July 11, 2019
The Returns Black Hole: How retailers can stop returns eating into ecommerce profits
A dark void which pulls in everything it touches, affecting even time itself. A destructive force disappearing objects into oblivion, never to be seen again.
If this rings a bell, you’re probably at the centre of the Milky Way watching the black hole around which our galaxy rotates. Or you might just have a returns black hole at the centre of your ecommerce business.
Hyperbole aside, returns are definitely one of the biggest headaches for retailers. It would be bad if a chunk of your sales turned out to not really be sales at all. It would be worse if you had already wasted time moving products around and had to retrieve them. Unfortunately it’s worse than both of those, because increasingly you have to pay for the privilege of taking back your own goods and giving customers their money back. Free returns are fast becoming table stakes in ecommerce competition.
With margins online already thinner than in-store sales, retailers need a plan to effectively deal with returns, make them more profitable, and stay appealing to customers. Let’s be clear: this is a problem bigger than any blog post could ever fix! The aim here is to identify some starting points and key goals for retailers trying to overcome the black hole in their reverse logistics.
This post is part of our series on eCommerce Returns. Check out our master Guide to eCommerce Returns for a full insight on how to improve your customer experience and make returns more profitable.
Your customers don’t care about your problems
Sorry, but it’s true. Shoppers want to buy the right product at the right price, get it reasonably quickly (for the right price) and they want to know that if any part of this journey goes wrong, they won’t be too inconvenienced and definitely won’t be out of pocket as a result.
If something does go wrong (and yes, returns are still largely because something is wrong – more on that later) they have essentially no sympathy for your logistical challenges, carrier costs or out of stock times. They want to get rid of the product and be compensated.
Your customers largely don’t like to actually make returns either
Barclaycard research shows that 30% of customers intentionally over-purchase items, knowing they can return those they don’t want. 19% order multiple variations of a single item so that they can evaluate them in person and make the decision after delivery.
That leaves 70% of customers who are returning because they weren’t happy with the product they received. This simple fact can sometimes be obscured by reports on the trend of wardrobing and similar mass-return behaviours.
Recognising that returns are painful for customers is important for retailers. It should shape the customer journey you guide them through and inform the way you approach reverse logistics. Buying something which you aren’t happy with when it arrives is a terrible experience, but the returns process can really rescue that loss of faith in the brand.
Thinking about returns as a profit-generator
We all know returns are expensive and when you’re taking something back from a customer and refunding them, you’re not making money. But that doesn’t have to be true in the long term. Acquiring a new customer is expensive and you may not make that money back in one purchase – the hope is that a percentage of newly acquired customers will come back again and again, making the whole endeavour profitable. The same approach should be taken to returns, seeing it not as a cost centre but a driver of long-term value.
Almost 70% of shoppers in an online survey said that their latest returns experience was easy or very easy. 96% said that they would shop with the same retailer again based on that experience. Stated intention is not the same as actually repeatedly purchasing, but it’s a good indicator that consumers put a high value on the experience of returns.
Acquiring new customers is an expensive process, but retailers are more than happy to absorb that cost. In that context, the price of ensuring long-term loyalty by offering a convenient and fast returns process is more than justifiable – it’s actually very cost-effective compared to replacing a lost customer with a new one. The challenge is for retailers to see returns and logistics not as a cost centre but a profit generator.
That’s not all. Loyalty is a fantastic reason to invest in returns processes, but when we start to view returns as a part of the whole customer journey, there are identifiable opportunities for upselling and personalisation within returns.
A returns proposition centred on maximising profit
Once retailers start to view returns as a way to improve loyalty, brand perception and sales, there are further opportunities to create a returns proposition that recovers more of the lost revenue caused by returns.
Customers expect to be able to return items to the stores of the retailer they purchased from, regardless of whether they purchased the item online or in store. Setting up efficient and customer-friendly returns and collections areas in stores gives customers what they want and brings more customers into your stores – a win-win for improving convenience (and therefore long-term loyalty) and adding incremental sales and revenue recovery thanks to additional foot traffic in stores.
The value of customer data around returns is currently underappreciated. If a shopper is returning an item, 70% of the time it’s because it wasn’t right for their needs. Let’s say I wanted a dress shirt, but haven’t bought one for a while and got the wrong size. Now I need to return the wrong-sized item, but I still need a shirt. The majority of customers returning products are presumably still in the market for something similar to the product they’re getting rid of.
All the information a marketer needs is right here – but retailers struggle to put this together and create an effective selling strategy to recapture the sale. This could take the form of an email offering a discount on similar products or a notification that new products in the same category are now available.
Stepping stones towards a profitable returns operation
It can seem like an impossible goal in totality, but breaking down the required elements shows that most retailers are actually not so far from having a returns system that works for their customers and their long term profitability.
First and most importantly, retailers need a diagnosis of their current operations. Are customers satisfied with the returns options available? Does the returns process currently drive loyalty and reassurance for ecommerce customers? Operationally, is it sustainable in the long term to continue performing at this level?
Efficiency is vital to reverse logistics. Technology has a huge role to play, from moving away from paper-based systems to having a seamless platform for customer communications and returns data. These steps make the daily running of reverse logistics smoother and allow space for retailers to innovate in the customer experience and marketing aspect that will start to turn returns into a profitable department in the long and short term alike.