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Returns management – from necessary evil to strategic advantage

Returns are often an unpopular topic that retailers are not keen to deal with. However, as eCommerce platforms become more established, this necessary evil is becoming one of the most effective ways to increase profits, foster sustainable customer relationships and differentiate from the competition. We have summarized three important starting points that can enable this.

It’s not just online-only retail that has seen explosive growth in recent years. It has become almost obligatory for brick-and-mortar retailers as well to offer customers the option of ordering online and having the goods delivered. The pandemic year 2020 has reinforced this trend. eCommerce platforms have reached a certain standard in line with their advanced market maturity. Previously criteria such as delivery times, payment options and user interface were factors that significantly differentiated online stores from the competition. Nowadays, these factors are almost completely standardized, at least for the larger platforms and commonly used shop systems.

However, one topic that continues to cause most retailers headaches is the area of returns management. Due to the strong competition in the online and mail-order business, more and more retailers see themselves forced to offer returns free of charge or at least significantly below the real costs.

Let’s take a look at how this vexed topic can be used strategically to stand out from the competition.

Starting point 1: Customer loyalty through positive experience

Customer experience and customer communication have been widely known as key factors for sustainable customer relationships. In eCommerce, this involves building relationships from a distance. Returns management is the area where, in many cases, the most intensive dialog with customers takes place. A recent survey on customer loyalty programs also showed that free delivery and returns are the most valued offers for customers. Accordingly, this is an opportunity to increase customer satisfaction and loyalty. Uncomplicated complaint and returns processing – or the opposite – can certainly be decisive in determining whether a customer chooses another store for their next purchase or makes a particular shop their go-to option. It is therefore worth investing in this process. However, in order to avoid losses, maximum efficiency is required in all these interactions.

Starting point 2: Profit increase through process-optimization

According to research results from the University of Bamberg, a return costs the retailer an average of €15.18 (€7.93 process costs + 7.25 loss of value) plus the transport costs for the outbound and inbound shipments. Depending on the volume of returns and the type of goods, this sum can vary considerably. For example, the loss in value can be relatively low for textiles, but much higher for electronic products, sports or household equipment, furniture, etc. Not to mention products that are returned with considerable traces of use. According to the researchers, the cost of returns in German online retailing alone is in the three-digit millions every year.  Return management has clearly become one of the biggest “profit guzzlers” for most companies today. The aim is therefore to offer customers the best possible returns service while keeping return costs and loss of value as low as possible.

Many companies leave their return management to logistics provider. This sounds like an efficient solution. However, in this case returns are often sold unsorted on mixed pallets as “C-goods” to bulk buyers  at the end of the quarter, half-year or even year. Depending on the product category, often not even 10 percent of the actual value of the goods is realized. It therefore definitely makes more sense to look at the individual steps of returns management and to check which areas can be optimized in-house or tackled together with a qualified partner in order to realize a value retention. These steps include:

  • Capturing and documenting expected and incoming returns.
  • Refund to the customer
  • Inspection and evaluation (grading) of returned items based on pre-determined criteria
  • Refurbishment of damaged goods that are financially profitable to be refurbished
  • Documentation of defective goods and allocation of suitable resale channels
  • Disposal or recycling of irreparable items
  • Re-packaging of returned items
  • Re-booking of items into inventory
  • Resale and shipping
  • Customer service and support services

Starting point 3: Differentiation and more sustainability through new ways of reselling goods

Not only the process of managing returns, also the resale of the goods can offer numerous starting points for optimization. Intelligent matching of product categories with the most suitable sales platforms can significantly increase the sales value achieved. When selling via public marketplaces or auctions, software solutions with AI-supported algorithms can help to sell at the best possible price.

But using your own store or web-shop for selling returned products can also be a way to differentiate yourself from the competition and offer customers an attractive alternative. This way, interested parties can purchase goods that are almost as good as new as well as products with transparently documented minor defects or signs of use, at attractive prices. Not only for financial reasons, but also in terms of environmental aspects and sustainability, this becomes an increasingly exciting option for many buyers – and perhaps a reason for choosing a specific web-shop or brand.

In the apparel market, this trend has already established itself. German business magazine Wirtschaftswoche recently reported that more and more industry giants are reselling returned and even second-hand clothing via their own online stores. Studies also confirm a clear trend toward the secondary use of goods. YouGov recently reported that almost 20 million Germans say they prefer to buy second-hand rather than new.

“This sustainability trend is now also increasingly taking over other segments, such as electronics, household appliances, furniture or toys,” confirms Alexander Lange, Business Development Manager at BuyBay. “Suppliers, especially well-known brands, are often concerned that they will cannibalize their offerings and brand image if they also make so-called B goods available to their customers. However, our experience in working with well-known vendors has shown that the offer of returned goods can help them to reach exciting new customer groups, who are attracted by the attractive price-performance ratio or by the sustainability concept.”

Make sure you check out our Effective Returns Management whitepaper, and learn how to put theory into practice.

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