September 30, 2020
I managed a billion-dollar retail business. This is my returns battle plan.
With Doddle, my job involves meeting retailers, learning about their returns process, figuring out what it’s doing to their business, and fixing it. It helps that I’ve been in their shoes – I ran Groupon Goods in Europe and saw what happened when a billion dollar retail business ran headfirst into ecommerce returns. In this piece I want to give some actionable, practical advice for anyone out there who has been handed the job of “figuring out returns” for a retailer – a battle plan for retailers suffering with returns that won’t just cut a few costs, but actually improve your customer experience and increase sales.
Step 1: Own it
Someone has to own this project. Returns touch practically every department in some way, which makes it an incredibly important topic, but also means the responsibility can be fragmented among many owners and teams. Setting one person up to lead the project is essential – they can keep hold of all the different threads and make sure everyone is singing from the same hymn sheet.
Step 2: Weekly rundown
Once you’ve assigned your returns captain, rally the rest of the team and commit to weekly meetings. These will usually have the same agenda, with specific points to run through (I’ll come to these later) and these points will be repeated weekly so that you don’t just have a report or spreadsheet to look at – you actually sit in a room and process what’s going on. Some people who should probably be in the room:
- Customer service lead
- The whole buying team or leaders of each division
- Logistics lead
- Operations representative
- Product representative
Step 3: Get the right data
You can practically guarantee that there will be as many differing opinions about returns as there are people in the room, so decisions have to be supportable by evidence. That requires you to have the right data sets available. You need week-by-week and month-on-month progress on the key areas that affect return rate, cost and customer experience.
Here’s an idea of the kind of reports that I’ve found useful.
First, look at the top 10 week-on-week and month-on-month return rates (i.e. return frequency) by:
- Vendor/drop shipper/supplier
- Customer segment
- Product Category
- Price range
Second, again look for the top 10 week-on-week and month-on-month return rates, but this time sort by value, so your return rate is multiplied by profit margin on a product. That will allow you to understand the value loss from the return.
For a simple example, let’s say your most-returned SKU from the first top-10 list is a coffee mug that retails for $5, on which you make a $1.50 profit. It gets returned 100 times, so the value-adjusted result is $150. If your second most-returned SKU with 50 returns is a television which nets you $100 margin in a sale, that’s $5000 of margin that got returned, and you’re going to care more about whatever is driving those televisions to get returned than the coffee mug.
The same logic applies for measuring the value impact of the returns rate by supplier, customer segment, product category or price range.
Once you’ve looked at those top 10s, you need to get a good idea of the following:
- Customer Satisfaction (specifically regarding returns)
- Customer LTV, grouped by returns volume in the same period
- Week-on-week and month-on-month view of average time between return booked, return received, and refund authorised.
- Customer contact reason codes, week-on-week and month-on-month
Step 4: Set the right goals
Once you’ve got the people and the data, they need the right direction. Here’s how you could break down the roles and responsibilities in these sessions.
The representative for the customer service team should present the WoW/MoM trends, and ideally will be able to come to the table with suggested actions to improve their key metrics, then assign owners, stakeholders and deadlines for those actions.
The buying team should be identifying the top offending categories, SKUs and vendors, then agree as a team the key actions to be taken to improve the performance, or remove SKUs/vendors. One thing to remember: it can feel like a really hard decision to stop selling/stocking what looks like a high revenue driving SKU or vendor, but the greater good should become clearer when you’ve got a holistic view of the data. After all, what’s revenue without profit and customers?
Logistics will focus on the time that it takes for an item to come back. Reducing the time it takes to receive an item back massively reduces cash flow risk and increases the resale value of returned item. For example, Nordstrom have a 2-hour target to get items back into stock for repurchase from the moment they receive them back as a return. Every hour counts if you’re focussed on improving your margin and cost.
Operations will own the project management overall, ensure that owners and stakeholders are meeting deadlines, and will be the ones responsible for curating the information required to provide the holistic and actionable insight.
Product will be responsible for listening, identifying and communicating how the meeting outcomes might shape their roadmap, and ensure that the roadmap is aligned to key priorities with the biggest impact. It’s way too common to find that this information sharing doesn’t happen, and the roadmap ends up being too set-in-stone to react to what’s really happening.
Step 5: Live the dream of having no returns and a perfect customer experience
Okay, not really. You’ll have to keep doing this work. There are always ways to improve! The honest truth is that most retailers have trouble even starting this process. The key is gathering the data and having the actionable insights to begin with. If your returns journey is happening out of sight of data and reporting, on paper slips and through calls to customer support or by untracked returns into stores, you’re simply not going to have the information you need to take action.
Unifying your returns experience in a digital, customer-friendly journey is the first and biggest step towards being able to do all of this effective and margin-accretive work on returns. One of the biggest lessons I’ve learned in working for and with retailers? These businesses are full of talented people with the capacity to make a difference and drive amazing results with the right tools – but they can’t work blind.