this new way of working.”


There are also many technology solutions to help process returns as quickly as possible but as manual intervention is unavoidable, processing returns is slower and more costly (2-3 times) than outbound logistics.

 

"It is and will remain a highly manual environment, the retailer has to check the goods and ask - is it damaged, faulty or re-saleable?”


SSI Schaefer MD Jaap Vos explains: "It is and will remain a highly manual environment, the retailer has to check the goods and ask - is it damaged, faulty or re-saleable?

"After that, you can carry out reverse picks to put away to storage, and this can be automated. We have also developed return workstations, which helps with getting the item back into circulation and dealing with packaging.”


Indeed, packaging can be important to returns, with products such as Charapak There & Back designed to be easily used to return unwanted items.

Retailers need to also think about how the customer will return goods and who will pick up the tab and consider integrating services such as Collect+ that allows customers to return goods to a store, post office or petrol station.


It is not a lack of solutions that is a problem for retailers. The problem is companies with bricks and mortar legacy reacting quickly and thoroughly enough to the online challenge.


"In a multichannel world, the customer is no longer the end point of the supply chain but another link that needs to seamlessly fit into the bigger picture.”


This can be tackled though. Retailtopia, a thought leadership panel sponsored by BT that was set up to examine the future of UK retail looked at returns in detail and offers sound advice:

• Apply the same principles to reverse logistics as forward logistics. Just in time at the least cost. Treat returns like a supplier, not a logistics process.

• Design the right returns strategy for your business. This should be a collaborative effort, not left to the marketing department. A returns policy should be appropriate, fair and consistent. Understand what it costs.

• Give customers all the information they and you need to process the return quickly. Recognise that every time they return the goods to the store is a conversion opportunity.

• Measure returns by SKU. If you apply customer review scorecards to returns you will get a good indicator of why goods are being returned. And then do something about it.

• Write down returns aggressively. That means as much as 25% at the point of receipt. Accountants tend to overvalue returns. Think of it as cash.


The panel concludes: "In a multichannel world, the customer is no longer the end point of the supply chain but another link that needs to seamlessly fit into the bigger picture. "The cost of handling a return can be two or three times the cost of executing the outbound process, but a well executed returns strategy can put 2% on the margin.”


 
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